County moves forward with MERS amortization extension
MARQUETTE — The Marquette County Board unanimously voted to move forward with pursuing a Municipal Employees’ Retirement System amortization extension, which would allow more time to adjust its unfunded liability for employee pensions.
Commissioners Bill Nordeen and Johnny DePetro were absent and excused from the Dec. 19 meeting.
According to a 2015 valuation report, the estimated minimum required payment to MERS in 2017 should have been $6,560,952 for a phased-in employer contribution. County staff budgeted $4,395,684 — the same amount of funding for MERS that was budgeted in 2016. It is possible that even with an extended amortization period, the 2017 payment will be greater than the amount budgeted. A budget adjustment would be required.
In 2016, the county’s $4,395,684 payment to MERS equated to nearly 17 percent of its $26 million general fund budget.
MERS made three changes to its actuary formula in 2015 that constitutes the employer’s payment contribution to defined benefit plans.
Three changes included lowering the 8 percent investment rate of return assumption to 7.75 percent, adjusting the mortality rates table and adjusting the amortization period from a 30-year period to a 20-year period, according to a memorandum from the meeting.
As a result, yearly contributions to various municipalities throughout Michigan have increased significantly. Since many municipalities have been scrambling to come up with funds, MERS is allowing for a one-time option to extend the amortization period, which reflects the period of time payments are made to a municipality’s unfunded liability, with the goal of bringing the plan to a fully funded status by a specific date.
To be considered for the extension, MERS will review retirement plans for a fee.
Marquette County asked for a review of six of its plans. Five of them are eligible for an extension, according to Marquette County Administrator Scott Erbisch.
Erbisch said extending the amortization period wouldn’t alter promised benefits or change the ultimate cost of providing them.
“It does lower contribution levels in the short term by extending the period of time,” he said.
Commissioner Karen Alholm asked if the county could continue making the same payments as previous years.
“With this extension, could we (eventually) pay less?” she asked.
Erbisch said costs are anticipated to decrease over time and that with the proposed extension, Marquette County could continue to contribute at its current level. By having a reduced amortization, it would give Marquette County an option to reduce its contribution to MERS if it chooses to or if it’s required to increase its other post-employment benefits, or OPEB, funding.
The administrator’s 2018 budget plan states the 2018 general fund is $26,013,300; which notes a slight decrease from the original 2017 budget.
According to the budget summary, the county’s move from an accelerated amortization to a 15-year amortization for defined benefit plans allows the budget to include a change in the way the costs for its unfunded liability is allocated to departments, special revenue funds and the airport.
In addition, the budget includes a transfer of $400,000 to the OPEB reserve fund in 2018.
The current balance in the OPEB reserve fund is $2.7 million. The unfunded liabilities are $55 million. It is estimated that the move will reduce the unfunded liability by approximately $2 million.
Jaymie Depew can be reached at 906-228-2500, ext. 206. Her email address is email@example.com.