TRAVERSE CITY — Firefighters and public safety officers work hard through their younger years, and bank on an earlier retirement with a decent pension and health benefits.
It's an essential safety net for many, said Traverse City Fire Department Chief Jim Tuller.
That could change if local governments struggling to fund their retirees' pension and health care plans are forced to pare those benefits back, Tuller said. He has been eyeing a package of bills moving through the state Legislature that would compel local governments to take corrective action if their unfunded liabilities grow big enough.
Firefighters typically retire in their late-40s or mid-50s, putting Medicare out of reach for a decade or more, Tuller said. They rely on retiree health care benefits usually included in their collective bargaining agreements to fill that gap. These benefits are particularly crucial because of the health problems firefighters face, he said.
"The peace of mind is at the end of their career, they have a pension and they have health care benefits to help them out," he said.
Local governments with hefty unfunded pension or retiree health care liabilities may be required pare down benefits for future hires, according to a bill state representatives passed Thursday. Legislators are taking aim $14 billion in unfunded retirement liabilities statewide, according to numbers provided by the Michigan Association of Counties.
State Rep. Larry Inman, R-Williamsburg, said the bill establishes thresholds past which a local government would have to submit a corrective action plan to a municipal stability board.
Cities, counties and other local units — except schools — must have their pension plans at least 60 percent funded, and their retiree health care plans at least 30 percent funded, according to the bill, Inman said. It also requires the state treasurer to determine if local governments have adequately funded retirement plans, and establishes reporting and audit requirements as well.
Corrective actions include capping benefit multipliers, cost-sharing and copays, and local ballot proposals to seek a millage dedicated to paying down retirement liabilities, Inman said.
Grand Traverse County could fall below the cutoffs if the bill becomes law. Michigan Municipal Employment Retirement System's figures from the end of 2016 show the county's pension plan funded at 45 percent, and with more than $53 million in unfunded liabilities. Its retirement health care plan had $7.7 million in unfunded liabilities at the end of 2016, according to a county audit.
Former county Administrator Tom Menzel said the retirement health plan had no funding until county commissioners put up $250,000 in June.
"They need to make some structural changes there," he said.
County commissioner Dan Lathrop said he's not familiar with the bill's details. But he hopes the county's pension stabilization plan would be enough to satisfy any state requirements.
Commissioners in July agreed to pay $5.9 million toward the debt in a deal that extended the county's payment plan to 16 years and reduced the peak in a string of growing annual payments. They also created an irrevocable trust a month later to stabilize the payments, but declined to fund it.
That came as a disappointment to Lathrop, he said. He believes the county is on the right track in addressing its unfunded liabilities, but he hopes commissioners will fund the trust.
Commissioner Addison "Sonny" Wheelock Jr. said he doesn't know much about the bill either.
Grand Traverse County could put money into the trust or pay it directly to MERS if commissioners identify extra funds, Wheelock said. But he would need to be sure the county is meeting all its obligations before budgeting money to go into the trust.
"That would have to be a discussion of the board, because if money is put into the trust, it can't be used for anything else," he said.
Wheelock also pointed out that the county has always paid its retiree health care system bills.
Calls to county Administrator Vicki Uppal weren't returned Friday.
Other local governments are in a far better position.
Traverse City's pension plan, minus Traverse City Light & Power, is 64 percent funded as of June 30, 2016, and its Police and Fire Retirement System is 63.5 percent funded as of the end of 2016, according to city-provided numbers.
Health care plans for city retirees were funded at 63 percent overall, not including the Police and Firefighter Retiree Health system, at 46.5 percent, the figures show.
City Manager Marty Colburn said he believes the city's retirement programs are fiscally healthy. That's in part because of commissioners' vote in 2009 to close employee retirement health care plans to any new hires, among other steps to cut retirement costs.
Tuller said firefighters who joined the department before then could be impacted by any cuts to retirement packages they've yet to claim.
"It's something a lot of folks have had their eyes on and are kind of watching," he said.
Traverse City Light & Power, which would also have to meet the bills' requirements, also is doing well, utility Executive Director Tim Arends said. Its pension plan was 59 percent funded at the end of 2016. The utility also has $1.6 million set aside for retiree health care, and that number grows every year.
Utility board members in 2016 approved a 10-year plan where TCL&P would pay $1 million extra to eliminate its unfunded pension liability, Arends said. Surging financial markets also have helped.
"So I believe that Traverse City Light & Power is in a very good position, comparatively, on its obligations for both pension and (retiree health care) liabilities," he said.
The bill went through some last-minute changes, Inman said. Lawmakers' concerns over the municipal stability board's powers over local government and ability to appoint an emergency financial manager forced a rewrite hours before representatives voted.
Those provisions were dropped, and the bill that passed early Thursday largely resembles recommendations from a task force Gov. Rick Snyder formed to deal with the statewide issue, Inman said. It's up to the Senate to move the bills forward.
The proposals aim to sound a "wake-up call" to local governments, Inman said. They're constitutionally bound to pay retirees what they earned — any changes the proposed law would prompt could only impact future retirees.
"What was promised, what was bargained for, you have to start reserving for," he said.
Mike Gillman said he's sympathetic to lawmakers' aims. He served on Grand Traverse County's pension advisory committee, and had watched a previous version of the bills make their way through the state House.
Grand Traverse County got into its predicament because of a variety of factors, including overly generous perks for employee groups, Gillman said. MERS officials also were over-optimistic in estimating how well retirement investments would fare.
The bills aim to address a serious problem that goes way beyond Grand Traverse County, Gillman said.
"But, boy, I would hope that it wouldn't go through without a lot of hearings," he said.
Colburn said other factors hurt local government finances, including property values that shrunk their tax revenues during the Great Recession, and the state's cuts to revenue sharing. And local governments are inhibited in how they can raise additional revenue in ways the state is not — local sales taxes are illegal, for example.
Requiring local governments to fund their pensions protects the state from footing their debt if they go bankrupt, Colburn said. But it's just a start, and lawmakers need to do more.
"They also have to recognize that it takes funding resources and revenue to fund these services and infrastructure investments, so they have to provide us the mechanisms to raise those funds appropriately," he said.