Investing Outside of Wall Street – Sugarcoating the real issue; i.e., the underfunded liabilities

Imagine, first, that you have been devoting every waking moment of your life to be financially self-sufficient in your retirement since when the dot-com bubble burst.  During that same period, one of the worst financial disasters happened in the market, again.  You, therefore, have had no choice but to cut back on every conceivable expense that is not deemed essential from your everyday life.

Then, imagine, someone comes along and says, “Whoa, my employer did not have the foresight to fully fund the healthcare coverage in my retirement.  Because it was promised to me, I have every right to be fully covered.  And I expect you, taxpayers, to pay for it.”

How would you react?  Well, that’s exactly what is happening in the municipality where we reside.  The board of trustees is trying to figure out how it could fund the unfunded healthcare liabilities for its employees to the tune of $162 million.  At its April 8, 2019 meeting, the board – completely ignoring concerned residents’ objections – voted 5-2 to hold a special election on August 6, 2019.

The board’s objective was to put a resolution on the ballot – to get residents’ approval to pay for it through what they chose to call the “Police/Fire Special Assessment District” proposal.  They chose to use the SAD method because some other municipalities have been funding all or a portion of their public-safety services through a SAD.

According to the board, the need for this resolution arose from Michigan’s Public Act 202, which became law in December 2017, to “protect local government retirement and benefits…”

Incidentally, the very governing body, the state of Michigan, which issued the PA 202, has its own underfunded liabilities for its retirees.  As of the fiscal year 2016-17, the total accrued unfunded liability for pensions is over $36.2 billion; for retiree healthcare, $16.5 billion.  Both combined, it is a total of over $52.7 billion.  Where is the money going to come from to fund these unfunded liabilities?

Getting down to the county level, thankfully, Oakland County has been one of the best-managed counties in the entire U.S.A.  Oakland County is clearly a case where its leadership has been fully cognizant of its fiscal responsibility on behalf of its taxpayers all along.  As of July 2017, both pension and healthcare have been fully funded for 20 years; and this admirable status – which we expect as taxpayers who elected them – continues to this date.  Michigan’s PA 202, therefore, had no bearing on how its budget has been managed.  In other words, if our municipality had been managed by fiscally-responsible boards, instead of kicking the can down the road, then we – the taxpayers – would not be asked to pay more to cover the cost at this stage.

At the April 8, 2019 board meeting, I was appalled by the current board’s lack of understanding for the need to cut its budget – precisely because we have been forced to cut our own expenses, for both business and personal, down to bare bones.   Five out of the seven board members have no clue how serious this issue of “underfunded liabilities” is.  Let me explain.

What follows is a summary of what I addressed in my inaugural blog.  In short, after the 2000 market crash, I chose to finally leave my then employer in 2004, specifically to address the following aspects of my financial concerns in retirement:

  1. To NOT be dependent on pension income.
    • Why? Because in the event my former employer goes bankrupt, Pension Benefit Guarantee Corporation is supposed to come to the rescue except:
      1. If the bankruptcy scenario does materialize, PBGC would pay only one-third of the existing pension amount.
      2. Furthermore, PBGC was already underfunded in 2004.
    • Question: What guarantee is there that I’ll continue to receive pension income in my old age?
  2. To NOT be dependent on Social Security income.
  3. To be able to pay for medical expenses out of pocket if necessary.

As you can see, everything that matters to ALL retirees had already been underfunded (i.e., at risk) long before I chose to be on this journey.  This is the reason I left my employer to secure passive income through my own investments.

By the way, I had no way to predict that our household would be hit by a double whammy in 2008.  First, our house was destroyed by a lightning-caused fire in June.  (We have resided at the current address since 1984.  Despite the fact that the fire was an act of God, our property tax was uncapped because we decided to rebuild.  Consequently, we pay triple the original amount.  Ouch!)  Then came the market crash in September.  As some of you may recall, no bank was lending any money to anyone in 2008 or thereafter.  This meant whatever the insurance did not cover in rebuilding the house came right out of our retirement funds.

In 2004, the national debt was over $7 trillion.  Today, only 15 years later, it more than tripled to over $22 trillion.  On a national level, we’re spending money as if there is no tomorrow.  And, yet, no one seems to be worried about it.  But I am – not that I can do anything about it other than to prepare myself to not have to be dependent on the government to fund my retirement.

Everything I’ve been doing for the last decade and a half has been to ensure that I need not rely on anyone other than myself financially.  Clearly, the Oakland County leadership has been on the same wavelength as I – taking the fiscal responsibility very seriously precisely because, for decades, underfunded liabilities have been a major issue throughout most government entities as well as in the private sector.

