Determining Underfunded Status

How is preliminary underfunded status determined for primary governments (cities, villages, townships, or counties)?

This can be found in Section (5)(4) of the Act and is summarized as follows:

• For Retirement Pension Plans: A preliminary determination of underfunded status is made if the plan’s total assets are less than 60% of the plan’s total liabilities (assets/liabilities < 60%) and the ADC is greater than 10% of total governmental fund revenues (ADC/Revenues > 10%);
• For Retirement Health Care Plans (OPEB): A preliminary determination of underfunded status is made if the plan’s total assets are less than 40% of the plan’s total liabilities (assets/liabilities < 40%) and the ADC is greater than 12% of total governmental fund revenues (ADC/Revenues > 12%).

How is preliminary underfunded status determined for authorities, districts, and other local non-primary governments?

This can be found in section (5)(4) of the Act and is summarized as follows:

• For Retirement Pension Plans: A preliminary determination of underfunded status is made if the plan’s total assets are less than 60% of the plan’s total liabilities (assets/liabilities < 60%);
• For Retirement Health Care Plans (OPEB): A preliminary determination of underfunded status is made if the plan’s total assets are less than 40% of the plan’s total liabilities (assets/liabilities < 40%).

What happens if a local government is given a preliminary underfunded status determination? 

If a local government is notified by Treasury that they have been determined to be preliminarily underfunded, the local government may apply for a waiver under Section 6 of the Act. In general, local governments must submit a plan that is approved by the governing body that shows that the underfunded status is already being addressed. Examples of governing body approval include signed minutes, signed draft minutes, excerpts of the minutes signed by the clerk, etc. The waiver application can then be submitted to Treasury. Waiver applications and criteria can be found on the Forms and Instructions section of our website.

Are uniform assumptions used to trigger underfunded status?

No.

 What are uniform assumptions used for?

Uniform assumptions are used for reporting purposes only.

What happens if the numbers reported using uniform assumptions indicate that my local government is underfunded?

Underfunded status is determined solely based on the numbers found in the local government’s audited financial statements. Numbers reported using uniform assumptions are for reporting purposes only.