New Retiree Pension Policy Moves To Second Reading

OCEAN CITY – After months of deliberation, the City Council has decided to switch its city employee retirement plan to a defined contribution for new hires.

According to the ordinance, the retirement plan available to employees hired after the effective date shall be an internal service qualified defined contribution plan with the level of contribution as employee mandatory contribution 5 percent of annual straight time pay with employer match and the employee may contribute up to an additional 2 percent of annual straight time pay, with employer match.

Before making a motion to accept the ordinance on first reading, Councilman Brent Ashley said, “Ocean City has long prospered and has been successful because of people that are doers, creative thinkers and even risk takers.”

In discussion, Councilman Doug Cymek asked about the fiscal impact on next year’s budget of starting the new program.

City Manager Dennis Dare responded that has yet to be determined and will be presented before second reading.

Councilman Lloyd Martin pointed out that the town has already taken away the option of an ICMA match for new hires in retirement and now the new plan is the only option for a retirement benefit.

“It is going to cost the Town of Ocean City more money in the near future,” he said in explaining why he is against the ordinance.

Mayor Rick Meehan added that it is going to cost the town anywhere from $150,000 to $900,000 over the next 20 years to implement the new plan.

“There is going to be a significant cost to change this program, which is going to impact today’s taxpayers,” he said.

Meehan also asserted that the council needs to consider a vesting schedule before next reading. He said that the town’s actuaries have suggested different schedules, such as a five-year vesting schedule. A couple options were either an employee would not have access to the benefit for their first five years of service or a graded schedule where the employee would have access to a portion of the benefit during their first five years.

“If you’re going to move in this direction, which you’re going to do, and you’re going to compete with the private sector, you’re going to have to have something that is competitive with the private sector. You are going to find that all private sector plans have a vesting schedule,” he said.

Meehan said that the new plan is beneficial to the employee but in the long run it is less beneficial to Ocean City and its’ increased cost reflects back onto the taxpayers. Another downfall to the plan is after a certain amount of time the employee can take their investment and leave.

“It takes away some of that incentive to stay here throughout their career,” Meehan said. “That is an individual’s decision, but we all need to know that will be part of the benefit.”

Councilman Joe Hall believes the plan shifts the risk of the market and responsibility from the town and its taxpayers to the employee, creating a “shared risk”.

“There is a cost to making a change, but over time and over the plan what we are doing is choosing to pay the cost as we go instead of paying the major cost in the back end,” he said. “I don’t believe that in the long term this will cost the town more money. What I do know is we will now have a relationship with the employee of shared risk.”

Councilwoman Mary Knight was concerned over Ocean City preserving its competitiveness with neighboring resorts and cities. She said she would have liked to review defined benefit compromises more in depth, for example, setting a higher retirement age or a higher percentage of contribution.

“People understand that with this market and everything that is going on that maybe they do need to give a little more,” she said.

The council voted to adopt the ordinance on first reading in a vote 4-3, with Cymek, Martin, and Knight in opposition.

Council President Jim Hall said that the council is scheduled to develop a vesting schedule in next week’s work session.