Benton Harbor pension system only 39% funded
State law requires 60% funding; Benton Harbor has been on a corrective action plan for years
The city of Benton Harbor did such a poor job of managing its pension obligations that the state of Michigan intervened in 2017. The city has barely made progress since then.
Public Act 202 requires local government pension plans to be 60% funded, at a minimum, meaning they can be expected to pay out at least 60% of the amounts they are obligated to play. In 2017 the state government intervened in Benton Harbor, requiring the city to submit a document, known as a pension corrective action plan, which outlines what it will do to shore up the pension system.
In 2015 the city’s pension liabilities were funded at a level of 41.4%. The number dropped to 37.6% in 2017. Five years on, it had increased to 39.1%.
The state now deems Benton Harbor to be complying with its action plan, on the grounds that it will reach the 60% level by 2034.
Between 2015 and 2022 the city’s pension debt increased from $15.2 million to $17.2 million.
This change suggests that the city is headed in the wrong direction, but it is not. The increase owes to the city using more accurate pension assumptions, said James Hohman, director of fiscal policy at the Mackinac Center.
Pension plans, including municipal plans, can get in trouble if their managers use overly optimistic assumptions about investment returns, wage growth and other factors. Using better assumptions protects a plan’s long-term finances.
Benton Harbor was awarded $9.8 million in American Rescue Plan Act funds, according to the U.S. Department of Treasury. “Fiscal recovery funds” from the act cannot, however, be used to “deposit into any pension fund,” including “for the purpose of reducing an accrued, unfunded liability,” according to the National League of Cities.
Ellis Mitchell, city manager of Benton Harbor, did not respond to an email seeking comment.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.