Coldwater finance staff reports improved pension funding but notes remaining unfunded liability

The board received an update on the closed defined benefit pension plan administered by the Michigan Employees' Retirement System (MERS).

Tom explained the plan’s actuarial position: actuarial accrued assets and liabilities produce an estimated funding level of about 81% and an unfunded liability of roughly $2.8 million. He reported the MERS market rate of return for 2024 at 7.28% and said the long‑term assumed return remained at 6.93%. Tom traced policy and actuarial changes since 2015 that required plans to amortize prior losses over fixed schedules and which reduced previously optimistic smoothing practices. Because the utility’s plan is closed to new hires, its amortization schedules are shorter, meaning required payments should drop materially after pre‑2015 amortizations expire (first drop expected after 2027, a further drop after 2030), Tom said.

Tom also described surplus divisions established since 2019 that hold additional paid‑in funds the utility can choose to draw upon in the future; he said the board successfully increased payments to build surplus divisions and that 2025 investment returns year‑to‑date through September were favorable (12.6% noted). He reported there were seven active employees still in the plan, four vested former employees not drawing benefits, and 34 retirees/beneficiaries drawing from the plan.

Board members asked whether required payments would drop to $150k–$200k per year after amortizations end; Tom said that outcome depends on market returns and could vary but that the current payment posture puts the utility in a better place than a decade ago.

Next steps: staff will continue monitoring MERS valuations and bring future actuarial updates as they become available.