Letter: Short term benefit, long term monster
To the Editor:
The Trumbull Town pension plan and the police pension plan failed on three of the four measures used to identify healthy pension plans. We continue to fund the Police plan BELOW the Actuarially Recommended Contribution (ARC) level. The Funding Ratio for the Police Plan is a poor 77% while the Town Plan is an abysmal 33% of the expected 100% funding ratio. What has been done to address this?
In the Trumbull Times, John Ponzio, discussing the funding ratios, accuses past administrations of “virtually ignoring” the situation. While dramatic, this is not true. Beginning with Ken Halaby (R) and continuing with Ray Baldwin (D), past administrations recognized the issue and began addressing it. The plan was to increase funding each year in both plans until the ARC funding was at 100% of the recommended amount. The current administration followed this plan, tweaking it so that the increase in the Town plan was greater than that of the Police plan. The result is for the second year we meet the ARC recommendation for the Town plan. We remain BELOW the ARC requirement for the Police plan. If we continue to follow this sensible, established approach we will meet ARC funding for both plans in 2 to 4 years, depending on how aggressive we become. We should thank previous administrations for putting us on this path to proper funding of our pension obligations.
The administration praises itself for negotiating 401K style plans for some bargaining units. While this will have a positive impact on our pension plans, we should recognize the potential long-term impact. In the private sector, the conversion to all 401k programs had unanticipated consequences. People do not save enough and workers are working longer. Longer service, more expensive workers are staying at the expense of newer less expensive workers thereby driving up costs. Companies are looking at expensive retirement incentives to encourage long service workers to retire. Also, cost of overtime, medical and workers comp have risen as a result of the long service workforce. For the individual worker, the Great Recession destroyed the dream of retirement as their 401k balances collapsed. Some companies reduced or eliminated Company contribution to these plans. 401k plans, designed as supplements to traditional Pension Plans, have unintentionally proven problematic to workers and employers.
Trumbull, while reaping a short-term benefit, may have created a long term monster. The better way would have been to negotiate a combination plan, that is, a mix of traditional pension and 401k plans. This would give taxpayers relief for the future while giving our workers the stability of traditional pensions, although at a lower benefit level, supplemented by their own savings.
The annual funding approach done by the current administration and its predecessors was a practical way to address ARC requirements and should be continued until both plans are funded at the ARC recommendation. Other steps, like 401k style plans may end up creating more problems than they solve and need to be carefully monitored for unintended consequences.