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Wednesday August 27, 2014
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What Price Pensions?

 

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Still, the county has again reversed course. Starting January 2014, new employees will once again go into a defined-contribution plan. "The public needs to know we closed defined benefits to new hires," McDaniel says. "We reached long-term agreements with our unions to make that possible. We now have ten-year contracts with most of them."

But since the Michigan constitution protects pensions, nothing short of bankruptcy can get the county off the hook for its past promises. And beyond legal responsibility, says Ann Arbor county commissioner Andy LaBarre, "we have a moral obligation to meet these liabilities." Board chair Yousef Rabhi, also from Ann Arbor, says the whole board, from "the most liberal Democrat to the most conservative Republican, agrees we have to meet our unfunded liabilities."

Because pensions are paid over time, though, the county doesn't have to meet all its liabilities at once. And as the markets have recovered, so has hope that investment returns could cover much of the burden. Earlier this past year, McDaniel proposed issuing $345 million in bonds and investing the proceeds in funds dedicated to retiree benefits. The theory is that the investments will return more than the interest cost on the bonds--or at the least, McDaniel says, "break even so as to not lose ground over the period of payoff."

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