TRAVERSE CITY — Whether the grass, or the pension fund return, is a more lucrative shade of green on the other side of the Municipal Employees’ Retirement System, is the subject of an ongoing inquiry by officials.
“It’s fair to say I’m on the fence,” said Grand Traverse County Board Chair Rob Hentschel. “I’m keeping an open mind about alternatives. It’s a $100 million program, of which we have $50 million in investments and $50 million in liabilities, so it’s no small thing to move from MERS.”
MERS is a Lansing-based nonprofit, created by the Michigan legislature in 1945 and granted independence from the state in 1996. The organization manages retirement funds for 100,000 employees or former employees, in about 800 municipal entities, including more than 30 entities in the five-county area.
From Grand Traverse Pavilions, to the Northwest Regional Airport Commission, the Grand Traverse County Conservation District, the Village of Mancelona, the Suttons Bay Bingham Fire Authority, the City of Traverse City and the 400 employees of Grand Traverse County, in one capacity or another, MERS manages either their retirement money or their health care services money, or both.
Some of these entities are in a defined benefit program, where the employing municipality shoulders the risk. Others are in a defined contribution program, where the employee does.
Grand Traverse County changed from the former to the latter more than a decade ago but as of the 2019 valuation, is still responsible for 301 retirees hired under a defined benefit contract, said Finance Director Dean Bott.
Another 48 people in the defined benefit program still are employed and have yet to retire, and 37 are fully vested, not employed but have not yet begun drawing benefits, he said.
On Wednesday, commissioners will hear from attorney Frank Judd, a specialist in public pension and health care plans, on the legalities of leaving MERS.
A representative from GovInvest, a California tech company that sold the county $25,000 in software to run financial reports officials say are more timely than those provided by MERS, will also speak.
“Our system is designed for one plan at a time,” said Christian Dickson, of GovInvest. “In this case, it’s like having their own actuarial engine in front of them so they can run scenarios such as discount rate, investment return and other changes to stress test what would happen if. Meaning, if they did this, then what would happen then.”
One northern Michigan entity that has not contracted with MERS for pension fund management services since at least 1996 is Emmet County.
Emmet County Finance Director Pam Gibson said the county’s pension fund is managed by Greenleaf Trust, an independent Michigan-chartered trust-only bank with an office in Traverse City.
Gibson has been on the job for just two years, though expressed satisfaction with services the county has received from Greenleaf.
“But we’re 110 percent funded,” Gibson added, “so what they do is invest and we try to put in between $100,000 and $150,000 every year.”
In 2017 Grand Traverse County paid more than $11 million toward its pension liability, Bott said. In 2018 the payment was just less than $6 million, in 2019 it was $7.4 million, and $7 million has been pledged this year, he said.
Three of four 2020 payments have been made and Bott said the fourth would be made as well, despite any financial impacts on the county from the pandemic.
If Grand Traverse County Commissioners decide to terminate their contract with MERS, it would only impact county employees and retirees, not those in other municipalities or in component units, like the Pavilions or the Road Commission.
But it could give them ideas.
“If we find a better deal, a better system, I think it could encourage municipalities across the state to re-evaluate, if they’re not happy with MERS,” Hentschel said.
Timing and current financials
The challenge for Grand Traverse County officials is two-fold: One, the pension liability — or what county officials think they’ll have to pay out to retiring and retired planned benefit employees in the coming years — isn’t 100 percent funded.
It’s actually only about 54 percent funded, the state mandates it be at least 60 percent funded, hence the large extra payments in recent years.
And two, even after the increased payments by the county to MERS have been applied to the liability, the funding percentage has barely moved.
Financial reports in real time, giving commissioners the ability to compare potential outcomes of added payments, have not been very accessible, said County Administrator Nate Alger.
“Which is why the money spent on the (GovInvest) software has been a great investment,” he said.
This same problem is an ongoing concern of other — though unnamed — Michigan counties, said Chris Middleton, a vice-president with Greenleaf and the director of its retirement plan division.
“This gets to the crux of some of the frustrations I’m hearing from other counties,” Middleton said. “I’m not an actuary. But their funding calculations are largely based on what the assumed rate of return will be in the future. This clearly determines what the pension payments are from year to year. If MERS has not been hitting their assumed rate of return, that’s a double whammy. Some people call it a whipsaw.”
One of the unnamed counties is not Leelanau. County Administrator Chet Janik said they are satisfied with MERS and have no plans to leave the system. Leelanau County’s pension fund is about 85 percent funded, Janik said, after commissioners consistently paid extra on the debt for at least two decades.
History of complexity
Jennifer Mausolf, MERS communications director, said certified actuaries are used by MERS in determining the assumed rate of return. Regulations govern MERS actuarial and financial reports, which may take more time but ensure accuracy, she added.
“It’s a pretty complex business,” Mausolf said. “It can be confusing to understand actuarial science and investments. Our role is to help municipalities understand those things. We also play the role of fiduciary and that sometimes means telling local units of government, you need to pay more to fund that benefit.”
But the whipsaw Middleton described sounds a lot like what happened in Grand Traverse County.
In 2015, commissioners learned previous boards had invested less than half the money needed to pay off future pensions, as previously reported by the Record-Eagle.
The nearly $50 million in unfunded pension liability and retiree health care costs ranked the county among the bottom 5 percent of governments in MERS.
Since then, commissioners have voted to make large payments on the debt in an effort to pay it down.
The gaze to see what’s on the other side of MERS is not new among county commissioners — Commissioner Addison “Sonny” Wheelock, on the board for more than two decades is consistently critical of MERS — but the look has become more focused.
Commissioner Bryce Hundley, a certified public accountant, expressed frustration earlier this year with what he said was a lack of clarity in MERS financial reports — an issue that Alger agreed can be equally as aggravating as the lack of timeliness.
Commissioner Gordie La Pointe said he is ready and willing to give a possible MERS exit a thorough inquiry.
“When the longest standing commissioner on the board says, ‘I don’t trust MERS,’ I think you owe it to the public to look at it,” La Pointe said, of Wheelock’s ongoing concerns. “We need to understand the logistics of an exit, what the next step would be and what our options are.”
The termination section of the contract between MERS and Grand Traverse County isn’t that complicated. It states a two-thirds vote by the commission is necessary, along with meeting “all applicable requirements.”
Hentschel and La Pointe said they expect Judd to address what those requirements are and whether they involve bargaining unit contracts which may reference MERS, or other as yet unstudied matters.
MERS’ customer service
Should the commission take steps toward termination, Mausolf said MERS would help with the process.
“The important thing that we try to communicate to our members is we are here for them,” Mausolf said. “That is our mission to provide returns to their employees and we will do that in as transparent a way as we possibly can.”
The special remote meeting to discuss the pension fund and the MERS contract is Wednesday beginning at 8 a.m. The public is invited and attendance information will be posted at grandtraverse.org.