Against this backdrop came the proposed “solution” by our municipality’s current board of trustees – to tax us further – to fund the underfunded liabilities for its employees, including themselves; oh, and approving a 2% raise on top of everything.  The majority of the board of trustees seems incapable of grasping the fact that most residents’ sources of retirement income are already underfunded.  Yet, we are being asked to foot the bill for someone else’s underfunded liabilities.  What’s wrong with this picture?

Worse, the board is using a scare tactic by suggesting that if we refuse the proposed solution, then we’re putting public safety at risk.  They’re doing so by dangling carrots in front of the Police and Fire Department personnel to rally around its proposed solution.  In effect, they are weaponizing the Police and Fire Departments against residents, making many of us feel uncomfortable to speak out against the proposed solution.  No one wants to make enemies of the police officers and firefighters, and the board knows it.  This is tyranny in the making.

I understand that the current board did not create the problem but inherited it.  By the same token, there is no denying that it has had eight years to address it, which it did not until PA 202 forced it to take action.

With the exception of a few foresightful municipalities, such as Groveland Township in Oakland County, the underfunded liabilities are a nationwide problem – because no one likes to face the fact that we cannot have everything we want.  It is time we all think through what we want versus what we absolutely need.  For example, we all need public safety; everything else is a want, not a need.

The board is misleading the unsuspecting voters by skewing the story away from the real issue of underfunded liabilities by portraying it as if it were a public-safety issue when, in fact, the real issue affects the entire municipality employees.  Instead of putting it straight, the board is attempting to put the onus on the voters in a misleading guise of public safety – without implementing any budget cuts as part of the proposed resolution.  The board supervisor scheduled Q&A sessions for the public AFTER the ballot language was already set in stone and the voting date scheduled.  Is the board’s tactic clever?  Yes.  Is it effective?  Yes.  Is it deceitful?  Yes.

Enough said.  I have learned while in the corporate world never to bring up a problem without a proposed solution.  May I, therefore, suggest the following to the board of trustees.  A proposed solution on the ballot would fly a lot better among the taxpayers if:

  1. The board of trustees would publicly acknowledge that:
    1. It was caught off guard by the PA 202 requirement.
    2. The issue brought on by PA 202 is all about the underfunded liabilities.
    3. Tying its proposed solution to public safety was inappropriate.
  2. The board is willing to cut any and all unnecessary expenses out of its budget – prior to asking the residents to shoulder the rest of the underfunded liabilities.
  3. The board chooses to cancel – which I assume it has in its power to execute – the August 6, 2019 ballot until such time when it can present a more balanced proposal to the residents.

Most importantly, perhaps our municipality could become a model for the rest of the country as to how the issue can and should be addressed properly once and for all – albeit belatedly.  As a taxpayer, I’m expecting the board of trustees, whom we elected, to do the right thing on our behalf.  It is a lot easier to swallow another tax increase if we can verify that sacrifices will have been made by everyone involved before we are asked to foot the bill for the very serious and prevalent issue of underfunded liabilities.


Postscript: Since November 2004, Mr. Leo Savoie has been on the Board of Trustees of our municipality, Bloomfield Township.  On July 25, 2011, Mr. Savoie was appointed Supervisor.  As you can see in the Oakland Press article, written by Mr. Jay Shah, dating back to January 3, 2010, the fiscally-irresponsible actions by our Board of Trustees fall squarely on Mr. Savoie’s shoulders.


Click on the above hyperlink to read.  It is much easier on your eyes.









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2 Responses to Investing Outside of Wall Street – Sugarcoating the real issue; i.e., the underfunded liabilities

  1. Very well written Reiko. Coherent, thoughtful, organized. We’ve met at our No SAD meetings. Oddly enough I’ve been advising clients for decades to stop transferring wealth to the government as well as the big financial institutions. Almost everyone I meet will pay far more in taxes over their lifetimes (including retirement) than the law, the tax code or the IRS requires.
    Sigh. They don’t understand that the wealthy use the tax code to NOT pay taxes, rather than how much to pay. Here we are… with another tax/SAD.

    Michael Singer, M.D.

  2. Ann Prewett says:

    A thorough and remarkably incisive summary of our present OPEB dilemma and the skewed unnatural fiscal mindset that prevails in this community and America at large.Perhaps a bankruptcy of the township is needed to right-side this presumption that ever increasing taxes is the solution to everything.

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