Changes to Ann Arbor's pension ordinance could eventually save $230K a year, study shows
The Ann Arbor City Council voted 10-0 Tuesday night to give initial approval to pension ordinance changes expected to significantly reduce future retiree costs.
The changes passed without discussion and now go on for second reading and final approval. They increase both the vesting period and final average compensation period used for calculating pensions of nonunion city employees hired after July 1, 2011.
Earlier this summer, the City Council directed city staff to draft an ordinance amendment increasing the pension vesting period from the current five years to 10 years for nonunion employees hired after July 1, 2011. That means nonunion employees will have to clock twice as many years of service in order to collect pensions from the city.
The directive also asked for an increase in the time period used to determine final average compensation — a figure used in pension calculations that historically has been based on the highest-paid three consecutive years of service within an employee's last 10 years. The council is changing that to five consecutive years, which should equate to lesser pension payouts.
The city had an actuarial valuation completed to see how much the city's pension costs are expected to go down as existing employees are replaced with new hires.
Eventually, when all nonunion employees are under the revised plan provisions, the actuary estimates the city's costs would be about $230,000 less per year, according to a memo from senior assistant city attorneys Mary Fales and Nancy Niemela.
Council members hope the city can negotiate more pension and retiree benefit changes through collective bargaining agreements with the city's labor unions.
In a breakthrough deal reached recently with the city's largest labor union, the vesting period for all future AFSCME hires also will be 10 years instead of five now. The contract includes other major concessions expected to help reduce the city's long-term costs.
As of June 30, 2010, the most recent actuarial valuation date, the city's pension plan was 90.3 percent funded. The accrued liability for benefits was $466.9 million, and the actuarial value of assets was $421.4 million, leaving an unfunded liability of $45.5 million.
The covered payroll (annual payroll of active employees covered by the plan) was $48.7 million, and the ratio of the unfunded liability to the covered payroll was 93.4 percent.
Meanwhile, the city's retiree health care benefits plan and trust was 30.1 percent funded as of June 30, 2010, with $169.6 million in unfunded liabilities.
Council Member Mike Anglin, D-5th Ward, was absent from Tuesday's meeting.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's e-mail newsletters.
Comments
nixon41
Wed, Sep 7, 2011 : 9:22 p.m.
Quit screwing with our pensions.
Goober
Wed, Sep 7, 2011 : 12:48 p.m.
The issue of the cost impact of a lifetime pension can be resolved by converting to a 401k type benefit instead.
Goober
Wed, Sep 7, 2011 : 5:39 p.m.
An excellent idea, pearlgirl.
pearlgirl
Wed, Sep 7, 2011 : 5:28 p.m.
I agree but would also recommend that the "everyday math", social studies, civics, and economics curriculums of all schools be upgraded to teach of the cultural change from corporate goodwill to individual responsibility. This would require an explanation of the benefits of exchanging customer and employee loyalty for quarterly shareholder profits, which has resulted in the massive overhaul of industry's social contract. Then the curriculum must include instruction on how to invest and maintain your investment accounts. As in all cultural shifts, without great effort, this will not happen easily or quickly.
Tom Todd
Wed, Sep 7, 2011 : 12:38 p.m.
when an employee has to start paying more for benefits/pension,etc. this will directly affect the economy, any studies on how this can and or will affect the municipality's balance sheet/books(actually lowering taxes for the long term for our neighbors) not just for a year or two for the city/county. what happens if and when the economy turns around. who's wage will we base everyone's off of,(the blue collar ford worker 1st tier,or a Detroit school teacher)just curious.
SonnyDog09
Wed, Sep 7, 2011 : 12:15 p.m.
So, when exactly will we see these savings that "could eventually" happen? Also, savings of $230k/year when we have $169million in unfunded liabilities doesn't seem that impressive.
Basic Bob
Wed, Sep 7, 2011 : 11:55 a.m.
Hopefully this was a different consultant than the guys that recommended the early retirement deals a few years ago. That didn't result in cost savings. Just a cash handout to the serial double dippers.
David Paris
Wed, Sep 7, 2011 : 11:39 a.m.
Dear Council, Human labor, and the wages & benefits that pay for that labor using my/our tax dollars, are not waste, please look for other areas to cut. I know it's the hip thing to do right now, slash & burn public employee wages, but that doesn't make it the right thing to do. Austerity is SO 2010, can we find another way?