City Council working to fund tens of millions of dollars in unfunded promises made by former Councils
(Wednesday - September 08, 2021 - 10:17) - As is the case with many
municipalities, the City of Iron Mountain finds itself with tens of
millions of dollars of unfunded retirement benefits, the result of
promises made by City Councils long since forgotten.
However, the promises made by those Councils must be honored, since they became part of the City's contracts with employees.
The scenario was always pretty much the same: In lieu of pay raises, the Councils promised ever bigger and better retirement benefits. But, they provided no money to fund those promises.
Now the City finds itself in the position of having to fund those promised benefits. These were the words of Iron Mountain's City Manager, Jordan Stanchina, as he informed the Council of the current situation:
"After reviewing numerous scenarios, I believe there is a way to make additional contributions that will comply with the requirements of P A 202. First, I have proposed that the City establish a Retiree Health Insurance Trust Fund which would hold the pre-funding contributions. Based on my calculations (attached), the City would have to contribute $139,000 a year for 30 years with a 7% rate of return, to accumulate $14,049,153. This amount would comply with the 40% funding in 30 years requirement and would be manageable within the existing budget constraints. The first four years of contributions can come from the already existing Health Insurance Fund."
"The original OPEB (other post employment benefits - primarily health insurance) included those that receive or will receive retiree health insurance and those that receive or will receive a payment for opting-out. In the last year, it was determined that the unfunded amount for those opting-out, must be reclassified as a Supplemental Pension."
"Unfortunately, the "Pension" designation changes the funding requirement from 40% in 30 years to 60% in 20 years. This change greatly increases the amount of money that will be needed on an annual basis."
"The Supplemental Pension is calculated at $11,229,601 and 60% of that would be $6,737,761. The Investment Calculator attached shows that beginning with FYE 2023, an additional $136,534 annually will needed to be invested in the OPEB Trust. The $139,000 contribution, already agreed to, will go down slightly since some of the unfunded liability was transferred to the supplemental pension. I anticipate that starting with the FYE 2023 the combined contribution for the supplemental pension and the OPEB liability will be $239,000 or approximately $1 OOk more than the current payment."
"I would recommend approval of the Supplemental Pension Corrective Action Plan and Resolution."
Based on that recommendation, the Council adopted a resolution, committing the City to making the required payments to the State.
During the past decade, many changes have been made in City retirement policies, drastically reducing the employee retirement benefits. While this will help keep the debt from rising, it can have no effect on those who have or will retire under the former benefit schedules.