OCEAN CITY – A “big change” to the pension plans covering Ocean City employees was proposed this week at Tuesday afternoon’s work session at City Hall; too big in fact, for the Mayor and Council to decide upon, as ruling was postponed pending further investigation.
A proposed “across-the-board,” 5-percent pay-in for all town employees to their pension plans until they choose to retire was brought before the council this week by Finance Administrator Martha Lucey, causing some council members to hold up a few proverbial stop signs.
Since Oct. 1, 2004, general employees of the town of Ocean City pay 5 percent into their pensions, but contributions are stopped once the worker reaches 30 years of service, while benefits continue. Simply put, once an Ocean City employee reaches 30 years of service, they no longer have to pay into their pension plans, but still receive increased benefits from the 2004 ruling, which raised benefits received from 35 percent to 50 percent.
Public safety employees, on the other hand, such as police officers, pay 8-8.5 percent of their pay into their pension plans until retirement, but are offered a DROP (Deferred Retirement Option Plan) program which enables them to draw their pensions into a deferred account while they continue to up to three years before they retire, thus theoretically making all the money they put into their pension plans back within a relatively short amount of time (about a year) after they retire.
According to Lucey, the change is needed to keep the funding for the pension plans at “full 100 percent as opposed to the 71 percent that it is now” and noted that an aging Ocean City town workforce will significantly diminish the pension fund if fewer workers are paying in, leaving the difference to be made up by the Mayor, City Council and the taxpayers.
In 1978, 32 percent of Ocean City workers were over the age of 40, but as of this year, that percentage has risen to 64 percent.
Thirty-three current employees are receiving pension benefits but do not pay into the current plan as they’ve served more than 30 years, and according to Lucey, “another 35 will be receiving benefits without paying in within the next five years.”
Councilman Lloyd Martin said “the change should have been made when we raised the benefits in 2004, so we were giving something while taking something away. These people would be hard-pressed to all of sudden have 5% of their paycheck be taken away.”
Lucey disagreed with this notion, saying that she didn’t think this change would cause any more “hardship” to employees should they have to pay more into the pension fund.
“I would also have to pay more, as well, so this effects me personally,” said Lucey; “I think that a defined benefit pension package plan is one of the most valuable things in America today and many workers have had it taken away.”
Though many on the council like Jay Hancock, “basically agreed with the program”, most members like Mary Knight were cautious to make a hasty decision as she concluded that this was a “major issue that needs to be looked at now while considering its impact 10-20 years down the road.”
The average length of service for Ocean City employees is 12 years, and the average salary for workers is $66,000. For the workers that have served over 30 years, their salaries are obviously higher, which makes the fact that they don’t pay into the pension fund an issue according to Lucey.
“With today’s economy, people are going to be working longer than before. I, personally had hoped to work to age 66, but I think I may have to work longer now, as will many other people,” she said. “Having a strong pension plan in place that everyone will contribute to until their retirement is vital.”
Mayor Rick Meehan agreed with the council’s decision to postpone the ruling for further investigation, saying that local government “was like a corporation, and the citizens are like the stockholders. We are in this together, and we need to consider the best ways to help everyone, especially our employees.”
Additional information asked for from Lucey by the council to aid their decision included the median costs that employees would be paying in at the 5 percent, how much they would stand to get back upon retirement, and more information on the advantages or disadvantages to implementing a DROP program like the ones used for public safety workers to the general workforce of Ocean City.
The 5-percent pay-in would be “pre-tax” meaning that it would not be a true 5 percent cut in pay, according to Lucey. “Based on the average $66,000 salary, the $3,300 in gross pay potentially put into the pension plan would realistically be under $3,000 after taxes.”
According to Councilwoman Nancy Howard, who was the only member of council that ruled against postponing the proposal to a later date, “when employees had to start paying into their health insurance plans, there was no big revolution, even though people don’t like having to dip into their own pockets, I don’t think this would be much different.”
Currently, Ocean City employees pay 10 percent of their healthcare costs, and the city picks up the rest.
No date has been set for when this issue will be voted on officially.