Mark Williams worked at the Grand Rapids Home for Veterans for about 20 years as an employee of the state Department of Military and Veterans Affairs. He was laid off in 2013 when the state privatized the facility and turned to contracted workers.
Williams, 45, is still about two decades away from collecting on the retiree benefits he contributed as a state employee. As Gov. Rick Snyder convenes a 16-member task force of accounting experts and representatives of various public employees, the private sector and nonprofits, Williams is concerned about the likelihood of collecting on his contributions. His concerns come even though state employees are less likely than municipal employees to risk losing their benefits if, for example, the local unit of government files for bankruptcy, as was the case in Detroit.
Williams remains critical of the task force’s likelihood of solving the multibillion dollar problem local and state governments face when it comes to paying pension and retiree health care benefits.
“The governor has a pretty big track record of putting out these things to the public about wanting to have these work groups,” Williams said. “Quite honestly, it’s all crap, all junk. They talk a big game, even if they bring you to the table, but they don’t listen to what you have to say.”
Williams is the president of the AFSCME Council 25’s Local 261 in Grand Rapids, a union founded in Michigan in 1978 to represent public employees. He may be likely opposition for Snyder, and he says he’s still upset over the governor’s signing a right-to-work bill in 2012 after claiming he wouldn’t.
But Williams also is not the only one skeptical of the governor’s task force of experts. James Hohman, assistant director of fiscal policy with the libertarian advocacy group Mackinac Policy Center, said solving the state’s unfunded liability problem is “not a technical issue.”
“The task force involves a lot of the interests in these pension systems directly,” Hohman said. “But the problem with this is not a technical issue, it’s a political issue. There are plenty of options the state can use to limit pension risk.”
Those include moving entirely to defined contribution plans, modeled off of 401(k)-style benefits, or at least understanding the risk of underfunding under deferred compensation plans.
“If they don’t recognize those are the two options, I’m not sure it will be a very productive exercise,” Hohman said. “I suspect some of the solutions they’ve been floating in the past is to borrow to pay off other debt. That’s not really a solution, it’s just changing the form of debt.”
When he announced the Task Force on Responsible Retirement Reform for Local Government in early February, Snyder said his goal is “to have collaboration among legislators, state and local government officials, and employee representatives to ensure the financial stability and effective delivery of local government services for the coming decades.”
“As we discuss this growing financial problem across the state, it is imperative that we also keep retirees in mind who rely on these programs,” Snyder said at the time.
Last year, leaders with the West Michigan Policy Forum and the Grand Rapids Area Chamber of Commerce identified unfunded liabilities as their top policy issue. The Policy Forum says it has met with “several union groups” since its September conference to discuss the issue.
“People are at great risk, therefore forging achievable solutions is imperative,” John Kennedy, chairman of the West Michigan Policy Forum, said in an email to MiBiz. “This problem continues to only get worse with time. It’s past time to quit kicking the can; solutions are needed sooner rather than later to protect workers, taxpayers and the future of our kids.”
He hopes the task force finds “swift and full” solutions and “produces widespread agreement on the details of the needed solutions. It’s not enough to simply agree there is a problem without pursuing solutions, and leaving the problems for our children to handle.”
VARIETY OF APPROACHES
According to the state, 334 local units of government in Michigan provide either retiree health care, a defined benefit pension plan, or both. The total unfunded liability for health care is about $10 billion, while the pension liability is around $4 billion.
Meanwhile, the Michigan Public School Employees Retirement System (MPSERS) has an unfunded liability of $26.7 billion. All told, the state has roughly $51.4 billion worth of unfunded liabilities and retirement costs.
Republican lawmakers proposed bills in December’s lame-duck session that would have increased costs for municipal retirees and eliminated retiree health benefits for new hires, though Snyder critiqued the plans for their transition costs.
Nationwide, unfunded liabilities for state public pensions are projected to increase 40 percent to $1.75 trillion through fiscal year 2017, Moody’s Investors Service reported in October.
Units of government across Michigan have taken a variety of approaches to paying for employees’ pensions and health care when they retire.
According to the Mackinac Center, municipalities in West Michigan with $0 in pension liability include Gaines Township, Kalamazoo and Allendale. Meanwhile, Walker and Norton Shores have unfunded liabilities of more than $9 million and $20 million, respectively.
Under former Gov. John Engler, the state moved all new hires into defined contribution plans.
Kennedy said “honest and transparent communication” between workers and taxpayers has in some places led to full funding of the future benefits promised, but challenges remain.
“In too many cases, employers and politicians have made promises to future benefits without making deposits to fund those promises,” Kennedy said. “In some cases sufficient deposits simply weren’t made, but in many cases unrealistic projections allowed politicians and managers to pretend the problems weren’t growing.”
Kennedy added that 401(k)-style plans include “deposits for those promises as well as portability for those workers so they can take their benefit with them or leave those funds to their spouse, kids or others.”
INVESTMENTS BRING RISK
Hohman said the state has been investing gradually in more real estate and private equity deals, including the state pension fund’s losing $10 million in a real estate development deal in Ann Arbor.
Regarding the types of investments these retiree systems make, Kennedy said: “The causes of this problem are multi-faceted. But, the simple truth is that promises made for future benefits will always carry risks for underfunding due to financial performance, assumptions for funds needed and political changes in the future.”
In Williams’ view, the changes made under Engler were all about saving money, ignoring problems that might arise 20 years later without a fully funded system.
“Unfortunately, what happens is the employee or retiree ends up having to bite the bullet and bear the burden of the bad decisions of years before,” he said.