1 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 Relies on charitable contributions from Michigan foundations, businesses, organizations, and individuals

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 % 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

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: a)May not award COLA increases b)A Pension Accumulation Fund is created and sums in that fund shall be used in such circumstances c)Member mandatory contributions are increased from 4% to 5%

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contributions are increased from 5% to 6% d)Retirement allowance for plan year preceding plan year referenced in (b) is withdrawn e)Retirement allowance shall be calculated using 1% of members average final compensation instead of 1.5%

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

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

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

10 Thank You Eric Lupher