The House this week – with bipartisan support – approved pension and retiree healthcare liability reforms designed to ensure the promises made to local government employees and the fiscal stability of Michigan communities.
The reforms are based on policy recommendations contained in Governor Rick Snyder’s Responsible Retirement Reform for Local Government Task Force report.
“The initial legislative package that was introduced in the House went far beyond the scope of what the task force recommended,” said state Representative Martin Howrylak. “I opposed the package as introduced because I believe local governments should have the flexibility to make decisions that are in the best interest of their communities. As such, I was pleased to work with my colleagues to advocate for legislation that better reflected the task force’s suggestions.”
Michigan communities have roughly $7.46 billion in unfunded pension liabilities and $10.13 billion in unfunded health care liabilities. In response to this growing problem, Governor Snyder developed a task force comprised of policymakers, employee representatives, pension managers and insurance and accounting professionals committed to develop policy solutions to address this complex issue.
The task force’s report acknowledged greater transparency and accountability is needed and agreed that a stress-test system should be developed to measure the community’s ability to fulfill promises made to employees while maintaining vital community services. In addition, the task force advocated for a Municipal Stability Board to provide technical assistance to local governments in reviewing their finances and developing corrective action plans.
In light of the concerns expressed by members of the House, the bills in this package were rewritten to follow the task force’s policy recommendations. If this new package is signed into law, all local governments would be required to report pension and retiree health care liabilities to the Department of Treasury. Treasury officials would be responsible for flagging local units that are not funding their pension liability at 60 percent or failing to fund their other post-employment benefit (OPEB) liability at 40 percent. If further action is needed, a local unit would be required to submit a corrective plan of action to a Municipal Stability Board. This body would be composed of a state official, a local government representative, and a local employee representative appointed by the governor.
A local government flagged for underfunding would be required to keep submitting plans of action to the Municipal Stability Board until the board signs off on a plan that will address the municipality’s underfunded pension and/or OPEB liability.
As a result of the changes made to the bill package, the legislation was passed with overwhelming bipartisan support Dec. 7.
“I supported the final product that followed the task force’s recommendations because I believe this legislation will provide flexibility and valuable resources to help local governments achieve fiscal stability,” said Rep. Howrylak.
The Senate passed similar legislation on Dec. 7. In order for the reforms to become law, the Senate and the House must pass the same bills.
For more information regarding the Responsible Retirement Reform for Local Government Task Force visit the following webpage:
Note: The House legislation: House Bills 5298, 5300, 5301, 5303, 5304, 5305, 5306, 5307, 5308, 5309, 5310 and 5013.