As a result of the completion of the 1988 General Fund operating budget, which relied heavily on the sale of real and personal property, the Receiver began to realize that a judgment levy for the severely underfunded Pension Plan would be required. Effective December 1, 1987, the Receiver requested that Judge Rashid order a judgment levy of 2.5 mills be assessed. The judgment levy generated approximately $433,000 in additional 1988 General Fund property tax revenues.
Substantial discussions and litigation initiated by the Pension Board continued to occur throughout the first several years of the receivership. While the Pension Board reluctantly accepted the Receiver’s pension contribution funding structure and payments of retirement benefits from Pension Plan assets, actuarial assumptions used in calculating the pension contribution were challenged.
By fall 1988, the Pension Board and Receiver had reached an agreement in the actuarial assumptions to be used. In addition, all police and fire personnel hired from that point on would be included in the Michigan Municipal Employees Retirement System (MMERS) and the Pension Plan would be effectively closed to new hires.
Those active and retired Pension Plan participants choosing to transfer their pension rights to MMERS could do so. Employee contributions for active employees, which had been paid from the time of the employees hiring, would be refunded. The total refunds paid were $417,544 for the 1989 and 1990 fiscal years. Many Pension Plan participants chose to transfer from the Pension Plan to MMERS. No Pension Plan assets were transferred to cover the obligations assumed by MMERS, thereby strengthening the financial condition of the Pension Plan and using the excess MMERS assets over actuarial accrued liabilities to their fullest.
In exchange for deferring a portion of the 1989 fiscal year Pension Plan contribution in the amount of $844,000, the Receiver requested that Judge Rashid order a permanent judgment levy of 6.0 mills, which would generate $1.1 million in property tax revenues for pension contributions, to be assessed on December 1 of each year until such time as the unfunded pension benefit obligation would be eliminated. The pension contribution deferral was a form of long-term borrowing.
The poor financial condition of the Pension Plan may require that the judgment levy be in effect for as long as 28 years. In addition, the ability to resolve the unfunded actuarial accrued liabilities is contingent upon the ability to negotiate settlements with active participants that are within the assumptions used by the actuary. Also, since Great Lakes Steel’s property assessments are a significant component of property taxes, it presumes that the plant will be functioning during the 28 year period.
Efforts were expended by the Receiver to convince individuals to transfer to MMERS as this is a State administered pension plan. Should Ecorse fail to make its pension contributions to MMERS after the receivership, the State could withhold the pension contributions from the State distributions. No such guarantees exist for the Pension Plan participants despite earmarked revenues.
Transamerica T-2 Bond Fund
The final Pension Plan issue involves the investment of $1.3 million in a mutual fund called Transamerica T-2 Bond Fund (T-2 Fund). In 1985, the Pension Board purchased the T-2 Fund investment from an investment agent, a close friend of a Pension Board member. The investment agent indicated that this mutual fund consistently exceeded annual returns of over 12%.
Throughout the receivership the Pension Plan trustee was unable to obtain reliable or timely financial information concerning this investment. After many requests, it was discovered that the investment agent was receiving an annual management fee of approximately $4,500. As the fee was deducted from the investment income before the financial information was submitted to the Pension Plan trustee, Ecorse management was unable to initially determine the amount paid for these services.
Repeated requests for financial information in 1990 resulted in inconsistent data being presented. The investment performance was poor and ultimately, this investment was sold in the 1991 fiscal year. No significant gain or loss was experienced at the date of sale.