Is this a time for a COLA? - Some councilors question pension cost-of-living adjustment

As published in the Record Journal on August 21, 2011

By Russell Blair
Record-Journal staff
rblair@record-journal.com
(203) 317-2225

WALLINGFORD — The Town Council voted last week to approve a 1.5 percent cost-of-living increase in pensions for retired town employees, but some councilors questioned the decision at a time when many current town employees face a wage freeze.

Personnel Director Terrance Sullivan said town employee union contracts require the council to consider a cost-of-living increase every three years. In the past, the increases have been 3 percent, but Sullivan said Tuesday the 1.5 percent figure was a compromise given tough economic times.

“We decided on an increase of less than 3 percent but more than zero,” Sullivan said.

Sullivan said there are 406 retirees and beneficiaries in town, and 310 will be affected by the increase. The increase, which won’t go into effect until next year, will initially cost the town $93,215.

Councilor Craig Fishbein, a Republican, voted against the increase because he felt it wasn’t the right economic time for an increase in pension payments.

“We take the position of no wage increases for current employees, but increase pensions by 1.5 percent for past employees,” Fishbein said.

Fishbein also questioned the language of the contract, and whether or not it would be possible for the council to approve an increase, but delay the start by a year. Some councilors who voted in favor of the increase did so because they didn’t want pensioners to go five years without a cost-of-living adjustment. John LeTourneau, a Republican councilor, voted in favor of the increase.

“In these tough times, people living on a town pension, that’s all they get,” LeTourneau said.

As for the current employees with no wage increases, LeTourneau said that – for the people working – he felt the wage freeze will eventually be negotiated.

“They’re going to get their raises,” LeTourneau said.

Some councilors asked about an annual review for cost-of-living adjustments, but Sullivan said that, given the contract language, it wasn’t possible. Sullivan added that since the raises compound every year, a 1 percent increase for three consecutive years would cost the town more than a 3 percent increase every three years.

Fishbein said that he was worried the increases would affect the budget not just this year, but in subsequent years too. Sullivan said that his staff was still extrapolating the data to estimate how much it will eventually cost the town.
There hasn’t been a cost-of-living adjustment for Social Security recipients since 2008, a fact that Fishbein said shows it’s possible for town retirees to get by on their current pensions.

“Look at all the seniors on Social Security who haven’t seen an increase in two years,” he said.

Nick Economopoulos, a Democrat, also voted against the cost-of-living increase.

“The people that are paying for this increase can’t afford to put food on the table,” Economopoulos said. “I just don’t think it’s the right time.”

LeTourneau said that in the grand scheme of things, the increase doesn’t result in a lot of extra money. Going five years without an increase, he said, is “just not right.”

“I don’t think it’s fair to penalize the retirees,” LeTourneau said.

Municipalities Tackling Pension Costs ; how will Wallingford move into the future?

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.

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