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City controller floats idea to change retirement plans

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City of Indianapolis Controller Jason Dudich is seeking City-County Council approval to create a retirement-savings plan for city employees.

If the plan is carried out, new hires wouldn’t be eligible for pensions through the Indiana Public Retirement System. Instead they would have a defined-contribution plan similar to the 401(k) savings plans offered by private-sector employers.

“It’s not going to be an immediate savings (to the city) in the first year,” Dudich said Tuesday about the plan. But, over time, he thinks the city could reduce the bill it receives each year from the state for its contribution to the Public Employees Retirement Fund, which totaled $56.7 million last year.

The new plan would not apply to police officers, firefighters, judges and prosecutors. Police and firefighters account for the bulk of the city’s pension liability, about $35 million last year.

The council’s administration and finance committee on Tuesday night postponed a vote on the proposal. Committee Chairwoman Angela Mansfield, a Democrat, said she hesitates to move forward because the pensions are a good benefit for city employees who are otherwise low-paid.

Union leaders are wary of the plan. American Federation of State, County and Municipal Employees Local 725 President Steven Quick said employees have already foregone raises and switched to a more costly health-insurance plan because of the city’s budget woes.

“Where does it stop?” he asked the council committee.

Defined-contribution plans put investment decisions in the hands of employees, and Quick said they could end up short of the money they need to retire if they don't do their research.

“You could end up needing public assistance,” he said.

Although Dudich isn’t looking to change benefits for police and firefighters, Indianapolis Professional Firefighters Local 416 President Mike Reeves said he has misgivings.

“Are they going to come after the police and fire [benefits] in five years when Jason’s not here?” he asked.

If he gets the green light from the council, Dudich said he’ll hire a consultant to help design a plan and write a request for proposals. Many details need to be worked out, including the vesting period and whether the city would match employee savings.

Indiana has already switched to a defined-contribution plan for state employees, but it's not available to local governments.

