RETIREMENT PLANS -Municipalities Tackling Pension Costs

January 2, 2010

A new retirement plan approved by the town's smallest union sets a precedent that local officials hope other unions can accept in an effort to trim spiraling pension costs.

"Future pension obligations are huge issues for West Hartford and other municipalities," Town Manager Ronald Van Winkle said. "The change in the ... contract with school security guards is a change we are making a priority in talks with other union members."

A pension system that pays retirees a guaranteed monthly amount puts pressure on a town, officials say, especially when a falling economy erodes investments that pay those pensions.

According to the Center for Retirement Research at Boston College, in December 2008, the nation's public pensions had total liabilities of $2.9 trillion and assets of $2 trillion, largely a result of stock markets' losses.

Plus, local obligations increase over time as workers retire at higher levels of pay. A decade ago, West Hartford's pending pension obligations were $13 million. Now, officials say, the figure is closer to $25 million.

It's a looming expense that West Hartford and other Connecticut municipalities are trying to retreat from, like deer running from an advancing forest fire.

The changes sought by local government echo changes that American businesses began making in the 1980s. In 2006, almost 80 percent of state and local workers nationwide aged 25 to 64 were covered by a pension, compared with only 45 percent in the private sector, according to data from Boston College.

And 80 percent of those public sector workers with retirement coverage had a defined benefit plan. In private industry, "more than 60 percent of [pension] participants [are in a] defined contribution plan," according to the Center for Retirement Research.

So far, 28 of the state's 169 municipalities have some version of less-expensive 401(k)-type plans for workers, instead of increasingly costly traditional pensions, according to information town Finance Director Chris Johnson said he got from the Connecticut Conference of Municipalities.

Avon was among the first, switching in 1997 from defined pension benefits to a defined contribution plan for all new hires. Currently, 25 percent of the town's workforce is on the old system, and 75 percent is in the new plan.

"Really, it's a generational change," said Bill Vernile, the town's director of human resources. "The town contribution in the new system is a third of the cost of the defined benefit. Our employees contribute 7.5 percent of their pay, and the town matches that. Our expenses are predictable."

Manchester has worked since 2000 to move its employees into defined contributions plans. Some unions have agreed, but not all. Alan Desmarais, the town's finance director, said municipalities statewide are trying to change retirement plans "so the town doesn't have to deal with pensions, and costs are lower and predictable."

The city of New Haven has nine open contracts this year and will "try to make the move into defined contribution plans," said Craig Manemeit, the city's director of labor relations. "We're looking to get out of the pension business and out of uncharted fiscal territory."

In West Hartford, the 15-member guard union's contract — up for a school board vote on Tuesday — bars any new guard hired from enrolling in the increasingly costly defined-benefit pension system.

Instead, new guards will be covered by a less-expensive 401(k)-type plan that could trim town liability by at least 60 percent, makes costs predictable and shifts the investment risk to employees. Guards already in the defined-benefit plan will stay in it.

Rick Ledwith, the town's director of employee services, said West Hartford will be asking other unions to amend retirement plans whenever a contract is up for negotiation. Ten are up this year, he said.

"The private sector reacted more quickly to this," Johnson, the finance director, said. "It takes longer to do in government. No one is clamoring on the door for this. We have to negotiate. But right now, the town is holding all the risk. We need to change that."