Gov. Snyder's task force on retirement reform for local government proposes recommendations for unfunded pension and retiree health care liabilities

Greater reporting and transparency, development of a fiscal stress system, new funding requirements necessary for long-term stability

Tuesday, July 18, 2017

LANSING, Mich. – The Responsible Retirement Reform for Local Government Task Force today released a report of recommendations it presented to Gov. Rick Snyder. The proposals are focused on addressing Michigan's mounting local pension and health care costs, ensuring retiree support, and providing more financial stability and effective delivery of local government services.

Snyder announced the creation of the task force in his January 2017 State of the State address.

"Municipalities across Michigan and the nation are facing growing, unfunded long-term liabilities that jeopardize the quality of life in our communities, along with the retirees and employees who depend on these benefits," Snyder said. "This is why I asked legislators, state and local government officials, employee representatives, and pension managers and insurance professionals to work together to determine how we can best reform local government pension and health care in Michigan. I thank the task force members for dedicating their time to this pressing issue and look forward to reviewing their recommendations and working with the Legislature to implement reforms."

While the task force's 20 voting members and four ex-officio members agreed upon principal understandings and concepts to find consensus on four major recommendations, there were some issues task force members discussed but did not find agreement on or determined further examination was needed.

“I would also like to thank the members and staff of the task force,” State Treasurer Nick Khouri said. “A few broad principles are clear. Unfunded retiree benefits are growing and need be addressed now. The solution must balance the commitment to employees and a local government’s obligation to all of its residents. But the problem varies across the state, so solutions need to recognize these differences.”

Of the report’s recommendations, the task force proposed the State of Michigan prioritize the following four reforms:

• Greater reporting and transparency must be required of all local units to ensure a full understanding of the size and scope of the problem, as well as where the biggest challenges exist. This includes reporting using uniform financial assumptions to allow for better comparisons.
• A pension and OPEB fiscal stress test system for local governments should be created to alert and assist local units in crafting solutions to best position them to continue to serve their residents, while funding their obligations and protecting benefits for employees and retirees. This system should identify and focus action on the local units experiencing the greatest fiscal stress.
• This system, along with the creation of a new Municipal Stability Board (MSB), should assist in the review of a local unit’s finances and the development of a corrective action plan. The MSB should also provide research, training and technical assistance.
• In addition to meeting existing constitutional and statutory requirements to pay pension costs, going forward all local governments should meet a minimum requirement to pay OPEB normal costs for new hires if offered, for example by prefunding new active employee’s current-year obligations.

The full text of the report is available here.

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