ISHPEMING — The Ishpeming City Council is taking steps to correct a projected pension funding shortfall by asking to close its current pension plan to new hires.

The council, at a special meeting Jan. 22, passed a resolution stating its preference to close the defined benefit plan offered through the Municipal Employees Retirement System, or MERS, to new unionized employees. Instead, the council wants to offer only a defined contribution plan to new employees in its department of public works and city hall union, who are represented by the American Federation of State, County and Municipal Employees Council 25.

The motion was made by Mayor Karl Lehmann and supported by Councilor Lindsay Bean “to respond to the AFSCME union’s offer and remain firm with the position” to close the defined benefit plan and offer the alternative.

Like many state municipalities, the city currently participates in a defined benefit plan through MERS, wherein employees are promised a defined amount based on their salary and length of service funded by the city as the employer, employee contributions and investment earnings.

State and local units of government have increasingly been replacing the defined benefit pension model with what is known as a defined contribution plan — where an employee gets exactly what he or she and the employer put in, plus or minus market performance — in an effort to reduce their pension liability.

AFSCME Council 25 staff representative John Thomas said he was aware of the council action but could not comment until he met with union members to discuss the matter.

City Manager Mark Slown said it is important to note that city leadership is not attempting to negotiate the terms of current union contracts.

“It is common practice for the union and management to enter into letters of agreement to resolve a specific issue,” Slown said. “In this case it has to do with (the fact that) Public Act 202 requires us to do a report on our pension fund — that’s due in March.”

Ishpeming is one of just over 100 local units of government facing renewed scrutiny under Public Act 202, which passed the Michigan Legislature in December 2017.

The act implements recommendations from the Responsible Retirement Reform Task Force to address unfunded pension and retiree health care liabilities in the 600 cities, villages, townships and counties in Michigan that provide those benefits to their employees.

Under the law, a municipally held employee pension system that is less than 60 percent funded and requires an annual contribution which constitutes more that 10 percent of the municipality’s general fund operating revenue would fall into an “underfunded status.”

Ishpeming is facing just such a situation.

Slown said the city is currently committing 13 percent of its operating revenues toward pension liability and the pension is only 51 percent funded.

“The big picture is there is $8 million of unfunded liability in our MERS plan,” Slown said during a Jan. 24 phone interview. “It is going to be difficult, if not impossible to fund that gap, so we have to find something different that can be done.”

Ishpeming is by no means alone. According to the Mackinac Center for Public Policy, which has published many studies and articles on public employee pensions, pensioners are the largest group of creditors that governments have.

A Michigan Department of Treasury report shows several Marquette County municipalities are likely to face the same scrutiny as Ishpeming.

Forsyth Township’s pension plan is 52 percent funded, the Marquette Board of Light and Power is 57 percent funded, the Marquette County Road Commission is 44 percent funded, and the city of Negaunee is 55 percent funded.

Current pensions, Slown noted, cannot be reduced, according to the Michigan Constitution.

“The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby,” the constitution states.

MERS Regional Manager Terra Langham said she has met with city officials several times over the past 12 months to help the city find a solution.

“We have come up with several different action items for the city,” Langham said. “In the end, it’s something they have to negotiate (with the union).”

Lisa Bowers can be reached at 906-228-2500, ext. 242. Her email address is lbowers@miningjournal.net.