Saturday, January 26, 2013

Special City Council Meeting 1/26/13

Saginaw's employee legacy costs dominate first portion of special city council meeting

Mark Tower | By Mark Tower |
on January 26, 2013 at 10:35 AM, updated January 26, 2013 at 10:36 AM
Castle Council MERS.JPG View full size Mike Strader, regional manager for MERS, makes a presentation to Saginaw City Council Saturday, Jan. 26, on an analysis of a proposed transition from the city-run police and fire pension system to the statewide retirement program.
SAGINAW, MI — Saginaw Employee Services Director Dennis Jordan started off the city council's strategic planning session Saturday, Jan. 26, talking about arguably the largest impact on city finances — the legacy costs to municipal retirees.
The first presentation given Friday was on the costs and benefits that would be associated with switching the city-run police and fire pension system over to the Municipal Employees' Retirement System.
Mike Strader, Regional Manager for MERS, told city leaders that making the switch would save a small amount of money in the short-term in investment and administrative fees. But the system's better return in investment is where the city could likely see large savings in the long-term, Strader said.
"Over time, MERS has out-performed the police and fire plan and the benchmark too," he said.
Assuming a $130.9 million investment in both plans, Strader said, MERS would have realized a return $40.5 million greater than the city's police and fire pension fund over the last decade.
City Manager Darnell Earley said he would like to see the city make the switch to realize both short and long-term cost reductions in time for the 2013-2014 budget or shortly thereafter.
"This demonstrates a more effective means of managing our declining resources," Earley said. "We need to get it done as soon as possible."
Jordan also presented an option for changing the pension system for the remainder of city employees, which is run by MERS.
Switching to an alternative amortization plan through MERS, he said, could lower and flatten the spike in contributions expected over the next few years. Instead of annual MERS contributions steadily increasing from $8.6 million in 2013 to $12.5 million in 2016, they would remain near the $8 million range.
Jordan did not recommend making that switch because it would result in about $13 million in added costs spread out over the next 20 years.
"You're actually going to pay more for Option B than for Option A," he said. "I don't like the cliche 'kicking the can down the road,' but that's exactly what you're doing with Option B."
Jordan also detailed changes already made and future adjustments being developed to retiree health care benefits, which costs the city about $13.5 million each year. The general fund alone budgeted $6.9 million in the current fiscal year for retiree health care.
Part of the reason that is so expensive, Jordan said, is because the 1072 employees in the system, which includes 751 retirees, are spread out into 26 different retiree health care plans. He said the city is currently in the process of trying to reduce those plans in an attempt to reduce the resulting expense.
"I feel confident that we can come up with something that can offset those costs," Jordan said. "Our objective is getting down into something less than 10 plans. My goal has been to get this done by Jan. 1 of 2014. If I can do it sooner, I will."
Next up on the meeting agenda include a summary of public safety services and changes being proposed by city administration with an eye on cost savings and other proposals for passing a balanced 2013-2014 city budget.
The city's budget year begins in July.
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