County’s defined benefits plan draws ire

Tue, 11/18/2008 - 5:11pm
By: John Munford

Residents argue it will hurt county and employees

A dozen residents lobbied the Fayette County Commission Thursday night to abandon a proposed defined benefits pension plan for county employees.

Though they vary widely in structure, defined benefits plans typically guarantee a certain payment for the remainder of the employee’s life after retirement.

Under Fayette’s proposal, an employee will receive a monthly pension equal to 1.5 percent of their monthly salary multiplied by the number of years worked for the county, with a maximum total of 45 percent. There is also no cost of living provision in the pension plan.

In an email to several concerned residents, County Commission Chairman Jack Smith said the county is not responsible for paying any retirement that employees earned prior to the plan’s implementation.

Though the pension plan has been approved in concept, county staff are still sorting through bids submitted for the program before one company can be selected.

“Our liability will only be for service by employees to the county after the plan is implemented,” Smith wrote.

But as resident after resident opposed the new pension plan, Smith and his fellow commissioners remained silent on the matter because it was during the public comment portion of the meeting and not a regular agenda item or public hearing.

Pat Hinchey, a certified financial planner who serves retirees and soon to be retirees, cautioned the commission about adopting a defined benefits plan. Although the plan might not be as expensive in the first year or two, the expenses would mount as time goes by, he said.

“Unfortunately I’m really well aware of how these plans are designed,” Hinchey said. “When they’re initially set up, they appear to be very enticing, but three to five months later down the road they become a real sinkhole for real dollars. Unfortunately we’re talking about in this case not corporate dollars but taxpayer dollars.”

Resident Bob Fuhrman, who unsuccessfully ran for a seat on the county commission in July, said he lost 80 percent of his defined pension benefits from his former employer, Eastern Airlines.

“It can be taken away from you,” if the plan is ultimately pulled into court for underfunding or other reasons, Fuhrman said. “... You’re better off letting the employees have it to themselves in a defined contribution plan which they can control.”

Resident Robert Lowey said a defined benefits plan is unreliable for employees who face the risk of a loss in the future based on the problems experienced by other such plans across the country.

Former County Commissioner Harold Bost, now spearheading a group called Fayette Citizens for Open Government, called the county’s data on the pension plan “voo-dough” mathematics.

“For the life of me and hundreds of Fayette County taxpayers, we can’t understand why you’re even considering a defined benefits plan for Fayette County,” Bost said. “If you think defined benefit programs are so great, why do you business owners up here not have that kind of plan at your business?

Bost added that the county’s claim the program will actually save money while also improving employee’s retirement is counterintuitive.

“There’s no way you can give away more money at less cost to the taxpayers,” Bost said. “There’s a glitch in the math or there’s a lot of suffering disillusion. Either way it’s time to stop kidding yourselves and the taxpayers of Fayette County.”

After most residents left the meeting, Smith said he wanted to correct misconceptions about the plan.

Smith countered Bost’s argument about the cost of the plan, contending it would indeed “cost less” than the county’s current retirement offering. In his email Smith said the plan reduces the county’s total commitment for retirement from 8 percent of payroll to 6.3 percent of payroll, a savings of more than $500,000.

Smith said complaints that the process hasn’t been handled openly are incorrect. A retirement committee appointed by the board has conducted open meetings that have been advertised in the county’s legal organ, allowing notice of the meetings which anyone could attend, Smith said.

Comparing Fayette’s proposal to the failed defined benefits plans of Delta and Eastern Airlines, among others, misconstrues the issue as Fayette’s plan is significantly different, Smith indicated.

“There’s a lot of misinformation floating around and I cannot tell whether this is an effort to discredit this board,” Smith said.

In his email, Smith noted that currently the county offers a match to employees’ deferred compensation retirement contributions of up to 4 percent of their salary.

The defined benefits plan changes that so if the defined benefits plan exceed that 4 percent threshold, the county will contribute that much less in a match to the employee’s deferred compensation retirement accounts.

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mapleleaf's picture
Submitted by mapleleaf on Wed, 11/19/2008 - 4:45pm.

I don't know why this article keeps referring to a defined benefits plan, when the correct term is defined benefit plan. The plan defines the pension benefit to be provided, and whatever it costs has to be estimated, because indeed we don't find how much is paid out until the last pensioner has died.

With a defined contribution plan, you know what it costs up front. That amount is set aside for the employee, and that's it. With a defined benefit plan, the cost is always an estimate. These estimates have a way of being off by wide margins.

County commission chairman Jack Smith demonstrates stubborn foolishness when he clings to his current pension cost estimate as if it were the final true cost. His lack of wisdom is likely to backfire on the taxpayers who elected him. It won't be like he had not been told...

Robert W. Morgan's picture
Submitted by Robert W. Morgan on Thu, 11/20/2008 - 5:50am.

First of all it binds future county commissions to a concept that they may not support and can easily be overturned because of the illegality of the the original proposal. In other words, it is like the off-shore oil drilling ban - on again, off again at the whim of future governing bodies.

The current staff should really be pushing for a defined contribution plan and try to have it self-directed. The farther away you are from government when it comes to your future and financial well-being the better off you are. Under the current proposal, if a couple of you live too long the county just cuts your benefit so they can pay others. Or more likely, tax revenue falls and they look for things to cut.

But don't blame Jack, he's not used to dealing with numbers and math and things like that.

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