Vetting Candidate's Pension Proposal
An eleventh-hour candidate for Frederick city alderman has been cramming for Nov. 7. Added to the candidate rolls on Sept. 19 as a substitute for Bruce Blatchley, Republican Bryan Chaney’s done a whirlwind tour of city departments and, as a result, has come up with a lengthy list of recommendations and ideas to spark interest in his fledgling candidacy.
Most of his ideas hit the mark in terms of addressing the top issues of the day, including the opioid epidemic. Although Chaney’s enthusiasm for issues is boundless, he hasn’t had much time to vet his proposed solutions, like his much-touted proposal to trim $1 million to $2 million from the city’s pension fund within five years.
The city’s current retirement plans cost roughly $10 million annually, and is currently funded at 70 percent. Chaney proposes replacing traditional pension plans with a “401K-type plan.” “The move would save the City over $1 million dollars over a 5 year period, and sets in motion room in the budget for a real property tax reduction for residents and business owners. Savings could be double if Police Officers agree to be included,” Chaney writes in his press release.
The biggest difference between a 401(k) plan and a traditional pension plan is that benefit plans, such as pensions, guarantee a certain monthly income for retirees, and the investment risk is on the City as the provider. Plans like 401(k)s let employees choose retirement investments with no guaranteed minimum or maximum benefits, and investment risk on the employees.
In an interview, Chaney said that his idea had the support of city employees, Human Resources Director Karen Paulson and Budget Director Katie Barkdoll. “Karen said ‘I am fine with it,’” he said. “She said new hires want 401Ks. She said that millennials especially don’t want a pension … So, if I propose this, it could work. She said she thinks it could be great.”
Paulson, who had not previously seen Chaney’s press release before being contacted by The Frederick Extra, said that as a professional in local government, she does not publically support any candidate or take a stance on any particular platform.
“Policy direction comes from the Board of Aldermen with day to day operations overseen by the Mayor. It is not uncommon for candidates to request meetings with staff for information on operations or projects, which was also the purpose of the meeting with Mr. Chaney,” Paulson said in an email. “… I did not give an opinion on his assessment of the current plans.”
Chaney did get rough numbers from Paulson, which he used for his calculations showing steep savings in a short period of time. His cost savings are estimated on an average of 45 civilian hires and 15 officer hires each year. The real figures, according to EEOC reports, and Paulson, however, reveal the city has averaged 30.6 new civilian hires and 18 police hires in the past five years. The Fraternal Order of Police negotiates its employment contract with the mayor every two years.
In his proposal, Chaney said that since new hires cost the city $4,000 annually for retirement benefits, the city could save $1 million. Using the real numbers for civilian employees show that the savings he projects would be closer to $600,000, using his calculations.
When asked if different numbers would change his estimated savings, Chaney said in an email: “My figures and calculations came directly from Karen Paulson, City Director for HR. She told me they have hired an average of 45 new civilian employees and 12 sworn officers per year for the last 5 years. This is pretty simple math. Of course, 401k’s are funded primarily from employee’s pre-tax earnings, so there would be virtually no cost to the city unless the city decides to do a match of some of the employees dollars. This is typically about 50% of the first 4-8%. However, nationwide statistics show only about 30% employees who are offered 401k’s participate anyway, so again, not a huge expense.”
“Changes to the pension plan could save money, depending on what changes are proposed and adopted,” Paulson said. “Any change to a current or future benefit would have to be analyzed and both financial impact and nonfinancial impacts would need to be fully costed out and analyzed.”
“Pensions are a cornerstone benefit of public employment so any future change would have major impact and would need to be fully vetted and discussed,” she said.
Budget Director Katie Barkdoll echoed Paulson’s comments that the city cannot provide an estimate on potential savings from closing the pension plan “without considerable effort.”
“Generally, the City would ask our actuary, Bommershine Consultants, to provide the financial analysis for any proposed changes to our pension plans. Since a change to any employee benefit shouldn’t be evaluated in a vacuum, we would also consider how a proposed change would affect recruiting, turnover and our overall compensation package,” Barkdoll said in an email.
