Pension plan goes to board

Proposal raises contribution bar

The Little Rock Board of Directors will consider a new pension plan for nonuniformed employees Tuesday.

The board’s approval would finalize a proposal to move from one private plan to another private plan that requires higher contributions from the city and its employees. The move comes after a March resolution that asked city staff members to work with consultants and review several studies, and then notify employees of the possible changes.

The change would increase employees’ contributions from 3.5 percent to 4.5 percent of their salaries. The city’s contribution would increase from 7 percent to 9 percent. The city’s portion increased from 4 percent to 7 percent in 2012.

If approved, the new contribution percentages and plan would go into effect on Jan. 1.

The city’s pension system has fallen behind over the years, offering benefits that are not comparable to those offered to state employees and to employees of other nearby cities. City officials have said that before a 2011 city sales-tax increase was used to help bulk up the pension contributions, the amounts were too low to provide a living wage for retirement, preventing several employees from retiring.

State lawmakers have introduced several bills over the past few years that would have forced Little Rock to join the Arkansas Public Employees Retirement System.

The city funded a study of its options, which included staying with the current plan, joining the state system as proposed in the legislation and finding a different plan.

The board voted in March to pursue changing private plans with the help of a consultant.

That vote prompted state Rep. Jim Nickels, D-Sherwood, to postpone a vote on his legislation asking the city to join the state system.

City Manager Bruce Moore said there were several safeguards added to the city’s pension proposal to help assure the board that the fund would remain solvent.

“The main change is a safeguard that was put in place to make sure that the plan will always be fully funded,” Moore said. “It gives the board the power to amend the plan as needed, and it assures the plan will not start out with any unfunded liability.”

Under the new proposal, the city plans to guarantee that employees who retire with full benefits will collect 80 percent of their former salaries.

Funding for the proposal, which basically doubles the amount the city contributed to retirement plans in 2011,will come from the citywide sales-tax increase that passed in September 2011.

It would take five years for a city worker to be fully vested under the proposed plan.

Employees who retired before age 65 would receive reduced benefits.

The plan also includes a cost-of-living adjustment that is tied to inflation.

The rate would be two-thirds of the inflation rate set under the Consumer Price Index. That rate is determined by the U.S. Bureau of Labor Statistics.

“The board asked us to assure them that there would be protections so that the pension plan didn’t end up with unfunded liability …which could mean the city would have to put money into the plan to make it solvent,” said Don Flegal, Little Rock’s human resources director.

“There are a lot of plans that project an 8 percent growth or higher, but we were very conservative. We kept our estimates to 6.5 percent.”

Flegal said that years of service under the old plan will not add up to the same years of service under the new plan.

That means if someone had 20 years of retirement savings with the old plan, that might equal only 12 years under the new plan, because of the new plan’s higher contributions.

He said if the board approves the plan and some employees want to bulk up those retirement savings, staff members will help the workers set up pretax contribution plans to get them back on track with their retirement goals.

Arkansas, Pages 7 on 08/19/2013

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