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IM and CF may benefit from state retirement grant funds

IRON MOUNTAIN — A state program aimed at stabilizing underfunded municipal pension and retirement health benefit systems could provide a payment of about $1 million or more to the city of Iron Mountain, council members learned this week.

City Manager Jordan Stanchina said $35 million is available statewide for eligible communities. According to a preliminary list prepared by the Department of Treasury, Iron Mountain and the city of Crystal Falls are the only Upper Peninsula municipalities that qualify.

The MI Local Retirement Grant Program was funded in the state’s 2023-24 fiscal year budget. It is limited to governmental units whose pension and retirement health costs exceed 22% of their general fund operating revenues, based on 2021 figures.

In Iron Mountain’s case, total annual retirement costs of $3.79 million represented 41% of general fund operating revenues in that year. The city, then, would be eligible for a payment of $1.762 million to lower the cost to 22% of revenues.

Stanchina, however, noted the preliminary list shows $58 million worth of funding needs, which exceeds the $35 million available. If the funding is prorated, he expects the city could receive about $1 million.

Under Treasury’s timetable, claims are due July 20 and grant funds will be dispersed by Aug. 31.

Although the anticipated payment is substantial, council member Kyle Blomquist noted it’s a fraction of what’s needed. While the city began phasing out retiree health for new employees in 2009, an actuarial study estimates a legacy cost of $36 million, mostly unfunded.

“Although a lot of work has been done to lower these costs there is more needed to lower the percentage of the general fund being used for retirement costs,” Stanchina said in a memo to the council. “One of the items being discussed during bargaining is looking at ways to provide equivalent health insurance coverage to all employees and retirees at a reduced cost. It is a complicated issue but there are some potential options being explored.”

Statewide, only the city of Saginaw — at 42.7% — was paying a greater percentage of its operating revenues to retirement costs than Iron Mountain in 2021, Treasury data shows. The city of Flint is eligible for the highest payment through the program — $19.7 million if it isn’t prorated. Crystal Falls could receive a maximum of $118,946.

Last year, communities in the Upper Peninsula received $39.25 million of the $533 million in Protecting MI Pension Grants delivered to aid underfunded pension systems. That program was funded in the fiscal year 2022-23 budget bill and didn’t cover retirement health benefits. Grants were awarded to qualified pension systems with a prefunded ratio below 60%.

The city of Norway received $3.73 million, which was the most in the U.P., while $3.24 million went to Iron Mountain. Also receiving payments were the Dickinson County Road Commission, $1.28 million; and Dickinson County, $55,783.

Recipients in Iron County were the Iron County Road Commission, $851,132; city of Iron River, $629,183; city of Crystal Falls, $346,242; Bates Township, $70,846; and Gaastra, $23,597.

Iron Mountain unsuccessfully sought an additional $8.16 million for a supplemental pension system that appeared to meet the program’s guidelines. The state considers part of the city’s retiree health plan a supplemental pension because retirees can choose to opt out and accept a cash payment. With an obligation standing at $13.6 million, entirely unfunded, Iron Mountain requested $8.16 million to bring the prefunded level up to 60%.

Treasury’s rejection letter stated Iron Mountain’s supplemental plan “does not meet the definition of a qualified retirement system.” Confusion remained, however, because the state since 2021 has classified the city’s supplemental health pension the same as any other pension system defined under the Protecting Local Government Retirement and Benefits Act of 2017.

According to Stanchina, the state requires Iron Mountain to strive toward a pre-funded level of at least 60% within 20 years for the supplemental pension, whereas the prefunding requirement for health benefits is 40% within 30 years.

The highest Protecting MI Pension Grant statewide was $170 million for the city of Flint’s Municipal Employees’ Retirement System of Michigan plan.

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