Tuesday, December 10, 2013

Oro Valley Town Council Rejects "Feathering Its Nest"

The Oro Valley Valley town Council unanimously rejected voting itself a defined benefit pension.  This vote occurred at the December 4 council meeting.  The seven members of this council was the council members that could have participated in the Arizona state defined benefit pension program. The opportunity to do so would have cost the town $45,000 plus an annual contribution of $18,000.

As we previously reported, the state of Arizona has changed its pension program from a defined benefit plan to a defined contribution plan.  The difference between the two plans is:  Under a defined benefit plan, the pensioner receives a specific sum for a specific term, usually lifetime.  Under a defined contribution plan, the employer, in this case the town government, matches, in some fashion, the amount that an employee contributes to the plan.  The employee directs the investment of the plan into "authorized" investment vehicles.

Council Member Snider spoke at the meeting: "One of the reason's the State changed was that defined benefit plans are very expensive. That's the reason they are going to a defined contribution plan.  So, I can't support grandfathering in any council...because it will cost our residents more money in the long run...I really can't support this. I think it's fiscally irresponsible."

How abused have we, the citizens, been of the Arizona's public employee pension program? "Arizonans are propping up public-pension systems that allow civil servants to retire in their 50s, receive annuities that can exceed $100,000 a year, and collect pensions while staying on the same job." (Source)

The State's move to a defined contribution plan puts it in-line with the practices of most commercial enterprises.  However, the State has granted itself (it's employees) a very rich employer portion of the contribution, equivalent to 25% of the employees' contribution.  According to town manager Greg Caton: "This is very rich" in comparison to non government practice, which, we observe, is generally never more than 10%.  There are limits to the amount an employee can contribute annually. The 2014 limit is $17,500 plus one time catch-up limits that could amount to another $17,500.  (Source)

1 comment:

Richard Furash, MBA said...

I believe the post failed to mention that it was Councilman Garner and Councilman Zonkin who brought up this idea. Interesting that they want to cut your Utility Tax but they want you to pay for their pension fund.