City Council Maintains Benefits Move Will Save Money

OCEAN CITY – The Mayor and City Council sought to clear the air at City Hall this week amid allegations the city did not do its homework before negotiating and ratifying public safety agreements, which included some benefit changes.

On April 8, the Mayor and City Council met with the local chapters of International Association of Firefighters (IAFF) and Fraternal Order of Police to ratify both collective bargaining agreements that were negotiated for months.

Prior to the signing, Councilman Brent Ashley asked for the ratification to be delayed as the council had just received information relating to the costs of benefits included in the agreements prior to that evening’s meeting.

“Now I am being asked to vote on a union contract without sufficient time to review the information and perform my due diligence,” Ashley said at that time. “I was not part of the negotiation team so this cost summary is new information to me and the public … the council has fiduciary duty to the taxpayers to spend their money wisely.”

City Manager David Recor assured Ashley he had seen the information before in closed session while reports were given to the full Mayor and City Council on the happenings of the negotiations. In the end, the council voted 5-1, with Ashley opposed and Councilwoman Margaret Pillas absent, to approve both contracts.

Now that the contracts have been ratified Recor returned to the Mayor and City Council last Friday during a budget wrap-up session with an actuarial analysis to reopen a Defined Benefit (DB) pension plan for public safety employees conducted by Cavanaugh Macdonald Consulting, LLC., in January.

“The Mayor and Council considered and evaluated six new restructured tiers prior to authorizing the negotiating team to negotiate pension reform,” Recor submitted. “Each tier represented a different level of savings, or percentage, below the town’s normal cost.”

According to the report, the financial impacts of reopening the pension plan on April 1, 2013 to both new hires on or after that date, and those employees who were hired on or after April 1, 2011 who are currently in the town’s Defined Contribution (DC) plan were reviewed.

The DB plan that was closed in 2011 had two components of employer cost. The first component is the contribution required to finance the portion of the liabilities in excess of plan assets due to plan changes, assumption changes or experience gains and losses, called the Unfunded Accrued Liability. This cost is required to be made and is the same whether the plan is kept closed or reopened, so therefore, it has no effect on the financial impact of reopening the pension plan.

The second component is the Normal Cost of the plan. This is the annual cost of benefits accruing during the year for existing active members. It is the underlying cost of the plan structure in place and used to calculate the comparison to the DC plan and possible new tiers for reopening the DB plan.

The report breaks down the current DB plan Normal Cost from the April 1, 2012 valuation resulting in a total normal cost of about $1.9 million with about $829,500 in less expected participant contributions, totaling about $1,087,600 in employer normal cost, which is a 10.61 percentage of total payroll.

“The normal cost is expressed as a percentage of the town’s payroll and you can see from that actuarial report that it equals 10.61 percent, which is comparable to the existing DC plan maximum employer match of 7 percent because there aren’t any employer expenses in the defined contribution plan,” Recor explained. “If you recall from our discussion, it was that 10.61 percent that we used when we were defining the tiers. When the negotiator came in and asked for parameters, and when you looked at the six tiers what we ultimately negotiated for was the age 55 with 25 years, which represent the normal cost of 8.04 percent. Well, what that means is that is actually a 2.57 percent savings from the existing public safety DB Normal Cost to the town”

Council President Lloyd Martin, Council Secretary Mary Knight and Councilman Doug Cymek all acknowledged the council had received the report in closed session months ago.

“I know sometimes we forget what we get in closed session … I do remember getting this because I worked on the negotiation team. We worked hard trying to save the taxpayers’ dollars and doing what’s best for the employees as well,” Martin said. “A couple years ago when they [former council majority] changed the plan, they didn’t take enough time at all to see the things we could do to save the town money as well as do what’s good for the employees.”

If the information was available then, Ashley asked why was it not included in the agenda packet along with the collective bargaining agreements the night the contracts were ratified.

“Now that the contracts have been ratified … everything that was discussed in closed session, all the material that we used during our review, is now public material,” Recor said. “That Monday was ceremonial with the signing of the contracts … the contracts were in the packet and that was the only thing that was provided. To provide everything that was involved with negotiation would have just been voluminous.”