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Pension and OPEB Reform in Detroit

Pension and OPEB Reform in Detroit. Eric Lupher CRC’s Research Director August 44, 2014. Citizens Research Council of Michigan. Founded in 1916 Statewide Nonpartisan Private not-for-profit Promotes sound policy for state and local governments through factual research

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Pension and OPEB Reform in Detroit

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  1. Pension and OPEB Reform in Detroit Eric LupherCRC’s Research Director August 44, 2014

  2. Citizens Research Council of Michigan • Founded in 1916 • Statewide • Nonpartisan • Private not-for-profit • Promotes sound policy for state and local governments through factual research • Relies on charitable contributions from Michigan foundations, businesses, organizations, and individuals

  3. Detroit retirement pension system • Soft closing of old systems 6/31/2014 • New Hybrid System • Defined Benefit • Depends on employer and employee contributions • Eligible at age 62 • 1.5% multiplier • COLA increases of 2% authorized • Defined Contribution • Members may elect to reduce compensation by 3%, 5%, or 7% • Credited with earnings = to actual investment rate of return (>0%, <5%) • Payable in lump sums, equal monthly payments over 3 years, added to retirement allowance

  4. Uniqueness of Detroit’s New Defined Benefit Plan • Trustees have 8 levers to pull to keep pulling plan toward adequate funding • If funding level below 100%  Next plan year: • May not award COLA increases • A Pension Accumulation Fund is created and sums in that fund shall be used in such circumstances • Member mandatory contributions are increased from 4% to 5%

  5. If funding ratio gets even worse • If funding level below 80%  Next plan year: • All clawbacks in last slide are implemented or continued • Retirement allowance shall not include the COLA adjustment that was most recently added to allowance • Member mandatory contributions are increased from 5% to 6% • Retirement allowance for plan year preceding plan year referenced in (b) is withdrawn • Retirement allowance shall be calculated using 1% of members average final compensation instead of 1.5%

  6. OPEB–Non Medicare Eligible • As of 3/1/14 – Retirees and survivors were given monthly stipend checks to purchase health care through ACA • Cut their $605 per month retiree health insurance coverage • Replaced with $125 to $175 per month (depending on income) stipend to purchase health care through exchange

  7. Retiree Health Care • After 1/1/15 – Retiree health care offered through new independent health care trusts —Voluntary Employee Beneficiary Association (VEBA) • Enables the city to walk away from $4.3 billion retiree health care liability

  8. No effort to divorce pension board from city workforce Board of Trustees • Mayor or designee, ex officio • 1 city council member, ex officio • City treasurer, ex officio • 5 active members of retirement system (no more than one from any department) • 1 Detroit resident appointed by mayor • 1 retiree

  9. Thank You Eric Lupher 734 542-8001 elupher@crcmich.org

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