Frederick city to take look at pension reform
Mayor says he will create an advisory board to look at options
Frederick Mayor Randy McClement is putting together an advisory board to evaluate the city's pension plan and look at ways it can be reformed.
McClement (R) and the Board of Aldermen held a special pension workshop March 3, spending just short of two hours discussing ways to alter the city's pension plans to save money.
The aldermen discussed adjustments that could be made, such as freezing the city's 30-year plan for new hires or asking employees to contribute more to their pensions.
The pension plans make up a significant portion of the city's budget. The city spends slightly more than $10 million on pensions, or about 9 percent of the city's $114 million overall budget.
The board is trying to lower that percentage, but a target number hasn't been set, according to Gerry Kolbfleisch, the city's director of finance. He said the process of pension review is still early, and he wasn't sure what changes might come.
The city offers a 22-year, 25-year and 30-year pension to employees, according to the city's website. The 22-year plan is for sworn officers only, and requires an 8 percent salary contribution, allowing employees to retire after 22 years with 60 percent of their final average pay.
The 25-year plan requires a 7 percent salary contribution, and allows employees to retire at 25 years of service with 50 percent of their final average pay. The 30-year plan requires no contribution from employees, unless they make more than the Social Security wage base, which was $106,800 in 2011, and allows them to retire with 36 percent of their final average pay after 30 years.
Alderman Karen Young (D) said the city need to quickly effect changes, as the plans are "hemorrhaging" money.
"When you have an $80 million unfunded obligation, and you have 16 percent of your general fund budget going toward pensions ... that is my definition of hemorrhaging," she said.
Alderman Shelley Aloi (R) agreed with Young's assessment, saying the city's pension plans will destroy the budget if not taken care of.
"It's not possibly to continue things the way they are unless you want the city of Frederick to go bankrupt," she said.
There were several suggestions about freezing either one or both plans available to employees other than sworn officers, though no decisions were made on the issue.
Alderman Michael O'Connor (D) said the city's 30-year plan, which does not require employee contribution, doesn't make financial sense, noting that other places nationwide are phasing out similar non-contributory plans.
But he said the city needs to provide an alternate source of retirement benefits if it closes the plans.
"There's broad agreement that pension plans without employee contribution are outdated," he said. "I think closing the 30-year plan makes sense. I think closing the 25-year plan may make sense, if we have somewhere for them to go."
Alderman Kelly Russell (D) agreed with O'Connor's assessment, and said the city's pension plans give them a boost in attracting new hires, since salaries can't compete with the private sector.
"If we decimate our benefits package to the point we can't be competitive, that's not good for the City of Frederick," she said.
One concrete change came at the suggestion of Alderman Carol Krimm (D), who proposed creating a pension board she said would allow the city to get outside input on pensions from residents with knowledge of the process.
"I think that would give us some expertise from the private sector," she said. "...I think if we had this board in place that would give us some guidance in the future."
McClement agreed, and also said he would work toward creating the board in time for it to provide input on fiscal 2012, which begins July 1.
The board will vote on two aspects of pension review — the 1,000-hour threshold for part-time employees becoming eligible for pensions and employees contributing to their pension from the first day they are hired — during their public meeting on March 17.
Other aspects of reform that were discussed, such as freezing the 30- or 25-year plans, will not be voted on until the board has further workshop time.
tlaino@gazette.net
McClement (R) and the Board of Aldermen held a special pension workshop March 3, spending just short of two hours discussing ways to alter the city's pension plans to save money.
The aldermen discussed adjustments that could be made, such as freezing the city's 30-year plan for new hires or asking employees to contribute more to their pensions.
The pension plans make up a significant portion of the city's budget. The city spends slightly more than $10 million on pensions, or about 9 percent of the city's $114 million overall budget.
The board is trying to lower that percentage, but a target number hasn't been set, according to Gerry Kolbfleisch, the city's director of finance. He said the process of pension review is still early, and he wasn't sure what changes might come.
The city offers a 22-year, 25-year and 30-year pension to employees, according to the city's website. The 22-year plan is for sworn officers only, and requires an 8 percent salary contribution, allowing employees to retire after 22 years with 60 percent of their final average pay.
The 25-year plan requires a 7 percent salary contribution, and allows employees to retire at 25 years of service with 50 percent of their final average pay. The 30-year plan requires no contribution from employees, unless they make more than the Social Security wage base, which was $106,800 in 2011, and allows them to retire with 36 percent of their final average pay after 30 years.
Alderman Karen Young (D) said the city need to quickly effect changes, as the plans are "hemorrhaging" money.
"When you have an $80 million unfunded obligation, and you have 16 percent of your general fund budget going toward pensions ... that is my definition of hemorrhaging," she said.
Alderman Shelley Aloi (R) agreed with Young's assessment, saying the city's pension plans will destroy the budget if not taken care of.
"It's not possibly to continue things the way they are unless you want the city of Frederick to go bankrupt," she said.
There were several suggestions about freezing either one or both plans available to employees other than sworn officers, though no decisions were made on the issue.
Alderman Michael O'Connor (D) said the city's 30-year plan, which does not require employee contribution, doesn't make financial sense, noting that other places nationwide are phasing out similar non-contributory plans.
But he said the city needs to provide an alternate source of retirement benefits if it closes the plans.
"There's broad agreement that pension plans without employee contribution are outdated," he said. "I think closing the 30-year plan makes sense. I think closing the 25-year plan may make sense, if we have somewhere for them to go."
Alderman Kelly Russell (D) agreed with O'Connor's assessment, and said the city's pension plans give them a boost in attracting new hires, since salaries can't compete with the private sector.
"If we decimate our benefits package to the point we can't be competitive, that's not good for the City of Frederick," she said.
One concrete change came at the suggestion of Alderman Carol Krimm (D), who proposed creating a pension board she said would allow the city to get outside input on pensions from residents with knowledge of the process.
"I think that would give us some expertise from the private sector," she said. "...I think if we had this board in place that would give us some guidance in the future."
McClement agreed, and also said he would work toward creating the board in time for it to provide input on fiscal 2012, which begins July 1.
The board will vote on two aspects of pension review — the 1,000-hour threshold for part-time employees becoming eligible for pensions and employees contributing to their pension from the first day they are hired — during their public meeting on March 17.
Other aspects of reform that were discussed, such as freezing the 30- or 25-year plans, will not be voted on until the board has further workshop time.
tlaino@gazette.net
4 comments:
So Joe, I guess since you don't have a pension, no one else should?
9:04-
Go back under your rock -- the issue is how to fund the pensions, or should they be another handout by the taxpayers to the bureaucrats.
EVERY government entity should be looking at ways to reduce their costs-to-the-taxpayer for government services.
They should all form panels with local businessmen, management consultants, etc to brainstorm and analyze their situations and find ways to reduce costs.
To help a government cut costs I think many would volunteer to serve on a panel.
Even an open forum with citizen input would be helpful.
Think outside the box.
If the employees fund their pension, what is the problem. Many companies match all or a portion of 401k contributions, what is the difference if the city kicks in some towards what the employee is contributing? If an employee is contributing 7%, that is a pretty good chunk of money being invested. Remember, it is not the city that is paying the pension, but a investment company like Aetna or something similar. It is not like the city is writing a check to retirees. As long as the employees are contributing amounts as illustrated, I don't see a problem. Now, in the Wisconsin situation, the employees didn't contribute anything. That is a problem. As long as the pension fund, which is funded largely by the employees is healthy, why mess with it? Just because some of you may not invest 7% or more of your income, don't beat on people that do.
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