Pension freeze would retire DROP

To begin receiving monthly retirement benefits, town employees could have to actually retire — as in stop working for and collecting a paycheck from the town.

If the town freezes its pension plans, it would drop DROP (the Deferred Retirement Option Program) for employees who aren’t enrolled as of the freeze date, according to a Q&A placed on the town’s website, longboatkey.org, that answers 75 questions about a proposal to transition employees from current defined-benefit plans to defined-contribution 401(a) accounts, in which employees would receive a town match of up to 13%.

Any employee who receives the monthly pension benefits they earned prior to the freeze date would be required to terminate his or her employment with the town.

DROP employees are effectively retired but continue to work for the town, and the town places their monthly pension checks in an interest-bearing account.

For example, in 2008, the Longboat Observer reported that a Planning Zoning & Building employee retired and was rehired at a $92,622.40 salary. Because he enrolled in DROP, he began collecting monthly pension checks of $5,782.90 in a separate account that, with interest, would have totaled more than $346,000 before taxes at the end of five years.

Currently, just one general employee and one police employee are enrolled in DROP.

The questions were generated from a meeting in May, during which Town Manager David Bullock presented the proposal to general employees, who are not represented by a collective bargaining unit.
Any change to firefighter and police pension plans must take place as part of a bargaining process.

Bullock has made a similar proposal to firefighters during contract negotiations. Police officers, whose contract doesn’t expire until September 2013, will likely begin contract negotiations in March, according to Lisa Silvertooth, the town’s human resources manager.

Police captains, who are part of the police pension plan but are not represented by a union, also submitted questions.

According to Silvertooth, the most common question employees asked was about the possibility of allowing vested employees to keep their current benefits while setting up a different system for new hires.
Employees also asked about other possibilities that could reduce the town’s pension costs while maintaining a defined-benefit plan, such as a lower multiplier for future years of service and allowing employees to increase their contributions toward their pension.

The town’s response to each question is essentially that the town would still further its risk of further investment losses and increased pension costs — the type of exposure and unpredictability that the town aims to avoid.

The Q&A also contains other benefit-related questions.

It states that the current policy of allowing vacation payouts to current employees is under review, although the town is currently required to make vacation payouts when an employee retires.

Although it states that the town has no plans to change medical payouts, “there are no mandates that the town make these payouts upon retirement.”

Another question employees posed: Will “at will” employees — i.e. directors, who were given the option of switching to 401(a)s with a 16% town contribution in 2002 — have their contribution reduced to the 13% proposed for other employees.

The town’s answer:

“There are no plans to do this at this time. The ‘at will’ employees are in a different employment category.”
The town can impose changes to non-bargaining employees’ pension.

However, the town is trying to move firefighters and general employees toward the new system at a similar pace, although that may not be possible because of factors such as union negotiations.

Q&A
Why are we paying for someone else’s mistake?
The town contribution to the cost of pensions ranges from just under 40% of payroll to just more than 80% of payroll. When combined with other benefits, many employees’ benefit costs exceed salary. The cost of pensions has become unmanageable and continues to escalate. This problem can be seen in communities across the nation. The town is attempting to establish a fair and reasonable pension system that when combined with personal savings, Social Security and other retirement funds employees can be assured of a comfortable retirement.

Does no one care what this change does to our families and futures?
The town desires to offer retirement options to employees that allow each employee to plan and manage their retirement affairs so that a reasonable retirement income is achieved. Under the proposed system employees are responsible for planning and managing their retirement investments. The town will make expert advisers and a variety of investment plans available to each employee to help them make good decisions.

Why was the Pension Board not in the loop when they are the ones looking out for us? We are not union, we should have been better informed.
The Pension Board is responsible for overseeing and managing the defined benefit pension program. The decision of what pension program to offer is up to the Town Commission. The pension boards will continue to manage the frozen plans.

What changes in the workforce do you anticipate with these plan changes?
The town does not anticipate any reductions in positions due to pension reform. There may be changes in the work force as a result of pension changes or there may not be. If current employees choose to leave the town will hire new employees.

FULL Q&A PENSION DOCUMENTS
Below is a list of pdfs documents regarding pension details:
Pension Q&A General
Q&A Defined Pension Benefits
Q&A 401A
Q&A 401K
Q&A Benefits
Q&A At Will
Q&A Police Non-Bargaining