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IRON MOUNTAIN -- A state agency led Iron Mountain officials to believe the city was eligible for an $11.4 million grant to shore up its pension system, but it will actually be $3.24 million.
In a report Monday to the city council, City Manager Jordan Stanchina likened it to Lucy and would-be kicker Charlie Brown, saying the Michigan Department of Treasury yanked the football "right at the end."
The aid is through the Protecting MI Pension Grant Program, which was established in a budget bill passed in July 2022. The treasury department received $750 million to offer a grant program for qualified pension systems with a funded ratio below 60%.
Iron Mountain officials applied for relief for two pension systems listed as eligible by the state, but only the Municipal Employees' Retirement System of Michigan plan was approved for aid. That plan has an estimated liability of $13.5 million and assets of $4.9 million, making the city eligible for a grant of $3.24 million to bring the pre-funded level up from 36% to 60%.
A letter of approval granting the requested amount was sent by the treasury department July 28.
"It's definitely a head start to get us in the right direction," Stanchina said.
Meanwhile, a request for $8.2 million in relief for a supplemental pension was denied, even though it was included in the state's preliminary list of retirement systems eligible for aid. "I had my doubts from the start, but they continually advanced us through the grant funding process," Stanchina said.
The situation is complicated and unique, since a portion of the city's retiree health plan has been classified by the state as a supplemental pension. In 2021, the state reclassified part of the health plan as a supplemental pension because retirees can choose to opt out and accept a cash payment. In its application, the city reported its supplemental pension obligation at $13.6 million, entirely unfunded, and requested $8.16 million to bring the pre-funded level up to 60%.
Treasury's rejection letter states the claim was submitted for a plan "that does not meet the definition of a qualified retirement system."
Confusion remains because the state -- under the Protecting Local Government Retirement and Benefits Act of 2017 -- has classified the supplemental pension the same as any other pension system. Treasury since 2021 has required the city to strive toward a pre-funded level of at least 60% within 20 years for the supplemental pension, whereas the pre-funding requirement for health benefits is 40% within 30 years.
Stanchina sought clarification from the state agency a week ago but has yet to receive a response. "I'm not going to let that part go," he told the council.
Until a few years ago, Iron Mountain's retiree health benefits were funded mostly on a pay-as-you-go basis. In response to the 2017 legislation and guidelines set by the state, the city now contributes at least $239,000 annually to a retiree insurance trust fund. That amount would be about $100,000 lower if the city's corrective action plan fell entirely under the health benefits classification, Stanchina noted.
Although the MERS plan is also classified as underfunded, the city maintains it has always paid the recommended actuarial amounts annually.