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  • Yes, what's the problem?
    The "Fiscal Advisor" lays it out well. Why is the City proposing to take contributions away from civilians, for whom the City only contributes 9-10% of their salaries to PERF, as opposed to police/fire personnel, for whom they pay 23%? I'm not suggesting they need to cut police/fire pension contributions, just wondering why they would find it appropriate to cut the pension contributions for those who already receive much less.
  • Solution to What Problem?
    There's nothing inherently bad about this idea...but it's not clear what problem it solves for the City...particularly since police and firefighters are excluded. Let me elaborate. The public employee retirement system in Indiana, PERF, is a hybrid plan. That is, it already has both a defined contribution component and a defined benefit component. The important question is, "How much does it cost the taxpayers?" I don't have the exact figures for Indianapolis, but the civilian plan costs about the City about 9%-10% of each employee's base pay. The police & fire plan costs about 23% of each officer's base pay. For the civilians, about 1/3 of this goes into their defined contribution plan and 2/3rds to support the defined benefit plan. The City is exposed to some risk on the investment returns for the defined benefit plan fluctuate,but that risk goes both ways (sometimes favorable, other times not). The only way the City saves any money is by lowering it's cost of retirement benefits to something less than 9%-10% of base pay. A move to a defined benefits only plan will save money ONLY if the City chooses to simultaneously lower it's average contribution rate. Under PERF, they can already accomplish the same thing by requiring City employees to pay all or part of the defined contribution plan costs (3% of base pay). The defined contribution portion for police & firefighters is less than 1/3 because their defined benefit plan is much different and more expensive. Finally, it needs to be understood that municipalities in Indiana do NOT face the same degree of pension exposure you hear about around the country. First of all, civilian government employee pensions in Indiana are very modest when compared to the Federal gov't or other egregious offenders. Second, civilian pensions in Indiana have been actuarially funded (i.e. money was set aside as pension benefits were earned). The worst offenders, like Detroit and others, made pension promises with no money behind them. Now they're up a creek! Indiana cities once had that same problem with police officers and firefighters, but ended that madness in 1977. While there are still a good number of folks still drawing on those old, unfunded pension plans...the State has stepped into to takeover that cost from cities...so it is not a major fiscal exposure for Indianapolis or other Indiana cities. The big pension cost now for local government is the 23% of base pay contribution to the new (post 1977) pension plan. It costs so much because these benefits are so robust. This proposal by the City does not touch that piece of the puzzle, which I way it's unclear what fiscal problem this proposal solves.
  • Careful what you ask for
    If you are unhappy with the quality of city employees now, you will probably not be delighted with those willing to work for less.
  • Indy (through PERF) is nothing like Detroit
    Please don't use Detroit's problems as an excuse to gut the compensation package of Indy workers, which will result in less talented and competent employees. As Dee indicated, Indy retirees are certainly not getting rich off their PERF benefits. And Indy isn't going broke from paying $21.7M/year for its non-police/fire employees. As Bob indicated, the City has no unfunded pension obligations. The City pays no defined benefit to retirees. It pays a defined contribution to PERF for each covered employee while they are employed. Benefits are then based upon the growth of PERF's investments, part of which the employee can direct into a variety of investments. I only see two reasons the City would withdraw from PERF: one is to cut the benefit to their employees, and the other would be to direct business to a preferred vendor who would control whatever 401K program they choose.
  • Why is Steven Quick still employed by AFSCME
    What is really interesting is that Steven Quick although and AFSCME local president is also a old crony of Goldsmith and Mitch Daniels. He also was implicated in an armed robbery and a murder case. He also sits on the Unemployment Insurance Oversight Committee. Probably explains why the states UI Trust Fund is still in the hole! You all should check out this story he certainly seems to look bad in this posting: http://advanceindiana.blogspot.com/2011/02/cold-case-files-and-gubernatorial.html
  • Pension not that large to begin with !
    As it stands most employees that collect a PERF pension collect 250-300 a month ; enough to almost cover insurance plans,Even with the 10% cap an employeee can contribute(if they cn afford to) it does not add up to enough to live on. And that is changing also with the way PERF is restructuring its annuities calculations
  • Actually
    Whether they decide to do it this way or not there seems to be a misconception here of how the program works. City employees retirement is not paid directly by the city (in that you do not continue to draw a check from the city). Each pay period the city pays a percentage of an employee's salary to the Public Employee Retirement Fund (PERF) and this money is invested and managed by PERF just like a 401(k) and then when you retiree you draw a check from PERF.
  • City Controller
    It takes city government 30 years to modernize the pension plan and catch up with business and leave it to Democrats to oppose it!!
  • Other Cities in same predicament
    Memphis, TN is looking at doing the same thing. Any city employee with 10 years or less of service will be moved to a 401K plan including police and firefighters and retirees are looking at increased premiums for their healthcare insurance. The city of Memphis is currently $300-600 million underfunded in its pension obligations. Cities cannot afford to pay people 50-100% of their salaries when they retire for 20-30 years. They have police and firefighters retiring after 25 years of service and then drawing a pension for 30+ years. They are on the verge of bankruptcy. Their city school system already went bankrupt and had to be taken over by county school system.
  • Could be Win-Win
    Look, City employees are paid a ridiculously low salary compared to the private sector and a pension is a big part of the reason anyone takes those jobs. That said, pensions have become a political football, and as we've seen in Detroit, aren't safe from future changes. Increase pay some accross the board and go to a defined contribution system. Include Police and Fire as well. It's time to bring the public sector more in line with private sector employment.
  • Great Idea
    It is about time the City of Indianapolis put their employees into a 401K Plan. The city and county are going broke on pensions that are outdated and a thing of the past. Bring the employees out of the dark ages of unions and pensions and into the 21st century.
  • How Not to Bring the Middle Class to Marion County
    One more nail in the coffin, brought to you by the Ballard administration. Average city employees don't make enough money to adequately fund their own retirement, especially when they get a 2-3% raise, once every five years. The Mayor talks about attracting college educated young people to move into Marion County. You actually need some of those bright creative people to work in City government if you want to effectively and efficiently provide quality public services. You won't attract them by eliminating the pension plan from what is already a low compensation package. This idea needs to sink, quickly.

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    1. The east side does have potential...and I have always thought Washington Scare should become an outlet mall. Anyone remember how popular Eastgate was? Well, Indy has no outlet malls, we have to go to Edinburgh for the deep discounts and I don't understand why. Jim is right. We need a few good eastsiders interested in actually making some noise and trying to change the commerce, culture and stereotypes of the East side. Irvington is very progressive and making great strides, why can't the far east side ride on their coat tails to make some changes?

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