Should the Township Reduce Its Retirement Benefits?

The question of whether or not the Township 401K match is too rich  continues to receive a lot of attention, especially in conservative circles. One of our Board Directors is pushing for change once more. This seems to be a going effort on his part since 2012. I consider some of this “debate” to be uninformed and “political pandering” by some on, and off the Board, to their conservative base.  

I was not on the Board when the Waters Group in 2009 did its compensation study and helped the Township design the current system. But I have spent time going through the study and researching on my own what other municipalities provide.  I believe the 2009 study to be a good analysis and resulted in a robust and responsive system for managing our salaries and benefits. As noted below the resulting system has resulted in an improved ability to attract and retain quality people. All of should keep in mind that our ability to maintain a high quality and very rich amenity community is a direct result of the quality of our staff.

The overriding objective of the 2009 work and the proposed new study should be to provide a compensation system which fairly compensates our employees and which allows The Township to attract and retain high quality personal. As I have said repeatedly, it would be unfair to take one part of our compensation system, our retirement system, and drastically change it without considering the impact on our total compensation package and our ability to compete for quality people. Please also keep in mind that the Township does not have the funding issue faced by many retirement systems. As a 401K based system we have no unfunded liabilities.  

 Since the Waters Study was completed in 2009, The Township has made certain we have remained consistent with the governmental wage and benefit benchmarks used in that study. So I ask is the Townships compensation package, including all the benefits it offers, higher than the competitive market? I do not believe this is the case and I think the facts support this argument. I see no reason to waste money on a new compensation study that will only tell us what we already know.  

Prior to the implementation of the 2009 Waters Study, I understand the Township’s turnover rate was between 12-18%. Since that time, our turnover rate has declined significantly. In 2011 it was 7.8%. In 2012, our turnover was 9%. Since we went to the new compensation system, it appears we have also been more successful in recruiting new personal.

The basis for achieving the above objective is to fully understand what competitive markets we benchmark ourselves against. That market was determined in 2009 to be the municipal, public sector market. Nothing has occurred since then that change this view. Only about 8-10 % of our organizational positions can be matched against the private sector. We can find no comparable salary and benefit information for all our other positions except by looking at the public sector. The Townships goal is to be position our compensation in the middle of this market. So if our compensation benchmark remains the public sector, why does anyone think a new study will tell us anything different than the 2009 Waters Study?  

Public sector employees have historically been paid lower wages but received higher retirement benefits. This view is supported by Robert Half comparison done in 2012 showing for that for the few comparable positions that can be collated with the Houston private sector; the Township’s starting salaries were 11.7% lower than the private sector.

In terms of our retirement plan, we are currently in line with what municipalities of our size provide. The Texas Municipal Retirement System (TMRS) is another benchmark for us to consider. TMRS represents 849 cities (does not include private systems for Houston, Dallas, Austin, Fort Worth, Galveston, El Paso; for 39 cities it excludes fire fighters that have their own separate plans). TMRS is a highbred cash balance system (accumulated account balances are annuitized at retirement and guaranteed for life) versus a traditional formula based defined benefit system. It also provides for a younger retirement age (20 years of service or age 60 with 5 years of service; average retirement age at 12/31/12 was 58) than a 401K Retirement Plan. Each city may tailor their plan. This plan is 86% funded. These plans all allow employees to retire at an earlier age than the Township’s plan.

 
If municipalities are our competitive market, then TMRS provides a good insight into the retirement benefits offered by this market. Of the 849 cities in TMRS, 36% (309 cities) provide a 2 for 1 match of between 6 and 7%. This group of cities includes all those cities with a population greater than 100, 000.  There is no city of our size or larger that provides a retirement match less than 2 for 1 at 6 or 7%%

I do not dispute that on the surface our retirement match appears to be richer than the private sector. But we also know that private entities, in addition to higher salaries, provide other benefits such as bonuses and profit sharing that we do not provide. None of this has been taken into account by those criticizing the current retirement match

2011 Invesco Defined Contribution Survey Results

                                                                   i.      92.49 of respondents provide a 401 type plan.

                                                                 ii.      37.5%  also offered other type of additional plans, such as Profit sharing and non qualified deferred benefit plans

                                                              iii.      23.2% also offered some form of defined benefit plan

                                                               iv.      49.8 of 401 plan participants contribute 75% of more of the maximum contribution offered; 29.2% contribute 90% or more

                                                                  v.      37.6 % provide a match of 6% or more; for larger plans this increases to 47.5% 

So I ask again, is our total compensation higher? The facts do not seem to support this argument. I see no reason to waste money on a new compensation study that will only tell us what we already know.