Bills proposed to address underfunded pension, health plans

LANSING — Legislation proposed Thursday would require all municipal pension and retiree health plans to report their finances to the state every year, and severely underfunded systems could ultimately be forced to make changes by state appointees.

The bills, introduced in both the Republican-controlled House and Senate and backed by Gov. Rick Snyder, are designed to ensure that local governments start adequately address billions in unfunded pension and health care liabilities, according to GOP legislators. Democrats and police and firefighter unions, which had been concerned about potential benefit cuts, were studying the 16-bill package and had no immediate reaction.

The legislation does not go as far as more sweeping bills — which died a year ago — that would have prohibited new municipal workers from qualifying for health insurance in retirement, made retiree health benefits a prohibited subject of collective bargaining and forced current retirees to pay more for health care. But the bills could still face resistance given their interplay with Michigan’s law that allows state emergency managers to run financially distressed cities.

Under a five-stage process, communities with significantly underfunded retirement plans would have to submit planned “corrective actions” to a new Local Government Retirement Stability Board comprised of three gubernatorial appointees. If the board rejected the plan or a local government could not agree on a proposal, the state treasurer would declare a financial emergency and appoint a three-person team to act as an emergency manager — with “broad powers” to rectify the underfunded status. The team, however, could choose not to impose measures if it decided they would “directly endanger the health, safety, or welfare” of residents.

Initially, a retiree health plan would be deemed inadequately funded if it was not at least 30 percent funded and costs the municipalities more than 10 percent of general fund spending. A pension plan would have to be at least 60 percent funded. The minimum thresholds would rise over time. The treasurer would issue a waiver from an underfunding status if the debt is being adequately addressed. Otherwise, the state board would become more involved.

“If we don’t fix this problem now, communities with dangerously underfunded retirement systems could go bankrupt and fail to keep promises made to retirees,” said Republican Rep. Jim Lower of Cedar Lake. “This plan heads off that problem and gives local governments a warning system to prioritize and safeguard the benefits retirees and current employees expect.”

The introduction of the legislation came a day after hundreds of law enforcement officers and firefighters protested at the Capitol in support of their retirement benefits. Legislative hearings will begin next week.

Senate Majority Leader Arlan Meekhof, a West Olive Republican, said the bills would give local governments and their unionized employees an incentive to ensure retirement obligations are met.

“Why would a local community want somebody to have to come in and tell them what else they need to do to solve their retirement problem? They don’t want that,” Meekhof said.

The nearly 600 local governments that offer pension plans have unfunded liabilities totaling $7.4 billion, and 180 have funding ratios below 60 percent, according to a July report from a task force created by the Republican governor. The roughly 340 governments that provide retiree health care have $10.1 billion in unfunded liabilities, with average funding ratios of 19 percent.

Meekhof said retiree plans are “working just fine” in many communities, but he estimated that 20 to 30 plans are in “severe trouble and they’re going to need a lot of attention. Some of those can be saved and rectified as well.”

During Detroit’s bankruptcy, thousands of people had their pensions cut and health coverage replaced with a monthly stipend to buy insurance through the federal exchanges.