Bloomfield Township Kicks the Public Pension Spending Habit

It took six years, but Bloomfield Township officials say they have eliminated its legacy costs related to retiree pension and health care. The final step came when the township board recently approved six-year deals with three unions that ended retiree health care for new employees.

“We’d love to be the poster children for the rest of the state,” said Treasurer Dan Devine. “We feel as if we are exhibiting all the best practices. We feel we got the whole package now.”

In 2005, the township switched all new hires from a defined-benefit retirement plan to a 401(k)-type defined-contribution plan. Then, township administrators got rid of retiree health care obligations when they recently approved contracts with two police and one firefighter union. Any employee hired after May 1, 2011, is given a health care savings account. The township contributes $2,500 a year and the employee contributes 1 percent of gross pay. At retirement, the employee gets what is in the health care savings account, but no retiree health care.

Devine acknowledged that it would be decades before the township is free of all obligations.

“It takes time to get there,” Devine said.

The township had an $85 million unfunded liability for retiree health care before instituting the new plan.

“Bloomfield Township administrators fixed a long-term financial problem; something that’s incredibly rare in government,” said James Hohman, assistant director of fiscal policy for the Mackinac Center for Public Policy, in an email. “As the state looks to the rising costs of its retiree health care benefits, it should look to the growing number of local governments that are getting it right.”

There has been legislation introduced to move public school employees from a defined-benefit plan to a defined-contribution plan. And a Mackinac Center policy brief found that former Gov. John Engler and Michigan lawmakers saved billions of dollars of taxpayer dollars because they moved new state employees from a defined-benefit to a defined-contribution, 401(k)-type retirement plan in 1997.