VERO BEACH — More than 300 of Vero Beach’s nearly 400 employees will be switched to a defined-contribution pension plan as of July 1, the City Council voted Tuesday night.
The goal of the change is to minimize long-term investment risk for taxpayers, but the conversion process will mean costly payments into both plans for the next dozen years. While funding 9 percent of payroll for existing employees, the city must also whittle down the more than $40 million in underfunded pension liability on the old, frozen plan.
Up to now, city employees have been covered under a defined-benefit plan, which provides set benefits based upon years of service. If the market took a dive, Vero would need to contribute extra to shore up the fund.
Under the new plan, employees would manage their retirement funds like a traditional 401(k) plan, thereby transferring the market risk from the taxpayers to the individual employee.
Existing employees are required to contribute 3 percent of their income, with the city contributing 9 percent. New hires after July 1 will have to contribute 5 percent of their income, with the city putting up 7 percent. The calculation was based upon the need for a 12 percent total contribution to produce similar pension checks for retirees as under the defined-benefit plan.
Councilwoman Pilar Turner said she was opposed to the city paying such a high percentage of payroll, calling the 9 percent taxpayer contribution “unreasonable.”
Vice Mayor Jay Kramer has been opposed to the whole plan, due to the short-term double hit the city will take paying into both plans until the old plan is better funded.
The change was imposed on the general employees after Vero went into formal impasse proceedings with the Teamsters Local 769. Teamsters Business Agent Steve Myers pointed out some inconsistencies in the ordinance that needed to be straightened out and objected to the employees having less than two weeks to make major decisions about how to invest their pension money.
City Manager Jim O’Connor said the employees knew this change was coming, that an informational meeting about the switch with opportunities to ask questions had been held earlier this year, and that financial advisors have been scheduled to be on-site to meet with employees about their options.
Vero’s police remain in a defined-benefit plan, as the police pension fund has weathered the market much better and is about 90 percent funded.
