MERS presents Clare County pension valuation: plan 70% funded, projection to reach 100% in 15 years

Tony Rajenovich, regional manager for MERS (Municipal Employees' Retirement System of Michigan), presented Clare County's annual defined-benefit valuation and answered commissioners' questions about funding, investment returns and options to reduce the county's unfunded actuarial liability.

Rajenovich told the board MERS administers retirement plans for Michigan local governments on a not-for-profit basis and said the system serves more than 1,000 municipalities and about 150,000 participants. "We are an organization that administers retirement plans for Michigan municipalities and your local units of government on a not‑for‑profit basis," he said.

The valuation figures Rajenovich reviewed show Clare County's defined-benefit plan had actuarial liabilities of roughly $36 million and assets of about $25 million, producing a funded ratio near 70% as of Dec. 31, 2024. Rajenovich said the plan's amortization policy projects the plan will reach 100% funded in 15 years (about 2039) if future experience matches the assumptions used in the valuation.

Rajenovich explained key technical drivers: MERS' long-term assumed rate of return is 6.93%; the plan uses a five-year smoothing method that recognizes only one‑fifth of each year's investment gain or loss when calculating actuarial asset values; and the smoothing reduced the five‑year smoothed return to 3.79% even though the market (gross) return for 2024 was about 7.28%. He showed a projection in which employer contributions rise in the near term (current required contributions were reported at about $1,562,000) as the plan pays down legacy unfunded liabilities, then decline after the plan achieves full funding.

The county has several tools to address the unfunded accrued liability (UAL), Rajenovich said: adopt additional voluntary employer contributions (either as lump sums to division accounts or into a surplus funds division), change plan provisions for new hires (the county previously reduced benefits for some new hires in 2017), or consider other structural options such as hybrid or defined‑contribution options for future employees. He showed illustrations comparing the effect of a $1.5 million additional contribution versus continuing the amortization schedule without an extra payment.

Rajenovich reviewed membership counts and benefit flows in the valuation: 420 lives in the pension system, 137 active employees, 111 former employees with member contributions but not yet eligible for benefits, 56 vested members, and 116 beneficiaries receiving about $1.7 million in annual benefit payments. He also noted the plan's assets-under-management for the merged defined-benefit portfolio and described MERS' investment diversification and fee (about 29 basis points for plan administration and investment management).

Commissioners asked how lump sums, surplus‑division contributions or additional annual payments would affect future required contributions and timing to 100% funding. Rajenovich said MERS can run specific projections for alternative scenarios on request. He emphasized that putting additional dollars into the divisions reduces the plan's actuarial required contribution (ADC) more directly, while putting money into a surplus funds division can speed the time to 100% funded without immediately lowering the computed ADC.

The presentation closed with Rajenovich offering to provide further valuation scenarios at the board's direction.

Ending: The board did not take formal action on the valuation report during the meeting; Rajenovich said staff could run scenarios the commissioners requested and return findings in a future meeting.