An option offered by the Retirement Systems of Alabama for municipalities to change retirement benefits for their Tier II employees was the topic of discussion at an Enterprise City Council work session held March 18.
At issue is a May 8 RSA deadline to decide whether to authorize the 102 Tier II city employees to receive Tier I retirement benefits starting at the beginning of the next fiscal year in October.
Also at issue is that—combining the employee contributions and the city’s contributions—$540,000 is the estimated cost to the city to do the conversion.
Another issue is the fact that a salary survey for the city will not be completed by the May 8 RSA deadline and those results could drive the city’s estimated cost higher than $540,000.
“That’s what everybody needs to understand,” said City Council President Turner Townsend. “There is no pension fairy somewhere that sprinkles pixie dust on this money. This is an investment account that Enterprise has. All the money comes in and we’ve got to keep it solvent as we have people retire.
“There is not something magical about conversion that somehow makes the investments more successful. It’s got to be funded. Our pension has got to be solvent,” he added.
Human Resources Director Christina Meissner told the council at a previous meeting that in 2012 RSA created a Tier II classification for municipal employees. Employees falling under the Tier II classification have to work for 10 years before becoming eligible for RSA retirement and cannot draw retirement before age 62. Tier I employees are able to retire after 25 years, regardless of their age.
Meissner explained that because RSA was hearing from municipalities that they were having a hard time recruiting and retaining employees under the parameters of the Tier II benefits, in 2019 RSA provided the option to municipalities to give Tier I benefits to Tier II employees. The deadline to decide is May 8.
Conversion to the most recent RSA option will bring all the employees to the Tier I parameters. Those employees will be then categorized as “Tier II employees with Tier I benefits.”
Meissner noted that every municipality in the area, except Coffee County, has adopted the resolution offered by RSA. “So it would be harder to recruit employees from those municipalities because they would lose that benefit,” she said.
Meissner said that if the city opts in to the RSA offer, there will be a “catch-up cost” due that will be amortized over 15 years. Meissner said that the payroll numbers she was citing were estimates. “So we have to factor in that if payroll goes up, that number might go up as well.”
City Administrator Jonathan Tullos outlined research that he had obtained. One city, Tullos said, decided not to opt in to the conversion based on the financial cost but then later changed their vote citing the enhanced retirement benefit as a recruitment and retention tool.
“It means different things to different departments but once you make the decision, it’s for everybody,” Tullos said. “What impact might this have on other projects the city is considering? There is a pay study out there to consider, what are the results of that going to suggest?” he asked. “Can we address pay and benefits and do capital projects on parks and rec facilities?”
“We’re going to make a decision for 100 percent of our employees that only impacts 40 percent,” Townsend said. “Not that we don’t appreciate our retirees, but the private sector has moved away from pensions because they are not a good idea.
“I’m not saying let’s pullout of the (RSA) pension plan, I’m just saying let’s not double down on a bad idea,” he added. “Something has to give here—either we’re going to have to keep wages lower, raise taxes, cut services, privatize our sanitation department, cut jobs.”
Enterprise Fire Chief Byron Herring spoke in favor of the Tier II conversion, telling the council that an enhanced retirement package is an important recruitment and retention factor for his department.
Enterprise Police Chief Michael Moore said he was neither for or against the conversion. “Is it the cure all to all my recruiting problems? I don’t think it is,” he told the council. “The retirement is one thing but the pay is another.”
“There are always going to be those positions that are tough to recruit. Across all departments we are competing with a diverse set of markets— state, federal, school, private,” Townsend said. “I would rather take that $540,000 and attack our compensation plan with more surgical precision.
“I think traditionally government bodies have made poor decisions when it comes to compensation packages,” Townsend added. “I think there is a reason that the state moved away from Tier I in 2013. “Government pensions, and even private pensions, started happening post World War I when the average life expectancy was mid 40 to 50s,” Townsend explained. “Now you’ve got a scenario where you have an employee who started working at 18 years old who can retire now at 42 years old with Tier I pension benefits being paid until he dies. You could have a person on the retiree rolls two times as long as they were on the actual payroll.
“It fundamentally does not work and that’s why it costs more money. That’s why the state moved away from it, that’s why you are seeing private industry moving away from defined benefit plans,” Townsend added.
Meissner said that the cost to the city employees for health insurance coverage for their families is better than some surrounding cities. “But lately some people have been bringing up the Tier II issue,” she said. “We also have waste water positions in the public works department that are very hard to recruit for so we
could possibly be looking at a high turnover in those positions.”
First term City Councilman Greg Padgett said he was not aware that the city was under a pension-type plan until being on the council. “I was kind of surprised because so many companies are leaving pension plans, because companies have literally gone bankrupt from that kind of plan,” he said. “I guess the question is why does the city even have this type of plan instead of a 401K?
“My number 1 concern is that we don’t have the wage study to make the decision with right now,” Padgett said.
Councilman Eugene Goolsby agreed. “What worries me is what it is going to do to our budget in the long run. How are we going to be able to accomplish all the things that we are doing? At the same time, I’d like to do what is best for our employees,” said Goolsby. “I wish we had the salary study ready but we don’t.”
“Most of the employees we are getting from the private sector are because of our benefits package,” said Meissner.
“Even our Tier 2 benefits blow private sector benefits out of the water,” replied Townsend. “Historically pension plans have not remained solvent. They have always had to create a Tier II because the Tier 1 was not working any more.”
Meissner agreed. “Even when Tier II came about we were still getting employees because having a defined benefit plan versus having a 401K still was a pull to people,” she said.
“I’m not a businessman. I’m just an old Army guy,” said Councilman Scotty Johnson. “But I know we are charged with being good stewards of the taxpayers’ money.”
“As a decision maker it’s hard,” said Councilwoman Sonya Rich. “We want to be good stewards of our city’s finances but we also have the additional goal to be good to the people who work for us.
“That is just as important to me as the roads that we ride on,” she added. “We have good people here. Having good people is as important as having good streets.”
“We have to take care of our employees. If you take care of your employees, they will take care of your customers,” said Padgett. “I’ve seen that personally in the business world. But we are on a very tight timeline to figure that out.”
The council is not allowed to vote in a work session but they did reach a consensus to put the Tier II conversion issue on the agenda for the next city council meeting with the option to table it if necessary.
The next meeting of the Enterprise City Council is Tuesday, April 6, in the council chambers at Enterprise City Hall. A work session begins at 5 p.m. A voting meeting begins at 6 p.m. Both meetings are open to the public.