VERO BEACH — The Vero Beach City Council has tasked staff to review the city’s pension plans to come up with ways to bring them in line with the city’s budget.
City leaders say the pensions need to be addressed because their costs exceed the revenue needed to sustain the plan for its nearly 400 non-police workers.
At Monday’s meeting, the council got a status report and projection on pension costs for the current and coming years. In 2010, the City of Vero Beach will contribute about $4.6 million toward general and police pensions. In 2011, if no changes are made to the plan, that contribution is projected to rise to about $5 million.
Finance Committee member Pilar Turner spoke during public comment to give these costs come perspective in terms of he city’s revenue stream.
“Our ad valorem tax revenue for this year is around $4.6 million,” she said. “Keep that in light that pension costs are $4.3 million for a year and healthcare costs are $5.5 million for a year.”
Actuary Rocky Joyner said the city has begun hiring people who are nearly one year older than in previous years, meaning that they are expected to retire earlier, increasing the costs of the plan.
He said the city’s existing retirees are living much longer than expected, also increasing the contributions the city must make to keep pace with payments.
The city’s contributions, as a percentage of payroll, have increased and are expected to increase for at least the next two years, provided that the stock market remains steady, allowing equities to recover.
One factor affecting the city’s contributions is the market downtown in 2008 and 2009. The city’s plan assumes an 8 percent rate of return on investments over a 10-year period.
However, the average rate of return over the past five years has hovered somewhere between 1 and 4 percent. This has resulted in steadily increasing contributions by the city to make up the difference.
“The rates of return, I don’t think are feasible,” said Vice Mayor Sabe Abell.
Abell urged the actuary to come back with a plan which lowers the assumed rate of return and shares the market risk with employees enrolled in the plan.
“Something has to be done,” Abell said. “Defined benefit plan is not possible.”
Vero Beach resident Richard Winger also spoke in support of changing the plan.
“I agree with the vice mayor’s comments, you’re not going to be able to maintain a defined benefit plan, it’s impossible,” said Winger.
He suggested taking the rate of return down to about 7 percent, which is lower than the 7.75 percent suggested by the actuary.
The alternative to defined benefit is a defined contribution, where the employer contributes a certain amount per year — the average is about 8 to 10 percent for municipal employees — and the employee also contributes and accepts the risk of those funds losing market value prior to their retirement.
Under the current defined benefit plan, general employees contribute 2.25 percent of their salaries and the city makes up whatever the difference is to achieve the defined benefit.
The actuary will come back with options for the council in June, which can be incorporated into the 2010-2011 budget in July.
Any changes to the pension plan would need to be negotiated with the city’s union workers prior to implementation for those workers, which number about 240 for those represented by the Teamsters.
The police department pension is managed separately, with about 80 employees being represented by the Coastal Police Benevolent Association.