Snyder task force wants municipalities to prefund retiree care for new hires
LANSING — Michigan should require municipalities to prefund new hires’ retiree medical costs and help local governments facing substantially underfunded pension and retiree health obligations, a task force created by Gov. Rick Snyder said Tuesday after failing to agree on potential benefit cuts and other issues.
The group of 20 voting members was formed in February to study unfunded liabilities at the local level — $10.1 billion for retiree health care in roughly 340 municipalities and $7.5 billion for pensions in nearly 600 communities. The Republican governor established the panel after legislation that would have reduced retiree health benefits for police, firefighters and other municipal workers died last year.
The task force agreed on recommendations such as creating reporting requirements and a state “fiscal stress test” to identify municipalities with substantial retirement funding problems. But members were at odds over what oversight powers a proposed Municipal Stability Board should have in the multi-stage process.
They agreed the board of state and local appointees should review local governments’ proposed fixes if the state Treasury Department determined a problem existed, but opposed letting the board impose benefit changes if the corrective action failed or was not adopted. The task force cited concerns about interfering with collectively bargained labor contracts.
Members also discussed but could not agree on contentious proposals such as giving new employees a 401(k)-only benefit instead of a pension, capping multipliers used to calculate pensions and offering new hires a stipend for health costs instead of insurance.
In a statement, Snyder said local governments’ unfunded liabilities are a “pressing issue” and he looks forward to implementing reforms with the GOP-led Legislature, which will return to session this fall.
The task force included legislators, union leaders, municipal officials, business executives and retirement experts. Four members of the Snyder administration served as non-voting members.
The group said most local governments pay retiree health care liabilities on a pay-as-you-go basis instead of prefunding them like with pensions. Many retiree health systems are poorly funded, the task force said, because of accounting rule changes, demographic forces, rising medical costs and stagnant tax revenues.
It recommended prefunding the normal ongoing costs of retiree health care for new hires but stopped short of suggesting similar moves for all active employees, citing cost concerns.
Local officials had a mixed response to the report .
Michigan Association of Counties Executive Director Steve Currie, a task force member, said there is no “overnight fix” and the study rightly concluded that a one-size-fits-all approach would not work.
“We need to start with a system that identifies the governments struggling with legacy costs, as is urged in the report,” he said.
But the Michigan Municipal League, which represents cities, urban townships and villages, expressed disappointment.
“The League was hopeful that this work would have culminated in a real solution that would address what we believe to be one of the biggest threats we are facing at the local level,” said chief operating officer Anthony Minghine, another participant in the group. “We strived to form a plan that balanced a desire to reduce costs while maintaining a quality work force. Regrettably, this report falls short of these goals.”
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