VERO BEACH — City leaders are poised to scrap the pension plan for 330 employees and shift to a 401(k)-like retirement plan to dig their way out of a $37.5 million hole.
The change would go into effect June 30. It would take 12 years to pay down the shortfall.
The City Council plans final hearings June 16 on freezing the existing pension plan for general employees and instituting a defined-contribution plan.
Supporters of the change said it would stem the rising amount of money taxpayers must provide to retired city workers.
The city’s unfunded liability for the general-employees pension plan more than tripled in the past decade, city records show. The liability is expected to reach $37.5 million by June 30. It was $11.7 million as of Oct. 1, 2004.
If the city sticks with the existing plan “we’re going to get in more and more trouble,” said Mayor Dick Winger. “I think we have to stop kicking the can down the road.”
Councilman Jay Kramer — who dissented both on freezing the current plan and creating the new one — expressed concerns about whether the change would drive off top employees.
“We’re going to get into budgeting, and the idea of raising taxes to push away our senior staff just doesn’t sit well with me,” Kramer said. “Now we’re starting to lose our senior staff right as we need them to start taking on our new projects.”
The pension plan guarantees retirees monthly payments for life. The amount is based on their years of city service and the average of their five highest-paid consecutive years during their last 10 year of employment.
If the change receives final council approval, employees no longer would contribute to the pension plan and no additional pension benefits would accrue, city records show. Employees contribute 3.25 percent of their monthly salary to the pension fund.
The city would continue to make payments to the pension account for 12 years to eliminate the shortfall, said city Finance Director Cindy Lawson.
Under the proposed defined-contribution plan, the city would contribute 7 percent of an employee’s pay to an investment account, current employees would contribute 3 percent and new employees would contribute 5 percent. Once a worker retires and reaches the age requirement, he or she can start withdrawing money.
The city’s pension program for 48 police officers would not be affected by the proposed change.
Vero Beach is the second municipality on the Treasure Coast to switch from a pension system, also known as a defined-benefit plan, to a defined-contribution plan to reduce future liabilities. The other is Jupiter Island, which made the switch in 2009.
HOW THEY VOTED
The Vero Beach City Council voted 4-1 to freeze the pension plan for 330 city employees as of June 30
Randy Old: Yes
Amelia Graves: Yes
Pilar Turner: Yes
Jay Kramer: No
Dick Winger: Yes
The Vero Beach City Council voted 3-2 to establish a defined contribution retirement plan for 330 city employees as of June 30
Vero Beach City officials predict it would take 12 years to pay down $37.5 million in employee pension liability once they switch to a defined contribution retirement plan. Here are some important numbers related to the General Employees Retirement Plan:
339: Active members
348: Retired members and beneficiaries
87: Terminated vested members
774: Total members
$109,429,099: Actuarial accrued liability
$71,926,346: Actuarial value of assets
$37,502,753: Unfunded actuarial accrued liability
Source: city of Vero Beach