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County Officials Explore Creating State's First Pension Trust

January 11, 2017
County Officials Explore Creating State's First Pension Trust

Grand Traverse County officials searching for solutions to the county’s mounting pension debt want to explore creating a pension stabilization trust – a first in the state of Michigan.

Grand Traverse County is facing pension obligations projected at $62.3 million, according to a recent report from PricewaterhouseCoopers. Last June, county commissioners approved setting aside $5.1 million for a one-time payment to reduce the county’s long-term legacy costs. But officials have held off turning that money over to Municipal Employees’ Retirement System (MERS), the county’s pension provider, until negotiations are resolved over the county’s repayment schedule. Officials have also expressed concerns over MERS’ investment strategy for county funds, saying MERS’ projected returns are unrealistic and that the county is losing money due to risky portfolio choices.

“Their estimates of what they can do have been pretty high,” says Commission Chair Carol Crawford, who shares concerns expressed by other commissioners about MERS’ management of county assets. During a board review of the issue last year, Commissioner Sonny Wheelock vocalized frustration that Grand Traverse County continues to be “further and further in the hole” despite making its annual required MERS payments, saying “MERS is accepting no responsibility for this whatsoever.”

At a September West Michigan Policy Forum, County Administrator Tom Menzel also addressed the issue during a panel on municipal pensions. He noted the county’s portfolio lost nearly $500,000 in 2015 and paid out close to $200,000 in administrative and investment costs, a trend he said “cannot continue.”

Instead of putting another $5.1 million into what they believe is a volatile portfolio, county leaders want to explore instead placing those funds into a pension stabilization trust – an irrevocable trust outside of MERS that could be “invested in a more conservative manner,” according to Menzel. “We want to pay down our liabilities as soon as we can, but also there is an interest in protecting our assets from future market volatility.”

Under such a scenario, the county wouldn’t be withdrawing from MERS – it would continue to make its annual required payments – but it would maintain a separate asset base dedicated to “more stable investments” that could “act as a cushion” for the county’s budget, explains County Finance Director Jody Lundquist.

While some form of pension stabilization trusts exist in nearly two dozen other states, “it does not have a precedent here in Michigan,” says Lundquist. “It would be a new concept.”

Both MERS and Michigan Department of Treasury representatives indicated the trust would indeed be a first for Michigan. Both organizations expressed a desire to research the county’s plans in more detail before offering an opinion on the proposal. “It isn’t something that I’ve ever heard of,” says MERS spokesperson Jennifer Mausolf. “Without being able to see the details of the plan, we really can’t provide any comment at this time.”

Mausolf previously defended MERS’ management of county investments in an interview with The Ticker, saying the organization works “closely with our members to help them meet their financial goals” and that in addition to in-person investment updates, MERS provides “an annual actuarial report that provides information about the funding levels and projections.”

Lundquist says the timing for bringing a pension stabilization trust proposal to county commissioners for approval depends on a legal review of the plan. County officials still face a host of unanswered questions over how such a trust would work, including the terms by which it could be established, what types of investments the county could make under federal regulations, and who would be responsible for managing the trust. The county has hired legal firm Miller Canfield to review state law to determine the county’s options. The county has also begun informal discussions with the Michigan Department of Treasury about establishing the trust, according to Lundquist.

In the meantime, the county will continue to hold on to its $5.1 million, according to Menzel. “(Those) dollars will be reported as committed funds on the financial statements until we get the irrevocable trust questions answered,” he says.


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