East Lansing climbs out of pension hole

East Lansing’s finances have the city on track for a structural deficit in coming years, but it is properly funding its pension, according to state law.

A state audit in 2017 found East Lansing to have insufficiently funded its pension obligations, and a corrective action plan was put in place by the Michigan Department of Treasury.

At the time, the city’s pension obligations were 54% funded, with $88,143,783 in unfunded accrued liabilities, according to a report by the state treasury department.

The document defines a “funded ratio” as the percentage of accrued benefits that is covered by the actuarial value of the city’s assets.

If that figure falls below 60%, the state considers the pension underfunded.

“Local governments’ biggest creditors are not banks or bondholders, but rather the government’s own employees,” said James Hohman, fiscal policy director at the Mackinac Center for Public Policy.

Underfunded pensions are a problem for pensioners and taxpayers alike, Hohman told Michigan Capitol Confidential in an email, and governments can stretch their resources further when they pay down pension debts.

A 2024 Michigan Employees Retirement System report determined that the city of East Lansing had $71,982,172 in unfunded accrued liability.

Valuation assumptions showed the pension benefits were funded at 70.4%.

This is above the state’s minimum threshold of 60%. According to state requirements, East Lansing’s retirement system is now considered adequately funded.

The 2007-08 market crash was to blame for the system’s troubles, Mark Meadows, an East Lansing city councilman, told CapCon in an email.

“Our pension account had been funded at something like 80% (considered very good funding) until the market crash in 2007-08, after which we found the fund at about 55% (not good),” said Meadows.

The city implemented a 12-year temporary income tax in 2019. Of the additional revenue generated, 60% is allocated toward retirement obligations.

The city has five years left on the income tax, added Meadows, and it expects to have close to 80% funding or better by the end of that time.