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12. B. 4.
MERS Retiree Health Funding Vehicle Resolutions
Kim Archambault, HR Director, Human Resources
Resolved the Board of Commissioners does hereby approve the MERS Retiree Health Funding Vehicle Resolutions as presented.
It is recommended that the Board of Commissioners approve the MERS Retiree Health Funding Vehicle Resolutions as presented.
In 2017, the Protecting Local Government Retirement and Benefits Act (Public Act 202 of 2017) was signed into law in Michigan. The legislation implemented recommendations from the Responsible Retirement Reform Task Force on addressing unfunded pension and retiree health care liabilities (OPEB) of local governments in Michigan. In addition to meeting the current constitutional and statutory requirements for funding pension plans, all local governments are also required to begin funding normal retiree health costs for employees first hired after June 30, 2018 and any retiree premiums that are due for retiree health plans.
The solution the County is recommending, to comply with the PA 202 retiree health funding requirements, is the MERS Retiree Health Funding Vehicle (RHFV). It is a Section 115 Governmental Integral Part Trust that gives the County the ability to establish a qualified medical trust through MERS to fund Other Post Employment Benefits (OPEB). MERS currently has over 300 local governments that utilize this trust and it provides cost-effective, diversified investment options.
In addition to meeting the compliance requirements noted above, the MERS RHFV was also chosen for additional benefits it would provide to the County, including the following:
Fiduciary Responsibility: As the sole fiduciary for the retirement plans, MERS would take on the liability for selecting the investment options, monitoring fund performance, and ensuring fees are reasonable.
IRS-Approved Solution: The Trust has already been approved by a Private Letter Ruling from the IRS and the County would not have to do this on its own.
Higher Discount Rate: By pre-funding the OPEB liability through a Trust, there can be a higher discount rate used to calculate the unfunded liabilities.
Reduced Labilities: Earnings on assets will reduce long-term contributions and unfunded liability.
Potential to Reduce OPEB Liability: Funding may prevent net OPEB obligations from becoming a significant liability on the County balance sheet.
Flexibility: The Retiree Health Funding Vehicle can be used alone or in conjunction with other MERS programs, such as the Health Care Savings Program, which County Administration is currently reviewing.
For all of these reasons, Board of Commissioners approval of the MERS RHFV's is requested. Please note that there are two resolutions in order to split out the Road Department separately.
The Board could choose to not provide its approval and the County would need to find another alternative for PA 202 compliance.
PA 202 requires the County to deposit into a trust a minimum amount each year based on the normal cost (actuarially
calculated) for those covered by our plan and hired after June 30, 2018.
For 2020 the normal cost for these new hires within the County is $35,504 which is 1.77% of the covered payroll for this group. These funds will come from within the County's budgeted General Fund appropriations. The normal cost for these new hires within the Road Department is $28,690 which is 5.09% of the covered payroll for this group. These funds will come from within the Road Department's operating budget.
RHFV - Road
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