Minimum Municipal Obligation

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Minimum Municipal Obligation (MMO) is, in the United States, the state-mandated smallest amount a municipality must contribute to any pension plan established for its employees.

The amount is calculated using actuarial science to ensure that municipal pension plans are sufficiently funded.

The municipality, regardless of the amount contributed by it, is also required to keep the pension plan solvent.

If the pension funds become insufficient to meet obligations then the municipality must augment the pension funds using money from other sources.

The general funds of the municipality are thus in effect a guarantor and insurance policy against undercontributions by employees or poor performance of pension fund investments.

However, the municipality is responsible for making up any shortfall between the MMO and the sum of contributions the municipality makes for each employee as a percentage of that employee's wages, plus realized earnings on the pension fund investments. This may be done on a schedule.

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