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Questions remain in county rehire policy

Program began in 2004

September 4, 2009
By JOHN PEPIN Journal Staff Writer

MARQUETTE - Marquette County's controversial retire-rehire policy, which simultaneously allows employees to draw a paycheck and a pension, developed from a process which allowed workers to "opt out" of retirement benefits and return to work.

In a June 17, 2008, memorandum to the Marquette County Board, county administrator Steve Powers stated the impetus for the "opt-out" program was a change in pension rules by the Municipal Employees Retirement System of Michigan in May 2004. At that time, MERS repealed an annual earnings limit of $15,000 for MERS retirees returning to work for the same employer.

"After May 2004, and the suspension of the annual earnings limit, the employee could be rehired and receive his or her earned pension benefits along with his or her salary," Powers wrote. "This allowed the employer the option to continue to use the services of valuable employees."

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Attorney correspondence from MERS indicates MERS was created by the state legislature in 1945 and is a tax-qualified governmental plan for municipal employees, a pension trust under the Internal Revenue Service code. In August 1996, MERS was separated from state government by Public Act 220, becoming a statutory public corporation governed by the MERS Retirement Board. Marquette County adopted the MERS pension plan for county employees and elected officials in 1957.

MERS administers the pension plan according to a plan document and IRS rules. In June 2005, the IRS issued its most recent Letter of Favorable Determination of MERS as a qualified trust.

As a result of the May 2004 MERS pension plan change, Marquette County adopted a process allowing employees who were otherwise qualified to retire, and with the agreement of the county, to "opt out" of the MERS pension program and the continue employment with Marquette County.

"This policy made it clear that an 'opted out' employee would be ineligible for retirement contributions to MERS," Powers wrote. "This policy also made it clear that elected officials (who) were eligible to retire could also 'opt out' and the employer contributions to their retirements plan would cease."

The minutes from a Nov. 9, 2004, county board committee-of-the-whole meeting state that "if a county employee chooses to retire, and the position is replaced, Marquette County would be paying the health insurance premium for the retiree and the new employee. By an employee continuing to work, Marquette County postpones the retiree health insurance and the need for a new employee."

Powers recommended the "opt-out" policy to the county board. At that Nov. 9, 2004, meeting, the board unanimously approved recommending the county board adopt the policy, which it did on Nov. 16, 2004, according to board minutes.

One of the hopes of the new policy was helping to balance the 2004-05 county budget. For 2005, as a result of the policy, Marquette County's MERS contributions were reduced by $135,000, and additional savings were also realized, according to Powers.

Prosecutor Gary Walker said this week Powers had provided departments with targets necessary for 2005 budget cutting, with the prosecutor's office slated to cut about $28,000 from its budget.

"There's no way I would have been able to cut that much without having to let someone go," Walker said.

But with Walker deciding to take the opt-out, he said his office saved $34,000 that year. A total of 12 employees, including eight bargaining unit workers, three non-union employees and elected official Walker initially enrolled in the opt-out program.

After MERS made its May 2004 pension plan change, employers began to ask what was the minimum length of time necessary, if any, between employees retiring and being rehired so a "bona fide severance of employment could occur." The MERS plan required members to terminate membership before the date of retirement, but specified no time period. The severance was required by IRS rules.

In February 2005, MERS issued a change requiring at least 30 days between retirement and rehire. Without the 30 days, payment of pension benefits "could imperil MERS qualified plan status and the rehired individual's receipt of benefits while re-employed subject to suspension by MERS," according to MERS legal correspondence.

Notice of this new change was sent to all MERS employers electronically on Feb. 2, 2005. One week later, county civil counsel Cheryl Hill notified MERS of the county's opt-out program. By that time, eight of the 12 employees had already terminated their MERS membership, including Walker. The remaining four, which were bargaining unit employees, had chosen dates for terminating their MERS memberships in the near future.

"The program was put in place at a time when the MERS Plan Document did not specify a 30-day severance period between termination of MERS membership and subsequent re-employment by the county," wrote MERS chief general counsel Michael J. Moquin in a July 23, 2008, letter.

Under the circumstances, the county acting in good faith, and the 30-day severance in place for the future, Moquin said he determined the 12 members in Marquette County's opt-out program would be considered "bona fide retirees" upon their re-employment.

In that 2008 letter, Moquin wrote "the county is to be commended for acting in a forthright and proactive manner in bringing this matter to my attention in February 2005 so that the circumstances and situation could be timely and prudently evaluated, and that was done at that time."

Powers wrote that, "because of the MERS comment regarding complete severance for 30 days, the 'opt out' policy was revised and renamed 'rehire program' to include the 30-day severance. Under the rehire program, any MERS retiree who is re-employed by the county is barred from further MERS membership during re-employment."

Hill advised the county that after the 30-day severance requirement was implemented, the rehire program could no longer apply to future elected officials.

"No board action was requested on the rehire program because the board had already approved the policy of allowing employees to draw a MERS pension and work for Marquette County," Powers wrote. "The rehire program is more restrictive than was the 'opt out' policy."

When the board voted in Nov. 2004 to approve the opt-out policy, a provision in the text may have indicated an intention to allow future changes to the policy.

That wording stated, "Approval of the policy will allow implementation of changes." Hill is currently researching the intent of this provision.

Of the original 12 opt-out county enrollees, nine are still employed by the county. In addition, Marquette County Human Resources and Risk Manager John Greenberg provided a list to The Mining Journal this week of 18 employees currently working under the re-hire program. As of June, the county had 240 regular positions, with the 27 total rehires comprising 11 percent of the workforce.

After that first year of county budget savings with the opt-out program, it has been much more difficult for the county to precisely determine savings from the program. In 2006, MERS changed the way county contributions were determined and the amount of annual contributions has increased. The program has resulted in unfunded liabilities the county is working with MERS to recover.

Powers and an ad hoc committee - which met five times since December 2008 to explore the rehire program - have concluded an actuarial study would be necessary to conclusively determine whether the county is currently saving money with the program.

Greenberg said this week MERS personnel were preparing a list of actuarial assumptions which would be used for such a study. Greenberg said MERS estimated the study cost at between $5,000 and $15,000. To date, the county board has not requested that study be completed.

The board is currently awaiting a response to a July 7 letter Hill wrote to MERS legal counsel on behalf of the board, asking for reassurance the county's program meets all IRS requirements, including specific scenarios outlined for elected officials and those who leave their jobs with an expectation of returning.



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