Item Coversheet

Resolution

NO. 23

A Resolution for pension and other post employment benefit (OPEB) policy changes based on Legacy Cost Committee Recommendations and the September 12, 2019 City Commission Workshop Results.

BATTLE CREEK, MICHIGAN - 12/17/2019

Resolved by the City Commission of the City of Battle Creek:

 

Effective 7/1/2020 the following changes to pension and other post employment benefits will take effect:

 

Pension-related:

  • Continue the trend of increasing employee contributions to the pension plans (subject to collective bargaining) in accordance with Public Act 202 Corrective Action Plan for MERS and in accordance with the Legacy Cost Committee recommendations for police and fire.
  • Auto-enroll new hires in the City's 457 (ICMA-RC) defined contribution plan.  This is mandatory for non-represented employees and subject to collective bargaining for all others.
  • Eliminate the option to purchase MERS pension service credit until the employee is within three years of retirement.
  • Exclude longevity and education allowances from non-represented employee final average compensation.  This will be fully in effect in the fiscal year that begins 7/1/23, as longevity and education payments made through 6/30/20 have been included in pensionable wages.
  • Eliminate or reduce the inclusion of special pays (like longevity and education allowances ) in final average compensation through collective bargaining.
  • Include payment of the City's portion of the Act 345 purchases of military service credit to the police and fire pension fund when the employee pays their portion.  This is accomplished by including prior year military purchase employer costs in the new year millage rate calculation beginning with the rate effective July 1, 2020.

 

Other Post Employment Benefit related:

  • Establish a qualified medical trust for funding the non-police and fire pay-as-you-go stipends for retiree health insurance.  This trust will be designated for non-police and fire retirement system funding.
  • Encourage retirees to use health plans of current employers if available, and spouses of retirees to utilize benefits from their employer, if available.  Require an annual statement from City-plan participants that they do not have those plans available in order to participate in open enrollment each year.  This would be effective with the open enrollment for calendar year 2021.
  • Examine the opportunity of the MERS Exchange (or other health care exchange) for retiree health care offerings to facilitate the elimination of the ability for retirees to purchase health insurance from the City.
  • Eliminate the stipend towards retiree health insurance for non-represented new hire employees.  
  • Address the health care plan offerings to retirees.  Under the present Collective Bargaining Agreements, members of the fire union who were hired prior to May 14, 2007 and retire after July 1, 2004 are eligible for full retirement health care.  The cost to the trust is not sustainable and requires a change in health care plan offerings for the health year that begins 1/1/2021.








I, Victoria Houser, City Clerk of the City of Battle Creek, hereby certify the above and foregoing is a true and correct copy of a Resolution adopted by the Battle Creek City Commission at a Regular meeting held on December 17, 2019.


Victoria Houser

Battle Creek City Commission
12/17/2019
Action Summary

Staff Member: Linda A. Morrison, Revenue Services Director 
Department:Finance 
SUMMARY 
A Resolution for pension and other post employment benefit (OPEB) policy changes based on Legacy Cost Committee Recommendations and the September 12, 2019 City Commission Workshop Results.

BUDGETARY CONSIDERATIONS
Implementation of these recommendations will have a positive budget impact over the long-term and will reduce the legacy-cost related expenses and liabilities in the fiscal year ending 6/30/2021.  

HISTORY, BACKGROUND and  DISCUSSION

In September 2015, a Legacy Cost Committee was convened by City Manager Rebecca Fleury to begin a community conversation regarding the City of Battle Creek’s legacy costs (pension and retiree health care).  A cross-sectional group of committee members began discussing the three components that make up the City’s liabilities for legacy costs; MERS pension, Police and Fire pension, and retiree health care (also known as Other Post Employment Benefits – OPEB).  The Legacy Cost Committee objectives include: using creative solutions for retirement benefits that will reduce liabilities in the long run; suggest best practices in regards to the retiree health insurance as well as pension; create a sound funding policy over and above the minimum annual requirement payments;  all the while maintaining a benefit package that will allow the City to attract and retain talented employees.

Since 2015, Committee members have reviewed changes previously made to these programs in the City’s efforts to control costs and future liabilities.  Experts in the field came to committee meetings to speak and answer questions.  Shortly after the Committee began its work the State of Michigan began a process that resulted in Senate Bill No. 686 on December 20, 2017 which created the Protecting Local Government Retirement and Benefits Act, Public Act 202 of 2017 (referred to as PA 202).  PA 202 included new reporting requirements for retirement systems and retiree health care plans.  In January 2018, the City filed Form 5572 – Public Act 202 of 2017 Pension Report and Public Act 202 of 2017 Health Care (OPEB) Report.  Based on the Form 5572 and the guidelines set by PA202, the City’s MERS Pension plan was identified as underfunded (57.5% funded with a threshold of underfunded = 60%).  In April 2018, City staff prepared Form 5583 – Application for Waiver and Plan: Defined Benefit Pension Retirement Systems for the MERS plan.   The City Commission, with Resolution number 121 dated 4/10/2018, approved this application as required under PA 202.  In May, 2018, the Michigan Department of Treasury denied the waiver application and has required the City to prepare a Corrective Action Plan (CAP).  The components of the CAP were included in the recommendations by the Committee.  Those recommendations, and others related to police and fire pension and OPEB, were discussed at a City Commission workshop on August 14, 2019, and final recommendations were evaluated and agreed upon at the September 12, 2019 City Commission workshop.  It is these agreed upon recommendations that are presented in this resolution for approval. 

DISCUSSION OF THE ISSUE

POSITIONS
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