Gov. Rick Snyder enacted the Protecting Local Government Retirement and Benefits
Hastings' liability is $13.7 million, according to Jerry Czarnecki, deputy city manager.
Joan Van Houten
The City of Hastings remains on the Michigan State Treasury list as one of approximately 600 counties, cities, townships and villages that have underfunded healthcare benefits for retirees. Hastings' liability is $13.7 million, according to Jerry Czarnecki, deputy city manager.
On June 30, 2017, Gov. Rick Snyder enacted the Protecting Local Government Retirement and Benefits Act and implemented mandatory reporting of pension and health insurance liabilities by government bodies.
Michigan municipalities with liabilities were discovered to be underfunded by a total of $17.6 billion.
For the first round of preliminary reporting, more than 110 of 490 local units of government were identified, including the City of Hastings.
Underfunded communities were then required to submit documentation demonstrating they were actively pursuing ways to reduce the liability. Some municipalities had underfunded pensions while others, like Hastings, were underfunded in health coverage.
The state defines “underfunded” for pensions as primary units that are less than 60-percent funded in which an annual required contribution that is more than 10 percent of governmental fund revenues. For retirement health care systems, the state defines “underfunded” as primary units that are less than 490-percent funded with an annual required contribution of more than 12 percent of governmental fund revenues.
Hastings has been noncompliant since reporting began in 2017. City Manager Jeff Mansfield said Hastings will be compliant in 2020.
Reporting is scheduled for counties, cities, townships and villages at the end of their fiscal year, which are not all the same. The next report for Hastings is anticipated for October.
Mansfield said the city would have been compliant this year, but the report packet containing the new information was not completed in time to submit to the state.
He said the city has revenue from other departments that funds the staff retirement benefits in those departments, and benefit payouts have been on a “pay-as-you-go” process. It's not that the city can't pay, he said. But the state looks at the percentage of contribution coming from general operating fund - and that doesn't provide the entire picture.
Retired and retiring city staff hired before 2002 and offered a full healthcare package will receive the benefits they were promised. In that year, however, the city eliminated the lifetime retirement healthcare package for new hires. They had to address the underfunding to keep it from growing. The next step, he said, is looking at ways to pay down the liability.
Among other changes, tiered level benefits are in place, measured by the length of time a person is employed by the city. A cap has been placed on the city’s contribution.
In 2018, the city switched its health insurance provider from Blue Cross Blue Shield to Blue Care Network. The switch has reduced the underfunded liability by $4.5 million, bringing it down to $9.2 million. Using BCN did not change the coverage.
Czarnecki said the switch has benefited on both sides of the issue because the premium has dropped. This means the city and retirees are paying less.
“The way we got here was from a combination of things. We were financially impacted by the recession and major cuts in state and federal funding. We had less money to work with while life expectancy extended due to improved healthcare. On top of all that, the cost of healthcare is through the roof,” Jane Saurman, city clerk and treasurer, said.
Hastings' lifetime healthcare benefit and pension program began in 1957. As the number of retirees grew, the number of new employees contributing to the healthcare plan was not growing at the same pace.
Saurman said there are two sets of information to consider, the first obviously being the underfunding of healthcare for retirees and older employees hired before full health benefits was ended. The next set is that the new strategy is working. The city is well-funded for new employees and is compliant with the percentage of the city contribution.
The Protecting Local Government Retirement and Benefits Act incorporates four phases for local units to use in addressing fiscal health and the security of retirement benefits for municipal employees. The phases are transparency through reporting, identification of potential problems, review for fiscal health, and developing a corrective action plan.
Czarnecki said the problem continues to be aggressively dealt with, but it will take time to reach fully funded status.
“We’ve been underfunded for years – as well as many other communities. This is nothing new, and it is not unique to Hastings. It was just invisible because the state didn’t mandate where the money had to come from like they do the pension benefit,” Mansfield said. “We made a lot of changes to correct the situation long before reporting was required. No one has retired or will be retiring without getting what was promised to them.”