The big problem with the Norton Shores pension fund

Posted at 11:46 PM, Sep 06, 2016

NORTON SHORES, Mich. – Underneath the top-ranked school system and the picturesque setting beside Mona Lake, the city of Norton Shores has a problem.

It may not rear its head today or tomorrow, but in years to come, employees working for the citycould be in trouble when it comes to the city’s pension fund.

It’s underfunded – way underfunded. And if city officials don’t make changes to correct the deficit now, it could spell trouble down the line.

“These retirees are counting on this,” said Norton Shores resident and retired financial adviser Jim Riley. “If you have a fiscal cancer, and you avoid doing any type of treatment for that fiscal cancer, it will get worse. And we have a fiscal cancer.”

Riley came across the problem while reading a Mackinac Center study on underfunded pension funds in the state of Michigan.

“As I looked through the list and got lower and lower and lower, I was shocked to see that Norton Shores - my town - was the 6th lowest funded pension fund of all of the top 100 cities in the state of Michigan,” said Riley. “That’s a big, scary deal.”

Essentially the under funding affects two separate reserves: the pension itself, and the post-employment health care fund. The pension fund, just 51% funded, is short nearly $20 million of where it needs to be. The health care fund is far worse – just 4% funded and nearly $38 million short, according to documents from the city.

“We have two funds that appear to be really falling off a cliff,” said Riley. “The annual budget for Norton Shores is about $23 million, so this is almost a little less than three times the annual budget.”

So the question now for Riley and nearly 100 city employees counting on those benefits is, how does it get fixed? Similar to Detroit’s bankruptcy issue years back, raising taxes would only serve to deter business from coming in or staying for that matter.

“They end up leaving, which puts a bigger burden on the ones that stay,” says Ann Schieber Dykstra, community engagement manager for the Mackinac Center. She believes the simplest way to fix the pension problem, is to stop the pension plan altogether.

“These programs need to close for new employees – period,” she said.

She suggests a switch to defined contribution plans, similar to the standard 401(k). That’s something many successful and fully funded municipalities in West Michigan have done, including Grand Rapids.

City leaders in Norton Shores certainly aren’t blind to the issue. At a city council meeting Tuesday, they addressed several concerned citizens.

“Certainly it’s something we have not ignored,” said City Administrator Mark Meyers.  “Unfortunately there’s no quick, overnight fix. These are long term fixes.”

It’s a bit of a relief for those depending on their pensions, but it’s still a worry for many.

“We see it in small municipalities around the country,” said Schieber Dykstra. “So it can happen. Just because you live in a nice community where you think it’s fiscally stable -- it can happen. Those liabilities can come back to haunt you time and time again.”