Council Moves Forward With Employee Benefit Changes

OCEAN CITY – At this week’s meeting, the Ocean City Mayor and Council reviewed the 11 motions made during a meeting held a couple of weeks ago – to refine newly hired town employees benefits in attempts to cut down on expenses.

During the discussion, the retiree’s pension plan was revisited and the council voted to move it one step closer to a 401(a) plan.

Human Resources Director Wayne Shelton and Mike Beczowski from Bolton Partners Investment Consulting Group, Inc. were also present to provide the council with additional advice.

A couple of weeks ago, the council discussed switching the retiree pension plan from a defined contribution plan to a 401-type plan for new hires. The town currently has 327 employees who are under the current defined contribution plan.

The council has swayed toward a 401(a) pension plan for new hires.

“It is funded in a variety of ways — by the employee, the employer, or by both,” Beczowski said.

Traditionally with a 457 or a 401(k) type plan, the employee decides how much he or she is willing to deduct from each pay period.

Beczowski explained that with a 401(a) plan, contributions made by the employee can be made mandatory or voluntarily. The employer decides on the method of participant contribution. The employer also decides whether that contribution will be made on a pre-tax or after-tax basis. Also, the employer may contribute a fixed dollar or percentage amount.

To get this type of retirement plan started, a request for proposal (RFP) process will need to be conducted.

Beczowski said that if the town were to begin the process by January a 401(a) retirement plan should begin by October of next year.

“Its typically a nine-month process,” Beczowski said.
During that process, interviews of vendors, negotiations and a review of the RFP will take place.

“It would be our fiduciary responsibility to look at this…to consider it, but also have an actuarial study done to see how it would affect our current plan,” Mayor Rick Meehan said.

Beczowski agreed that an actuarial study would be important in the process of changing the town’s retirement plan, in the aspect of how the study would examine the costs the town holds currently and how a change in the retirement plan would impact the town in moving forward.

“We have to make sure we take all the right steps, so we know how exactly it will affect today’s plan, today’s employees and affect us cost wise moving forward,” Meehan added.

Councilman Joe Hall agreed that an actuarial study would be effective, but felt that the “nuts and bolts”, or the plan design of the 401(a) plan, needs to be worked out first. In reference to the regulations, the council would decide the plan and how contributions will be placed.

“I think some of that will shake out after the actuarial study,” Beczowski said.

He explained that an actuarial study would give an idea of the actual costs that are occurring and that could be implemented in creating the town’s 401(a) plan.

“The actuarial study would create a benchmark,” Beczowski said.

City Manager Dennis Dare explained that there are actions that need to take place if the town decides to move in the direction of an actuarial study and starting the process towards a 401(a) plan.

The defined benefit needs to be closed out and there is specific work that needs to be done with that.

According to Dare, the town has worked with the Baltimore office of Mercer for a number of years. Mercer is the company that advises the town’s defined contribution plan for current employees and retirees.

“Mercer is very familiar with our pensions plan,” Dare said. “They can arrange the actuarial report on closing out the defined benefit plan.”

Mercer will review how the defined contribution plan will be closed to a new entrance, the 401(a) plan, and its economic requirements.

Councilwoman Mary Knight made a motion to instruct Mercer to conduct an actuarial study in relation to closing out the defined contribution plan with the involvement of Shelton and the town’s financial officer as quickly as possible. The motion was seconded by Councilman Doug Cymek and passed in a unanimous vote.

Councilman Joe Hall placed a second motion to have advisors, such as Bolton Partners and city staff members, respond with a proposal on how to implement and design the 401(a) plan for new employees. His motion was seconded by Councilwoman Margaret Pillas and passed in a unanimous vote.

The council looks to move toward the retirement benefit change as quickly as possible, in order to lift a hiring freeze that has been placed until these details get worked out.

“It sounds like three stages,” Beczowski said. “Number one to have Mercer do the actuarial study, number two to do the plan design, and number three would be to do the RFP process.”

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