Delaware State News
DOVER — Future employees of the city government may be denied the opportunity to enroll in a traditional, "defined-benefit" pension plan — the kind of plan that assures a retiree of a stable, permanent income when his or her career ends.
City Council discussed the possibility last week in a workshop that focused largely on the expense and uncertainty of operating Dover’s defined-benefit plan. Nearly 200 current employees participate in the program, and more than 170 retirees receive payments from it.
Those workers’ and retirees’ participation would continue, but future workers would be required to participate in the city’s 401a plan, a government version of the 401k plans held by millions of private-sector employees.
Eighty current city employees already participate, voluntarily, in the 401a program rather than the traditional plan. The 401a option became available just eight years ago, and only three retirees benefit from it.
Participants in 401a and 401k plans agonized in recent months as their account balances plummeted because stock prices sank.
People receiving traditional pensions, meanwhile, continued to get their usual, guaranteed benefits.
But the stock markets that wounded 401a and 401k accounts also ripped into the funds from which defined-benefit pensioners are paid. As a result, the city eventually may have to use taxpayers’ dollars to make up the difference,
The city’s losses totalled $1.2 million in September and $1.8 million in October, according to City Finance Director Donna Mitchell.
And that’s only one problem. The city’s retirement fund is less than half as large it should be, largely because it received inconsistent contributions during previous administrations.
To ensure current and future enrollees in the defined-benefit pension program receive all they deserve, a consultant has told the city, Dover should have more than $43 million on hand. Instead, it has about $16 million, which means it may have to kick in more than $2 million extra in each of the next 15 years to make up the difference.
"This is a serious, serious financial matter," Councilman Thomas J. Leary said.
The situation is not unique to Dover. Governments and businesses across the nation are in similar straits. The Congressional Budget Office has estimated that employers have underfunded their pension programs by hundreds of billions of dollars.
City Council President Kenneth L. Hogan said the council could implement either or both of two ideas to better control pension expenses:
• Halting enrollment in the defined-benefit pension plan.
• Ending cost-of-living increases to retirees in the defined-benefit program. The increases aren’t required by city law, but the council has awarded them.
Retiree Frances Hettinger urged the council to reject both ideas. She and her colleagues need the increases to offset inflation, she said, and future workers deserve a choice between a traditional pension and a 401a account.
"The defined(-benefit pension) is a lot more reliable and people like it," she said.
Mr. Hogan said no decision is likely before next year.
An employee enrolled in the defined-benefit pension program contributes 3.5 percent of her salary as her share of the cost. The city adds an amount equivalent to 4.12 percent of her salary.
But to make up for the inadequate funding of the pension program, the city contributes an additional 22.9 percent. If the stock market doesn’t rebound, that contribution may rise.
For employees in a 401a plan, 3 percent of their pay is automatically deducted. They may elect to increase that amount to 6 percent. The city fully matches whatever they contribute, including the initial, mandatory 3 percent.
