MUNICIPAL EMPLOYEES’ RETIREMENT SYSTEM OF MICHIGAN BRIDGED BENEFIT PROGRAM
On July 15, 2009, the Board conditionally amended Plan Document Section 43 and Section 43a in response to requests by member municipalities for the creation of a bridged benefit program. the Bridged Benefit Program is an optional provision for adoption on a divisionby- division or municipality-wide basis that applies to active employees in a merS defined benefit plan (excluding Hybrid Program, and the Defined Contribution Program).
the bridged benefit allows an employer (and employee groups) to negotiate for a lesser benefit multiplier percentage on a going forward basis. municipalities and employees face very challenging economic and fiscal constraints today (and for the foreseeable future). the Bridged Benefit Program is designed to protect employees’ accrued benefits from impairment or diminishment, and allow future service liabilities to be lessened. future employer contributions will be lowered in most situations, directly affecting the capability to save the jobs of fellow co-workers (and perhaps the need for furloughs or pay reductions), and the continuation of municipal (or court) services that might otherwise be cut. the motivating factor for the Program is the reality that, for benefits to be sustainable, they must be affordable. the Board’s fiscal responsibility initiatives, including the Bridged Benefit Program, are designed with that primary objective in mind. there are other important features of this new Program.
1. A Supplemental Valuation is required to adopt the Bridged Benefit Program, and the valuation will separately determine the impact of termination faC as well as frozen faC under the current benefit program, along with the proposed benefit multiplier change for future service. this will provide important and complete information for the parties to consider.
2. The Bridged Benefit Program is Not subject to the 80% funding requirements under Plan Section 43C(2) – (3) so long as the change is intended to and will reduce actuarial liabilities (and thus improve the division’s funded level).
3. Most municipalities are more likely to adopt the bridged benefit lowering the benefit structure going forward. the ‘flip side’ of the Bridged Benefit Program will permit benefits to be increased for future service ( the new multiplier percentage), without upgrading all accrued prior service (under the prior multiplier) thus not creating new prior service plan liabilities that have not been previously funded. in such cases of a proposed benefit multiplier increase, the 80% funding requirements shall apply (unless the supplemental valuation shows that the change will reduce actuarial liabilities).
The Bridged Benefit Program provides municipalities (and courts) the option to provide a benefit comprised of two segments. the first segment is the accrued benefit amount that a member has earned under the division’s benefit structure including multiplier (using credited service and final average compensation [faC] as of the future date the employee actually terminates employment). as an alternative to “termination faC,” “frozen faC” may instead be adopted (faC as of the effective date of the benefit change). the second segment is the changed benefit multiplier percentage under which future benefits (on a going forward basis) accrue until termination of employment (using credited service after the benefit change, and faC as of the date of termination). the two benefit segments are combined to form an employee’s “bridged benefit” amount (the example involves B3 and B2).
The Bridged Benefit Program provisions represent action by the retirement Board in the exercise of its core powers as fiduciary and trustee. the authorizing Program language states it is not subject to alteration or modification, and merS will not recognize such action. the amendments to Plan Sections 43 and 43a will take effect october 1, 2009. the Board has directed that member Comments may be requested with a deadline of September 1, 2009, for consideration by the Board at the September 15 regular Board meeting (in grand rapids).