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Eligible local governments in Michigan with weak pension funding ratios will soon get an infusion of funding promised by the state through a $750 million grant program.  

The Michigan Department of Treasury has kicked off the funding process with the launch of the Protecting Michigan Pension Grant Program, authorized in the state’s fiscal 2023 budget.

The program “was created to help Michigan’s underfunded municipal pension systems,” Treasury said in a notification. “Under the Fiscal Year 2022-23 budget, the Michigan Department of Treasury was appropriated $750 million to establish and operate a local unit municipal pension principal payment grant program for qualified retirement systems with a funded ratio below 60%, as defined in the Protecting Local Government Retirement and Benefits Act, Public Act 202 of 2017.”     

The program will dole out grants to local units of governments including cities, villages, townships, counties and road commissions with qualified pension plans that are below a 60% funded ratio.  

About 145 pension funds managed by local units of government appear qualified. Grants come with conditions designed to improve the longer-term health of the funds.

Local governments must make actuarially determined contributions, use a discount rate of 7% or below or adopt the lower rate, and any benefit enhancements must be fully prefunded. The local government is then subject to monitoring by the Municipal Stability Board for five years following receipt of any grant.

Treasury’s Bureau of Local Government and School Services set up a website through which local governments can access the definitions, grant criteria, timelines, qualification information, and an estimated list of eligible local governments, according to a Treasury statement.

The department compiled a preliminary list of Michigan pension systems that meet the eligibility criteria as of Dec. 31, 2021, and urges local governments to review their actuarial reports and contest any discrepancy in a Pension Data Discrepancy Form if they believe they were left off the list but are eligible.

Many of the 11 local governments that were once under direct state financial oversight fall on the eligibility list. Flint is just 28.5% funded. Detroit has one qualified fund at 59.1% funded. Highland Park has three funds that are just 4.8%, 16.3%, and 23.4% funded. Hamtramck is 43.5% funded. Ecorse is at 48.1%. Benton Harbor is at 37.8%. Lincoln Park has funds that are just 21.2% and 33.5% funded.

The $76 billion fiscal 2023 budget signed by Gov. Gretchen Whitmer last year directed more than $2 billion to aid local and state pensions.

About $1.4 billion went toward the Michigan Public School Employees’ Retirement System, with another $100 million earmarked for the Michigan State Police pension fund and $300 million for public university pensions.

Under the $750 million local unit allocation, grants are capped at $170 million with only the city of Flint expected to receive the maximum allocation. Local governments will need to show that their financial projections are based on actuarial metrics in applying for the grants.

Qualified local governments can estimate the grant award payment for their retirement system using the funded ratio, assets, and liabilities as reported in the required supplementary information section of their financial audit statements.

The Treasury Department intends to post program guidelines and application materials by April 15 and plans to hold a webinar in late March or early April.  The department expects to accept applications between mid-April and June 15th, which is the deadline. Local governments would receive their award notifications and the grants would go out by the end of August.

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