The story Municipalities Tackling Pension Costs was online at the Courant.com at http://bit.ly/6189IO written by reporter BILL LEUKHARDT
It is an interesting read and I would recommend it to folks.
Below are some highlights but I do recommend that you follow the link above and read Mr. Leukhardt’s entire story.
- Ten years ago West Hartford's pending pension obligations were $13 million. Now, officials say, the figure is closer to $25 million.
- Local government is playing catch up to the changes that were made by “Main Street” businesses in the 80s.
- In 2006, almost 80 percent of state and local workers nationwide aged 25 to 64 were covered by a pension, compared with only 45 percent in the private sector, according to data from Boston College
- 80 percent of those public sector workers with retirement coverage had a defined benefit plan. In private industry, "more than 60 percent of [pension] participants [are in a] defined contribution plan," according to the Center for Retirement Research.
- 28 of the state's 169 municipalities have some version of less-expensive 401(k)-type plans for workers in place of traditional pensions
- Avon made the jump in 1997
- Currently, 25 percent of the town's workforce is on the old system, and 75 percent is in the new plan
- Avon’s contribution into the 401(k) plans is a third of the cost of the defined benefit system they were in.
It is something that I believe Wallingford is going to have to look at more closely in the near term and take action on it.
I am not sure if we even engage in this at all presently – phasing out pensions in favor of 401(k) plans that have employees putting in their own salary where the municipality matches it up to a certain percentage.
With all the talk that I hear and the conversations discussed about the pension, it not being fully funded, and the pension commission itself and so forth I assume “no” but I’ll stand corrected if I am in error on that.
The main issue with pensions in general is that they increase over time as workers retire at higher levels of pay and this is reaching a level that Wallingford is going to find additional difficulty in sustaining going forward.
The only way that they can is by raising taxes; that is given. At what point the taxpayers choke on this is anyone’s guess.
When you couple the cost of all the other services in town with this added and increasing burden you just know progressive planning and action must be taken now.
Wallingford and her taxpayers are going to need to put more and more money into the pension plan year over year for the workers going forward so that the fund is fully funded. This needs to occur so that the plan can pay out to retirees as it should.
And those promised benefits SHOULD be paid; a deal is a deal and a promise is a promise.
Considering moving new hires to a 401(k) system has at least one major benefit – once you know what you’re going to pay out (e.g. match the first 5% of the employees’ investments dollar for dollar). Your expenses become much more predictable year over year.
Yes, this will have to be negotiated with the labor unions but it can be done, especially in this economy.
“Avon’s contribution into the 401(k) plans is a third of the cost of the defined benefit system they were in.”
If we could just save 50% let alone 67% we MUST take a look at it.
It will take many years to change everyone over by attrition so the initial savings is going to be minimal and it will slowly grow.
The savings will come and those of us that stay in Wallingford into our older years will get some benefit of this lower cost and through the need of less taxes due to the change from the current obligation.
Future residents and businesses will reap the larger rewards.
None of it will happen until we start work today.
It will be a hard sell to Wallingford employees to have only a 457(the government form of a 410k) plan to contribute to because the Mayor will only permit employees to contribute money into a cash fund, which gains about 3%/year. A number of years ago the Management Union negotiated to have a 457 account available to them. No Town funds were involved, contibutions would only come from the employee. The union received it, but then the Mayor mandated that the only fund available to them would be a cash account! Because 457's are held in trust by the Town until you retire, the Mayor used the argument that if an employee lost money, they might sue the Town. We all know that the real reason is that the Mayor believes he knows best, and that he does not trust the stock market, so employees should not. I understand Wallingford is the only town in the US that has 457 funds available to them, but that the Chief Executive limits the choices to one.
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