Pension liabilities discussed with no resolution

August 31, 2018

Bloomfield Township Trustees were presented with options on how to potentially fund defined benefit and Other Postemployment Benefits (OPEB) liabilities at their meeting on Monday, August 27, following new state-required actions that mandate the township will have to come up with money in order to fund shortfalls in each.

“Bloomfield Township has always been a pay as you go community,” supervisor Leo Savoie explained in beginning the discussion. “The state had set a threshold that any pay as you go community cannot go above 12 percent of its general fund; we're at 6.4 percent.”

However, in December 2017, the state legislature passed and Gov. Snyder signed into law Public Act 202, also known as the Protecting Local Government Retirement and Benefits Act, which requires local municipalities to report and have a collective action plan for each retirement pension benefits and/or retirement health benefits account to the state treasury. Communities must report each plan's funded ratio by specifying assets and liabilities; the annual required contribution, if it is a retiree health care plan; the actuarial determined contribution, if it is a retirement pension plan; and the local unit of government's annual governmental fund revenues.

The state treasury will then determine if the municipality is in “underfunded status.”

Criteria for underfunded status triggers at less than 40 percent for retiree health systems, and less than 60 percent funding of pension systems.

As of January 1, 2018, municipalities must develop collective action plans to show how they will get to a minimum of 40 percent funding in the next 30 years.

“Bloomfield Township is one of the worst in the state,” Savoie said, stating the township is one of the 15 worst municipalities in the state, with $161 million in unfunded liabilities. “Forty percent of that is $65 million in today's dollars. Between the two (funds),we're looking at between a $5-$6 million deficit, and there's nothing to suggest that will change.”

He said that state law requires the defined benefit plan, which was closed to new hires in 2005, to be 100 percent funded. The township has been fully funding that pension plan through pension obligation bonds which were done in 2013, with the funds placed in an equity fund to further raise money for the township. Prior to that time, the township was funding the defined benefit plan out of its general fund.

The OPEB health care fund was closed to new hires in 2011.

Township finance director Jason Theis explained that actuaries have suggested that if they contribute $10.3 million a year for 15 years, “assuming an increase in health care costs of four percent each year...we could be fully funded for the OPEB plan in 15 years.”

He said since floating the pension obligation bonds in 2013, they had been meeting the anticipated costs of the defined benefit pension plan, but in 2018, they received a surprise of an increase of $3.7 million due to an increase in demands on the plan.

“The conclusion is we should expect an annual contribution each budget year going forward, and we won't know what it will be until after the budget is approved,” Theis said.

“If you only wanted to fund the past service costs, it is $6 million; to only fund normal costs, it's $5 million,” Theis said. “To fund both, it's $11 million. To fund based on the state's recommendation of obtaining 40 percent (over 30 years), it's $2.5 million (a year).

“No one's telling us how to fund or when, so those are just some examples,” he said.

“We have enough funding in reserves to last us about two years. We have to come up with a solution to solve the shortfalls,” Savoie said. “This is a 40-50 year accumulation of promises that were never addressed. In the last week, I've met with every department, every employee group so they understand where we are. We met with Moody's back in July.”

Board members were advised they will need to work with department heads on potential long-term solutions.

Trustee Dave Buckley was concerned that he and other trustees do not have the skills and preparation to work with departments for long term cost-cutting.

Savoie said it was now a need. “Currently, there's no teeth, but they (the state of Michigan) could send in an emergency manager) to those municipalities who don't reach those liabilities. There's going to be a lot of cuts,” he said.

“Hopefully, in six, seven years, those pension obligation bonds will be paid off, and that will relieve some general fund expenditures,” Theis said.

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