GEORGIA – No Whitfield County employee will see any changes to their benefits, but the county plans to provide a different set of benefits to employees hired after Feb. 1.
“I want to make that clear,” said Board of Commissioners Chairman Mike Babb. “We have 500 employees we have made promises to. We are going to keep our promises to those people. That’s the right and fair thing to do.”
Commissioners have tasked Human Resources Director Jackie Carlo and Finance Director Alicia Vaughn with developing a plan to close the county’s pension system to new employees and create a plan to move them into a defined contribution system by the end of this month.
The county’s current pension system is a defined benefit plan, which provides an employee with a specified monthly benefit on retirement. In a defined contribution plan, of which the 401(k) is probably the best known type, the employer, the employee or both make regular contributions to the employee’s retirement plan.
“This is something commissioners have discussed for a long time, going back at least to my first time on the board 12 years ago,” said Babb. “The goal is to get that liability (for employees’ retirement) off of the taxpayers.”
Cities and counties across the nation have already made the switch. The city of Dalton, for instance, closed its pension system in 2002. Employees hired after July 1, 2002 are covered by a defined benefits plan.
The defense authorization bill passed last year will move the U.S. military from a defined benefit pension to a blended system that reduces but does not eliminate the pension while providing members of the armed forces with a defined contribution retirement plan.
Many of those governments that have switched to a defined contribution system have done so because they were under financial duress, with pensions eating up an increasing share of their budget.
Harold Brooker, the commissioner who made the initial motion in December to switch the retirement system, said he doesn’t want Whitfield County to go down that road.
“I don’t want us to end up like Chicago and those other places that are spending all that money just for pensions,” he said. “It won’t be us paying that money. It will be our children and grandchildren.”
Whitfield County’s pension is currently 106.5 percent funded and pension contributions are actually decreasing as a share of payroll to 7 percent this year from 12 percent in 2012, according to Vaughn.
But taxpayers still remain on the hook for those benefits.
“If something should happen, the economy turn bad, our investments plunge, the taxpayer would be responsible for those costs,” Babb said.
Currently, county employees can retire with full benefits — 1 percent of the average of their last five years of pay for each year worked — at age 65 or at age 60 if they have at least 25 years of service.
“The idea is that the pension would cover one third of your retirement. Personal savings would cover one third and Social Security would cover one third,” said Babb. “It was not intended to be the only source of retirement.”
The county pays 100 percent of the costs of its current pension system.
So what will the new system look like?
“There are a million different options,” said Vaughn.
One question commissioners will have to answer before the end of the month is what type of match contribution they will provide employees who contribute to the plan. In most defined contribution plans, the employer matches the employee’s contribution up to a certain maximum of the employee’s income.
“The match is all over the place, but it’s most commonly somewhere in the 3 to 5 percent range,” said Vaughn. “It can be dollar for dollar or it can be 50 percent on the dollar or some other percentage.”
The city of Dalton matches up to 5 percent.
They’ll also have to decide when employees would be vested in the plan. Any time employees leave a job with a defined contribution plan, they can take their own contributions with them, but they can take the matching contribution only after they are vested.
“In most plans, that’s typically three to five years,” said Carlo.
Brooker says he feels confident that Carlo and Vaughn will have an acceptable plan ready for commissioners to vote on by the end of this month.
“They’ve been working very hard at it, and they have gotten a lot of information,” he said.
The county’s pension plan is provided through the Association of County Commissioners of Georgia (ACCG), and they say the defined contribution plan will provided through the ACCG as well.
“We like the funds they provide, and we feel like they do a really god job of monitoring the funds they offer and if a fund isn’t performing well, they replace it,” said Vaughn,
That’s important because employees will have to decide which of those plans they’ll invest their money in. But the ACCG provides help for those who haven’t had to make investment decisions before.
“The ACCG has different programs. You just tell them how many years it is until you plan to retire, and they try to find the program that maximizes your return over that 20 years or 30 years or 40 years,” Babb said.
Officials said some current employees have asked them if they can participate in both plans, continue to be covered by the pension plan but also take part in the defined contribution system.
“Commissioners haven’t made a decision on that, but in my opinion, if we allow them to, we shouldn’t match it because we are trying to save some money,” Babb said.
Officials said it would might make financial sense for an employee covered by the pension plan to take part in the defined benefits plan even without a match because they could build retirement savings without having to pay the fees that a private plan would charge.