OCEAN CITY — Resort officials this week agreed to reinvest a windfall from lower-than-anticipated health care costs back into the general fund and leave the contribution to the pension plan at a level recommended by their consultant and staff.
During Tuesday’s work session, a review of the town’s contributions to the pension plan public safety employees and general employees came in a little higher than what was budgeted for in fiscal year 2019. However, health insurance costs for employees came in lower than what was expected and the windfall could be used to offset the shortcomings in the pension contribution. The difference is surplus of around $281,000, leaving the Mayor and Council with a decision to put the windfall into the general fund or reinvest it in the pension plans.
In the simplest terms, if the surplus was put in the general fund, the money would not be encumbered and could be used at the Mayor and Council’s discretion for other expenses. If the surplus was reinvested in the pension plan, it wouldn’t come back out and would be encumbered for that purpose only.
In even simpler terms, adding the modest windfall to the pension contribution would allow the town to inch closer to its goal of funding the pension plans at 100 percent. Currently, the pension plans are funded at around 87-89 percent. Budget Director Jenny Knapp explained how there came to be a surplus in the first place.
“In fiscal year 2019, we budgeted for an increase in health insurance costs,” she said. “When those expected increases weren’t realized, we ended up with a surplus on that side and those funds could be used to offset the difference in the pension contributions.”
Councilman John Gehrig reminded colleagues a similar situation unfolded last year when there was a roughly $369,000 surplus in the pension plan contribution. After considerable debate, a decision was made to roll that money back into the general fund. With another modest surplus this year, Gehrig suggested it could be time to chip away at the pension plan contribution.
“Last year, we had a surplus and it led to a big discussion about keeping it in,” he said. “It seems like we get these unexpected gifts from time to time. At some point, is it a sound practice when we have a surplus to just leave it in? I’m looking out for future budgets when we don’t get a break on the health insurance costs. I understand we have a policy here, but if we have a surplus, we’re probably going to need it someday.”
Knapp said the actuary, or in layman’s terms the consultant who advises the town on pension plan contributions and other benefits, recommended keeping the pension contribution the same this year despite the modest windfall on the health insurance costs.
“I think you can’t run the risk of having years of surplus,” she said. “We’re following the recommendation of what the actuary says we should put in the pension plan.”
However, Gehrig asserted reinvesting the health insurance windfall represented an opportunity to gain ground on the pension contribution.
“Basically, it’s like paying an extra mortgage payment,” he said. “We’re going to have to pay that bill. If we put it in the pension plan, we don’t have the temptation, or future councils don’t have the temptation, to spend it on trams or a Jeep.”
Councilman Tony DeLuca, however, suggested sticking to the recommendation of the actuary.
“I think following the recommendation of the actuary is a good idea,” he said. “I think having that surplus in the general fund allows us to do the things we do.”
Councilman Dennis Dare said Ocean City is doing far better than many jurisdictions in funding its pension plans and is heading toward that 100-percent goal.
“The good news is we’re funding the pension plan at 87 to 89 percent and that’s excellent,” he said. “It leads to good bond ratings and that allows us to do the things we need to do around here. Some government aren’t funding their pension plans at all.”
Councilman Wayne Hartman said by consistently changing the strategy, the town will never reach its 100-percent goal.
“By renewing the 10-year amortization every year, we’re never going to get to that 100-percent goal,” he said. “It’s like refinancing your home every year. You’re never going to get there.”
Finance Director Chuck Bireley pointed out amortization allows the town to absorb the good times as well as the bad in terms of pension contributions.
“In 2016, we actually had a loss and if we had absorbed that loss in one year, the contribution would have skyrocketed,” he said. “At that time, the actuary said smooth the loss over five years to lessen the blow. The same thing happens when you have a gain like this.”
Dare pointed out funding the pension plan is something the town is always going to have to do.
“We’re really lucky to be funded at the percentages we are,” he said. “When we do get to 100 percent, and we will, there doesn’t come a time when we just stop contributing to the pension plans.”
The council voted unanimously to keep the pension contribution the same despite the modest windfall on the health insurance costs.