Reform is needed, but earned benefits must be held harmless
LANSING, Mich. — State Sen. Patrick Colbeck, R-Canton, spoke on Tuesday regarding expected legislation being considered to reform shortfalls in municipal employee pension plans and related health care programs commonly referred to as Other Post-Employment Benefits (OPEB).
“As was the case last year when this issue was being examined, I’ve been firmly on record that I will not be supporting legislation that would get rid of employee benefits that have already been earned and accrued,” Sen. Colbeck said. “Promises made should be promises kept.”
Sen. Colbeck then discussed the problem he believes any eventual legislation would be attempting to solve.
“We do need to acknowledge, however, that there is a real problem here that needs to be addressed,” Sen. Colbeck said. “For example, while more than 300 Michigan local governments offer retiree health care, the average actual plan is only 19 percent funded. And many parties have noted that half the plans have no pre-funding at all.
“We saw what happened in Detroit when things like this aren’t addressed. Taxpayers can become part of bailouts, and bankruptcy can slash benefits that have already been earned, even for retirees. We do not want to go through any more municipal bankruptcy proceedings. Everyone loses when the financial situation becomes untenable and results in bankruptcy.”
Unfunded OPEB liabilities in the Detroit bankruptcy were valued at $5.7 billion. In Michigan, municipalities are currently $10 billion in the red on their retirement health care obligations and $7 billion in the red on their pension obligations.
While many local government and labor leaders have recognized the looming crisis and have taken steps to improve the situation, the numbers show that many are still not properly pre-funding their retiree health care systems and are underfunding pensions.
“One of the ways we need to address escalating health care liabilities is to promote health care programs that lower the cost of high quality health care and directly impact the bottom line of these out-of-control health care costs,” Sen. Colbeck said. “That is why I have been promoting free market health care solutions based upon Direct Primary Care services, which lower overall costs by actually improving the quality of preventative care. An annual savings of 20 percent on health care would translate into even larger reductions in our municipalities’ long-term liabilities.”