Pension Funding: Why Your Town is Going Broke

Just 13 percent of the local governments whose retirement systems are administered by a statewide entity have set aside enough money to pay the pensions promised to their workers.

The Municipal Employees’ Retirement System (MERS) administers pension systems for 728 local cities, villages, townships, agencies and more. But only 97 of those systems have adequately funded their pension obligations, according to the operation’s most recent report that covers up to Dec. 31, 2014.

Local government employees covered by MERS are owed some $12 billion worth of retirement benefits — but their employers have not set aside enough to cover the full amount. Taxpayers in those communities on the hook for $3.5 billion worth of unfunded liabilities.

MERS administers benefits for just over 29,000 municipal retirees, who receive $53.4 million a month in pension payments. The broadly defined term “municipalities” include not just cities, villages, and townships but also district courts, senior centers, regional medical centers, district libraries, local fire departments and more.

Underfunding at some of its largest members is much worse than the average.

Battle Creek (66.6 percent funded), Holland (66.0 percent), Calhoun County (63.5 percent), Port Huron (62.7 percent), Midland (60.2 percent), East Lansing (58.1 percent) and Flint (48 percent) are some of the larger government employers that have not set aside enough to cover their pension promises.

"This is pretty typical of (government) pension systems, and sadly this is in better shape than a lot of pension systems," said Chris Douglas, the chair of the economics department at the University of Michigan-Flint. “MERS looks to be about 70 percent funded. Illinois' state pension system, on the other hand, is only 40 percent funded with $111 billion in unfunded pension liabilities."

Douglas said the Chicago pension system alone is $20 billion in the hole.

"Pensions are going to be a huge issue nationally," he said. "Unfunded pension liabilities are estimated to be as high as $4 trillion. In 2015, the Treasury Department collected $1.5 trillion in income taxes. Thus, to close the pension funding gap, you would have to divert all income taxes toward pensions for nearly three years straight. I don't know how we'll solve this problem."