From the agenda, it appeared the Monday meeting for Lowell City Council might wrap up in record time. No old business and only two items of new business were listed for discussion.
The first item – a resolution of intent to create a Brownfield Redevelopment Authority – was passed unanimously and without discussion. However, the second item, listed as the “MERS Actuarial,” involved a lengthy presentation on potential problems with the city’s employee retirement fund.
Pension System Under Funding Strain
City Manager Mike Burns started his presentation with an overview of the City of Lowell retirement system.
The city operates under a defined benefit system which awards pensions based on a formula that takes into account a worker’s income and years of service. These pensions are paid out of a fund held by the Municipal Employees’ Retirement System of Michigan, otherwise known as MERS. Money in the fund comes largely from the City of Lowell although city employees make a 7 percent contribution.
Under state law, the city is supposed to have its retirement system 100 percent funded based on a 30-year amortization schedule. Cities with systems that are funded at 60 percent or less may be subject to corrective action from the state. In 2017, the City of Lowell pension system was 64 percent funded, a decline from 65 percent in 2016 and 77 percent in 2010.
Burns explained that one reason the percentage has dropped so significantly since 2010 is because MERS lowered the rate of return it uses to project a fund’s balance. In 2015, the MERS rate of return was reduced to 7.75 percent. However, it should be noted that the actual rate of return the city receives doesn’t always match the MERS rate and has been less than 7.75 percent in some recent years.
According to the figures shown by Burns, the city may be in danger of dropping below 60 percent in 2021. He says that a recent increase in employee contributions from 5 percent to 7 percent should help buoy the city’s fund, but significant gains in the funded percentage might still be years away.
Addressing the Unfunded Liability
Burns said his presentation was mainly for informational purposes but that City Council could take a number of actions, including ending the traditional pension system, going forward.
“I thought we talked about it here eight or ten months ago, and we were no longer doing a defined benefit,” said councilmember Greg Canfield, noting that traditional pensions have all but disappeared in private workplaces.
“No, nope. We still do defined benefit,” Burns replied. The city manager earlier stated that the city had looked into moving to a 401(k) system but found the short term costs associated with closing the pension system were more expensive than keeping it.
“I just don’t see how it can cost more to get off the bandwagon than stay on it,” Canfield said. The city councilmember also said he wasn’t trying to take away any benefits from current employees.
While pension obligations for Lowell Light and Power are included in the city’s MERS actuarial report, the utility already made changes to its retirement system in 2012. Current employees were grandfathered into the traditional pension system while new hires moved to a hybrid system.
Other Meeting Notes
During council comments, Canfield noted that the trail from Gee Drive to Main Street, along Alden Nash, is finished. Local contractor Ryan’s Excavating was able to complete the job more than $25,000 under budget thanks, in part, to a retaining wall that didn’t need to be as high as expected. The trail was paid for by the Lowell Area Recreational Authority and not the city.
Assistant City Manager Rich LaBombard noted mayflies are out in full force near the Grand River. The lights on the Hudson Street bridge will be turned off for several nights in the hopes of limiting the number of mayflies attracted to the roadway.
At the end of the open meeting, City Council went into a closed session “to consult with its attorney regarding trial or settlement strategy in connection with Francis v. City of Lowell.”
The next regular city council meeting will be held on Monday, August 6, at 7pm in Council Chambers.
Editor’ note: This article has been updated to reflect that, using current assumptions, the earliest the city pension system could fall below the 60 percent funding level is 2021, not 2019.