ESCANABA — The Escanaba City Council moved to make a $2.5 million payment to the Michigan Municipal Employees Retirement System Thursday. The payment and a related plan will satisfy the state Department of Treasury, but the council and city staff still hold that the department has a skewed view of the city’s finances.

“The fact of the matter is we’re financially better off than MERS gives us credit for, so we’re falsely being accused, practically,” said Council Member Ralph Blasier.

Earlier this year, the city was required to submit a form to the Department of Treasury containing a two-part test to determine if the city’s liability for defined benefit pensions was considered “underfunded” under Public Act 202 of 2017. For cities, a determination of “underfunded status” is made if the total balance held by MERS for paying for defined benefit pensions is less than 60 percent of those liabilities and the city’s annual contributions to the plan are greater than 10 percent of total fund revenues.

Prior to the payment approved Thursday, the city was only 58 percent funded, and the formula used to determine the city’s total fund revenues does not include money generated by enterprise funds, such as water and wastewater. The city’s three enterprise funds contribute nearly 33 percent of the city’s retirement liability, and if the funds were included, the city’s actuarially determined contributions to MERS would only be 8.5 percent of the city’s revenues.

The city has attempted to fight the “underfunded” designation, first by reaching out to the Department of Treasury to argue the calculations weren’t an accurate representation of the city’s finances and then by requesting a waiver. Neither path changed the city’s status, forcing the city to develop a corrective action plan to be submitted to the treasury.

“I still want to continue to fight with them over the interpretation of Public Act 202 that allows to carve out the liabilities that lie in our enterprise funds. That would take care of it right there,” said City Manager Patrick Jordan.

The $2.5 million payment approved Thursday will bring the city to 65.2 percent funded based on MERS’ current valuations, but the total effect of the payment on the city’s funds has yet to be determined. All of the city’s funds will contribute to the payment proportionately to each funds current contribution to MERS.

Whether or not the $2.5 million payment brings the city to 65.2 percent funded in the long-term is largely dependent on the financial market. Because MERS invests money paid into it, rather than holding it in an account like a bank, market changes have a direct effect on a city’s funding percentage. Strong bull markets could theoretically increase funding percentages, but downturns can lower funding percentages even if payments are made as scheduled. The $2.5 million payment is based on a roughly 7 percent assumed return on investment.

“The assumptions are always too high and it underperforms and the unfunded gap gets higher every year,” said Jordan.

Still, Jordan argued investing into the fund was a good move for the city financially, because even if the city does not achieve 7 percent, it will likely make more than the 2 percent or less the city currently makes on its bank deposits.

The council unanimously approved the payment to MERS and resolved to submit the accompanying corrective action plan — which essentially explains the effects of the $2.5 million payment — to the Department of Treasury.