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Retiree benefits

Commission focuses on health coverage

Dave Campana

MARQUETTE — In an attempt to tackle a nationwide issue at the local level, the Marquette City Commission unanimously approved a resolution Monday pertaining to retiree health care coverage. Commissioners Paul Schloegel, Jenna Smith and Sarah Reynolds were excused from the meeting.

As many municipalities in the state face financial difficulties due to rising unfunded accrued liabilities for pensions and Other Post-Employment Benefits, or OPEB, recent legislation focuses on addressing the issue of local governments’ unfunded liabilities by prefunding them.

While the city has since eliminated retiree health coverage and subsidies for new hires, it still has an obligation to pay benefits for current retirees and some active employees, meeting notes state.

According to Marquette’s fiscal year 2018 budget, the city’s OPEB liability is currently 0 percent funded because it has always provided the benefits by using a pay-as-you-go method. The unfunded liabilities are currently estimated at nearly $8.19 million, the budget states.

In order to comply with Public Act 202 — the Protecting Local Government Retirement and Benefits Act — city staff recommended the establishment of a retiree health funding vehicle, offered through the Municipal Employees’ Retirement System, or MERS, a nonprofit retirement services company that partners with municipalities and their employees across the state, offering customized retirement options.

By establishing the funding vehicle, the city is setting up a Section 115 Governmental Integral Part Trust. Assets held in the trust are legally protected from creditors and may only be used for OPEB expenses. MERS has been determined by the Internal Revenue Service to be a tax-qualified governmental plan and trust, and all assets within MERS reserves are therefore exempt from taxation.

The retiree health funding vehicle will initially be funded from unused money budgeted for health coverage at the end of each fiscal year.

“Our plan to fund it is by using unspent health insurance premiums that we budget for during the year,” Marquette’s Chief Financial Officer Gary Simpson said in an email. “We offer an opt-out program for those employees covered by another health plan. So, any savings realized by the opt-out program will be going into the trust fund.”

According to Simpson, the Governmental Accounting Standards Board, or GASB, now requires municipalities to include OPEB on the forefront of its financial statements rather than “in the footnotes.” Simpson said GASB never required municipalities to fund the liabilities, they just asked that numbers be disclosed. Since the state’s recent legislation changed the rules, the liabilities now must be prefunded.

Mayor Dave Campana asked Simpson if prefunded monies would go into a big “state slush fund” or if it’s separated and dedicated to the city.

“This is a mechanism to prefund the liability and it is with our current retirement system, MERS, and we could have chosen another third party administrator but we have a good record with MERS and they have a good record of no-investment returns and that type of thing, and so this money will be kept completely separate. It is the city’s money and no matter what happens it will remain the city’s money and nobody can touch it,” Simpson said.

Commissioners Mike Plourde and Peter Frazier commended Simpson on the hard work he put into researching and determining a program for the city.

“Gary is always looking at these and between him and our city manager, Mike Angeli, they came up with the program and I appreciate that,” Plourde said. “Well done. It’s something we absolutely have to do.”

Frazier said it’s important to “take care of retirees” who have worked hard for the city, so the program is a “great thing.”

Simpson thanked them but said if it wasn’t for Director of Administrative Services Susan Bohor working “diligently in getting language changed in labor contracts” the process wouldn’t have been as smooth.

Notes from the meeting state that the resolution will be filed with MERS before it becomes legal. Upon MERS’s determination that all necessary documents have been submitted, MERS will record its formal approval upon the resolution and return a copy to city officials.

According to the MERS website, some advantages of the retiree health funding vehicle are that the city determines the contribution frequency and amount to the trust, the trust has been approved by a Private Letter Ruling from the IRS, earnings on assets will reduce long-term contributions and unfunded liability, and funding can contribute to a positive credit rating.

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