Bills proposed to address underfunded pension, health plans

Associated Press

LANSING, Mich. (AP) — Legislation proposed Thursday would require municipal pension and retiree health plans to annually report their finances to the state, 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 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 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 is 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 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.

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

“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.

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