Pension Plan Procrastination

The commission has been kicking the pension plan problem down the road for a couple of years. While I was on the commission we had meeting after meeting about the pension plan. We heard from and listened to many pundits and experts. And we did nothing about the pension plan predicament.

From that time to now, while the commissioners have been continuing to take no action, 17 new hires have been added to the pension plan, and to the already considerable financial obligations of the taxpayers. The commission seems to be suffering from pension plan paralysis.

The pension plan issue boils down to two choices. The first involves joining the Florida Retirement System (FRS), which would require fully funding our current pension plan financial obligations as a condition of admittance.

The second option is to put all new hires in a "defined contribution" or 401K retirement plan, while maintaining all current employees on their "defined benefits" pension plan. The town could offer to buy the employees out of the current pension plan but that would require as much money as buying into the FRS. It seems that the Florida Retirement System is the best choice.

If the stock market was currently at say 18,000 we would not be having a pension plan discussion, because our plans would be fully funded. The upside of "defined benefits" pension plans is possible gains on investments that offset pension obligations. However, the vicissitudes of the market have not been kind to our three volunteer investment committees, and our town finds itself in the unenviable situation of being in the bottom 10% of funded municipal systems.

Defined contribution pension plans require a fixed rate contribution into employee 401K plans. Most of the town's management are on 401K plans. I suspect there may be a few of these employees who wish they had stayed with the defined benefits system instead of being underfunded for their retirement due to market losses. The town manager receives a 28% of annual salary contribution into his 401K. It should be noted that the amount of money required for yearly defined contributions plans is usually greater than payments into a defined benefits plan.

Our present, locally funded retirement plan does not allow employees to transfer benefits if they move to another location. The FRS does have transportability within the state. Even though the FRS suffered recent losses in their investments, the FRS is still ranked highly in state retirement funds.

I can see no future in continuing with our current volunteer pension fund committees with their duplication of fees to advisor's, lawyers and brokers. The FRS can afford to hire the best fund managers. We cannot, and that is reflected in our underfunded pension plans. We are in the bottom 10%.

While the commission mulls over its alternatives, the town continues to add to the obligations of its pension plans. Joining the Florida Retirement System is the most prudent choice. Moving to a defined contributions plan will not lessen our current debt. Nor will it attract the best workers as long as there are other communities that offer a more secure career track either by being part of the FRS or by offering their own guaranteed retirement plans.

Being part of a huge state pension system would stabilize our pension plan issues, add portability as an incentive to attract new workers and most importantly assure our employees a secure retirement. A 401K plan does none of these.