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Posted on: March 5, 2018

City’s Pension Plan Triggers Preliminary Review of Underfunded Status

EAST LANSING, Mich. — On Thursday, March 1, the Michigan Department of Treasury provided notification that the City of East Lansing’s pension plan has triggered a preliminary review of underfunded status.

This notification, which was expected by City of East Lansing officials, is pursuant to Public Act 202, the Protecting Local Government Retirement and Benefits Act, which went into effect on December 20, 2017. In compliance with this new Act, the City filed its pension and retiree health care reports and most recent audited financial statement with the Michigan Department of Treasury in January 2018. The City now plans to pursue a Waiver of Underfunded Status as outlined in the March 1 notice. If this waiver is denied, the City will submit a corrective action plan as required by the Municipal Stability Board.

“This is a reflection of the City of East Lansing’s ongoing financial struggles and it is exactly why the East Lansing City Council has undergone an extensive public engagement process and is looking at both potential new revenue options and service reductions. It is also why the Financial Health Review Team was appointed by Council and tasked with identifying potential solutions to ensure the City’s future financial sustainability,” said East Lansing City Manager George Lahanas. “This is not just a problem that the City of East Lansing has been facing; it is a problem many local governments are facing across the state of Michigan due to tight restrictions on the ability to raise new revenue. In the face of rising costs, the City of East Lansing has had negative growth in new revenue from 2006 to 2017.”

The City’s legacy costs (retiree pension and healthcare) have increased due in large part to the recession and below-average market returns. The City’s pension plan was 80 percent funded in 2003 and is 50 percent funded today. The City has implemented numerous cost-controlling measures over the years to address the legacy cost challenges, including, but not limited to: restructuring new hire benefits in 2010, increasing premium contributions from existing employees and making an additional $4 million in payments to the pension plan over the last three years. City officials have identified that more aggressive payments need to be made moving forward to further address the challenges. The City of East Lansing has been in compliance with all retirement-related state filings and will continue to do so moving forward. The City’s retirement-related state filings can be found on the City’s website: https://www.cityofeastlansing.com/1826/Retirement-Related-State-Filings.  

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