Shifting risk: County proposes new, optional retirement plan where employees drive investment

December 10, 2017

County Executive Steve Schuh has proposed new legislation creating an alternative retirement plan that would vest faster than the current plan but shift investment risk from the county to the employee.

The plan is called an Employee Retirement Savings Plan and was introduced in November. Compared to the current plan — the Employee Retirement Plan — it vests at twice the speed but comes with a lower county contribution. It’s a defined contribution plan, meaning the employee contributes 4 percent salary and the county contributes 8 percent.

But instead of the county investing the money, the employee can choose how to invest. The new plan would impact general employees, not public safety officers.

The bill creating this plan will go before the County Council on Dec. 18.

The plan gives employees flexibility, said John Hammond, the county budget director. If someone doesn’t intend to stay with the county for 10 or more years, they can choose the optional plan that vests in five years, he said.

“These plans are offered all the time in the private sector,” Hammond said. “Some governments have moved to these plans because they essentially de-risk the counties as far as the investment performance.”

So, what are the numbers?

The current county retirement plan has two tiers: tier 1 in which the employee contributes 4 percent of their earnings, and tier 2 where they don’t contribute at all. It’s also a defined benefit plan, meaning the county is on the hook to pay up once requirements are met.

The county contributes 9.4 percent of salary on top of the employee contribution. All the while it is investing these pension monies, planning for a 7.5 percent return on investment. But when investments waver, or people live longer, the county has to make up the gap.

In reality, the county is paying about 20 percent contribution when making up the investment gap, Hammond said.

When someone mentions unfunded pension liability, that’s what that is. It’s the county paying pension obligations out of current income, rather than another fund.

This money vests in 10 years. It originally vested in five years, but under the Schuh administration it changed to 10 years.

The new, optional plan changes up those numbers. Instead of the county contributing 9.4 percent and filling the gap, the county would contribute a flat 8 percent and then its responsibilities have been met. It’s then up to the employee to select investments for the fund and build up the retirement plan.

The new plan also vests in five years instead of 10. And it vests increments, meaning employees can take 20 percent of the county’s contributions in the first year, 40 percent in the second and so on until 100 percent.

County officials are hopeful the new plan takes some pressure off their pension liabilities while also attracting employees who don’t plan to stay with the county very long. Employees are also allowed to join both plans.

Unions representatives have been reviewing the plan, but don’t have a judgment just yet, said Tim Kingston, president of the American Federation State County Municipal Employees Local 2563.

“We have a couple of questions; we are still investigating the proposal,” Kingston said. “At the end of the day we want the best package for all our people. Sometimes it is good to have options.”

Paid leave for temporary and contractual employees

In other employee news, Schuh announced a plan to give temporary and contractual employees paid time off.

The policy’s targeted effective date is February 2018 and would cost the county an estimated $100,000.

Employees who work 30 hours or more per week will be eligible for the paid leave. They also must have worked for the county for at least 120 continuous days.

Once eligible employees will earn one hour of paid time off for each 30 hours they work a week. The paid time won’t exceed 40 hours and accrued time can be used for sick days or other personal reasons.