Traverse City News and Events

County Could Fully Fund Pension Debt Within Decade, Seeks Options For Leaving MERS

By Beth Milligan | June 25, 2020

Grand Traverse County commissioners Wednesday reiterated their commitment to an aggressive payment schedule that could fully fund the county's $99.7 million pension debt in 10 years – but expressed frustration with their pension provider, directing staff to explore the county’s options for leaving the Municipal Employees’ Retirement System (MERS).

County Administrator Nate Alger provided commissioners with an update on the county’s pension status, noting that the county is now 54 percent funded on its debt. Michigan law requires municipalities to pre-fund their pension plans at a minimum 60 percent level, a goal Grand Traverse County has been working hard to meet. Commissioners agreed last year to increase the county’s annual payment to MERS from a required minimum of $5.9 million annually to $7 million. That aggressive payment schedule should 100 percent fund Grand Traverse County’s debt within a decade based on MERS projections, according to Alger.

That timeline could be further accelerated by commissioners’ decision Wednesday to change a budget policy to direct even more payments toward the pension debt. Grand Traverse County has a $17.2 million fund balance as of December, or an approximately 34 percent unrestricted fund balance, according to Alger. County policy is to maintain a fund balance of 25 percent. Heading into budget planning for 2021 in the coming months, commissioners will need to draw down the fund balance by nine percent. The board agreed Wednesday that any excess funds should be distributed in three ways: 25 percent going to MERS as an extra payment above the county’s annual $7 million payment, 50 percent going to the county’s capital improvement fund, and 25 percent going to the county’s budget stabilization fund (a rainy day/emergency fund).

“Hopefully if we continue to do well on our budgets, we'll be able to contribute more funds to MERS,” said Commissioner Gordie LaPointe. He noted that funding the pension debt is the county’s most pressing obligation, saying that “we can lay everybody off…but paying the pension is non-negotiable. So I think that has to be a top priority.” While Commissioners Bryce Hundley and Sonny Wheelock opposed the fund balance policy change, saying they wanted to have the option to consider using excess funds for other county services, Chair Rob Hentschel agreed with LaPointe. “We'd be even farther behind (on the pension debt) if we didn't pay more,” he said. “Paying more is the only thing you can do to help."

While commissioners were generally unified on the overall importance of paying down the pension debt, they also expressed nearly unanimous dissatisfaction with MERS. Even with the county’s $7 million payment and a stock market boom in 2019, the county’s overall funded status remained nearly the same. While MERS reported a 13.41 percent market rate of return in 2019, the provider also “smooths” that rate out over a five-year period, resulting in a 4.77 percent smoothed rate last year. Alger acknowledges he was disappointed in that figure. “I would have hoped to see a larger increase in the smoothed funded level, but we don’t control that,” he tells The Ticker.

Some commissioners were more blunt in their reactions, with both LaPointe and Wheelock saying they “don’t trust” MERS and don’t believe the organization’s numbers. “If they were my financial planner, I’d be long gone,” said LaPointe. “They’re the financial planner of the county…and I don’t believe these numbers at all. If it was my money, I’d take a hard look at going elsewhere.” LaPointe said he’s tried in the past to get answers from MERS on various calculations and details related to the county’s plan, but would either receive responses weeks later or not at all. “It’s not rocket science to do these calculations,” he said. “I think we owe it to the taxpayers to see if there are other alternatives.”

Wheelock – who has sat on past commissions that also considered leaving MERS and has long expressed his frustration with the provider – echoed LaPointe’s remarks and reiterated his support for exploring options to leave. County staff said they had a thick technical document from MERS outlining a process for leaving the provider, but said it was such a significant move that they’d prefer having outside legal counsel review the document and provide an analysis on the county’s options. Wheelock said commissioners shouldn’t trust MERS to advise them on how to pull tens of millions of dollars in assets from the provider and agreed getting an “educated opinion about what our options are” was the best route. Wheelock made a motion to have staff seek outside guidance and schedule an upcoming study session on the topic – a motion approved by the board.

Following the meeting, The Ticker reached out to MERS representatives for comment. In an email, Communications and Retirement Strategies Director Jennifer Mausolf wrote that “as the plan’s fiduciary, MERS’ role is to help ensure that the assets within the Grand Traverse County retirement plan are adequate to provide for the retirement benefits of their employees. We stand ready to continue partnering with the county in addressing their unfunded retirement liabilities or to support them if they choose to transition away from MERS.”

Mausolf notes that MERS is a nonprofit organization that has “helped provide a secure retirement for municipal employees for more than 75 years,” adding that “transparency and responsiveness to our customers are a critical part of our organization’s focus and mission.” MERS is governed by an elected board that “operates without compensation,” according to Mausolf.

“We are subject to FOIA (Freedom of Information Act), just like our membership, and are proud of our track record of transparency, accountability, and fiscal best practices,” she wrote.

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