Lansing gets $11,551,892 state grant

October 28, 2023

Lansing is getting $11,551,892 from the State of Michigan to help catch up on its underfunded pensions. The grant is through the Protecting MI Pension program. There was a story about it September 24 in Michigan Capitol Confidential, a publication of the conservative Mackinac Center. The official description of the program is here on the state's website. It contains a link to a list of the grant award approvals.

The program will distribute a total of $553 million to municipalities with pension funding ratios under 60%. Actually, it goes to pension systems rather than municipalities. Lansing has two retirement systems, Police & Fire and ERS (Employees Retirement System). Since ERS' funding ratio is 56.9%, it gets the entire $11,551,892. It is the amount required to bring the funding ratio up to 60%. Police & Fire's funding ratio 65.9%, so it gets nothing. The following is from the application form:

Qualified units for the Michigan Local Pension Grant Program may request a grant award amount not to exceed an amount equal to the amount necessary to achieve a funded ratio of 60% or the grant award cap of $170 million, whichever is less, as reported on their most recently submitted financial statement audit as of December 31, 2021.

ERS' unfunded actuarial accrued liability is $134,654,805. Police & Fire's is $170,618,241. This is for pensions only, not retiree health care.

Here is the mayor's letter announcing the award:

The mayor makes it sound like the grant is an honor. It is not; it means that the Employees Retirement System is among the most underfunded in the state. In accepting the grant, the system must be subject to corrective action plan monitoring by the state municipal stability board for 5 years. (Public Act 166 of 2022, Section 979(a)(2)(e))

The letter is from the minutes of the August 15 retirement board meeting.

There is also this from the November 21 minutes:

ERS' 56.9 funding percentage is actually up from a low of 51.7 in 2019. Here is the funding history going back to 2001:

As of December 31:	Percentage Funded
2001	89.5%
2002	89.6%
2003	90.2%
2004	89.1%
2005	85.9%
2006	83.0%
2007	82.0%
2008	77.7%
2009	73.7%
2010	69.6%
2011	61.6%
2012	57.0%
2013	55.1%
2014	57.2%
2015	57.0%
2016	57.6%
2017	58.6%
2018	56.7%
2019	51.7%
2020	54.8%
2021	56.9%

And here is the Police & Fire system's funding history:

As of December 31:	Percentage Funded
2001	112.6%
2002	108.3%
2003	103.8%
2004	98.6%
2005	94.8%
2006	90.5%
2007	93.0%
2008	88.0%
2009	83.1%
2010	76.9%
2011	71.0%
2012	69.1%
2013	72.2%
2014	73.1%
2015	71.3%
2016	69.4%
2017	68.4%
2018	64.7%
2019	61.7%
2020	64.2%
2021	65.9%

At the end of each year, the city makes payments on the unfunded liability. The payments are calculated by the actuary, amortizised over 30 years. Last year's combined payment for ERS and P&F was $23,009,872.

Note that the funding percentages for both ERS and P&F start dropping around 2005. Teamsters union members, who are in the ERS pension system, agreed in 1990 that members hired after 1990 would be in a defined contribution plan rather than defined benefit. The less-desirable defined contribution plan was one of the arguments for the notorious early retirement plan of 1992. I don't know if other groups were switched to defined contribution, but a 2/22/2012 City Pulse story says

During former Mayor David Hollister’s administration in the 1990s, the city went to defined contributions, but reverted to defined benefits under Benavides in 2003 for most of its systems.

Hollister was mayor from 1993 to 2003 and was succeeded by Tony Benevides.

The switch back to defined benefit in 2003 may be part of the reason funding levels began to drop in 2005.

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