Monday, February 2, 2009

City council retirement plans

Like any new job, the first few days of city council required lots of paperwork. One of the forms that I was given to fill out was the application for the city council retirement system. I demured, wanting to get more information since it is an issue that is of concern to me. I have more information now and have chosen to enroll.

Here's why.

Defined contribution plans are no more risky to the city (or in this case, the state) than a paycheck.

There are two key types of plans, both of which we can participate in:
  • Defined benefit: a guarantee by employer of a certain percentage of your salary once you retire. This is what is typically called a pension.
  • Defined contribution: a contribution by the employer to an investment plan, the amount of which is some percentage of the employee's salary. This is comparable to 401(k) or IRA retirement plans.
The city's contribution to each is the same percentage of salary, at least nominally.

The problem that we run into with pensions (defined benefit) is that the value is based on some actuarial table that assumes certain market conditions, etc. Unfortunately, the assumptions are frequently wrong, and the employer or pension administration gets put on the hook many years down the road. We typically underestimate the cost of such a plan.

I have chosen to participate in the defined contribution plan (though I have to elect that after I sign up). Such a plan can be viewed as simply part of my salary. When I am no longer in office, the state (this is a state plan, so it is not related to the city's pension) no longer has any financial obligations to me.

The city's contribution to the defined contribution plan is 16.53% percent of our salaries. Our salaries are $13,998 per year. That works out to $2312 per year toward retirement. Therefore, the salary plus this benefit (the city also pays into Social Security and Medicare) is $16,310.

I believe that city council should be a paid position and that pay can take the form of paychecks or similar compensation.

By providing financial compensation, whether as a paycheck or contributions to a retirement plan, we can attract more of a range of people to serve on the council.

There is a cost to my family for me to be on the council. I am a fiscally responsible person. But I have to be fiscally responsible for my family, not just for the city. There is a cost to my family (not just my husband and kids, but also my parents and grandmother, who are participating in childcare) for me to be on the council: the opportunity costs of the money I could make if I looked for a job that needed someone of my training; the costs in time that my mom, my dad, my husband, and my grandmother are putting in to helping with the kids; the costs to my kids of the loss of time that I can spend with them; the actual money I will have to pay for a babysitter when my family can't fill in. Without the salary, I would have a hard time justifying being on the council.

I am not alone. There are other people I know who considered running but decided against it because they have an obligation to support their family financially.

I would like to put the salary and retirement contributions in context. Other similar jobs in our community, like school board and ECUA (both paying about $35,ooo) and county commission (about $75,000) pay more. I have not researched what benefits they receive in addition to their salaries. All have fewer regularly scheduled monthly meetings than the city council.


In closing, I am concerned like many others about our city pension system. First, we must stay true to our current and past employees who served expecting a defined benefit. I believe, however, that defined benefit plans have contributed to the financial instability of many companies and understand why the private sector has moved away from them. I think that defined contribution plans have a role in recruitment and retention of quality people to jobs in this city, and, like most of the citizens of Pensacola, I want to see the highest quality people attracted to serving on the council and staff.