Houghton County hears from MERS

HOUGHTON – Houghton County board members and employees heard ways to reduce the unfunded liabilities in their retirement system at an informational meeting Tuesday.

Terra Langham, Upper Peninsula manager for the Municipal Employees Retirement System, spoke at the special board meeting.

MERS holds employee contributions in a separate trust within its benefit portfolio. The fund has about $9 billion of assets.

As of 2012, the most recent year for which the county has statistics, the county had unfunded liabilities of about $8.8 million. The county’s funding percentage has dropped to 63 percent. Langham said of MERS’ 900 municipalities, “a good amount” of them were in the 60 to 80 percent range.

Because the county receives state revenue-sharing money, the Michigan Department of Treasury is requiring the county to file a plan on how it will decrease the county’s liability.

County Controller Eric Forsberg said the county pays about $900,000 to MERS each year – $350,000 for current payments and $550,000 on unfunded liabilities.

A large portion of the shortfall comes from the hit MERS took along with everyone in 2008, when it saw a 25 percent loss.

In subsequent years, that’s rebounded, with MERS having rates of return around 12 percent. However, 2008 is still included in its 10-year smoothed average, dragging the assumed rate of return down to about 6 percent. As a result, unfunded liabilities are still expected to increase slightly next year, she said.

“MERS assumes we’re going to have an 8 percent rate of return every year,” Langham said. “If that falls short, that’s going to have an impact.”

The county’s assets in the plan rose from $12.9 million to $13.4 million in 2008, Forsberg said. However, the actual value of the assets went from $13 million to $9.6 million because of MERS’ smoothing.

“That’s why we look worse each year, because they’re increasing our contribution rate to make up for that,” he said. “Instead of coming to us and saying, ‘We lost $3.5 million, we have to have it now,’ they’re doing the smoothing method.”

In the ’80s and ’90s, groups in MERS didn’t have to fund their benefit improvements right away, Langham said. MERS now requires municipalities that want to make benefit improvements to be either 80 percent funded and pay up-front, or be 100 percent funded to roll the cost into their plan.

“It’s a lot of different pieces,” she said. “It’s not just the fault of the county, it’s not just the fault of MERS, it’s a lot of different variables that have gone into that.”

New employees in the county are already being hired under a lower multiplier. However, Langham said, while that will reduce costs going forward, it probably won’t reduce unfunded liability.

Based on MERS’s actuarial projections, Langham said, if the county maintains the status quo, the unfunded liability would be eliminated in 26 years.

To speed up the process, Langham said the county had three options: pay in extra money, increase employee contributions while still paying the same employer contribution or bridge benefits to a lower multiplier.

Under the state constitution, any benefit decreases would only apply going forward, Langham said. For example, a person employed by the county for 20 years who is dropped down to a lower multiplier will still have that earlier level factored into their pension.

Commissioner Scott Ala said he sought advice from people from municipalities where the plans are fully funded. Their advice: “We need to put in more money, and the multiplier needs to be dropped now … and we can be rid of this.”

While he didn’t want to reduce benefits immediately, Ala said, he wants to start looking for remedies now.

“I can go back to ’06, and we were underfunded $600,000 in one year … so it wasn’t just ’08,” he said. “This has been ongoing for a long time, and it’s been the reluctance of this board to fund this program and change it, and we have to do it.”

Employees objected to potential benefit cuts, saying they’ve already made sacrifices, such as taking pension increases in lieu of raises.

“There’s nothing rock-solid in finance…” said Tom Rosemurgy, detective sergeant with the Houghton County Sheriff’s Office. “However, I would rather believe MERS and the professionals they have working for them, figuring this all out.”

Commissioner Anton Pintar and Chair Albert Koskela said they wouldn’t support a plan that asked employees to take benefit cuts.

“I have confidence in the 26-year plan that our pension will be fully funded,” Pintar said.