Tampa may end its pension program

New employees would get investment accounts under a proposal the city is considering.

By JANET ZINK, Times Staff Writer
Published January 5, 2008

TAMPA - Following the trend in the private sector, Mayor Pam Iorio is considering ending the city's pension plan for new employees.

That's one of the strategies outlined in a proposal she unveiled late last year to save the city money during these times of budgets strained by declining property tax revenues.

The pension plan, which guarantees retirees a lifetime income based on their salaries and years of service, would be replaced with one where the city contributes to an investment account that employees can tap into when they retire.

City officials say the pension plan has become too costly.

"We're looking at options to see if there's something that would be less of a burden," said Jim Stefan, the Tampa's budget director.

The city's annual payment into its pension fund has climbed from $1.5-million in 2003 to nearly $16-million in 2007.

City finance director Bonnie Wise said the rise in contributions to the Tampa's pension plan is due in part to Iorio's efforts to increase benefits, which added $2-million a year to the program.

But the bulk of the increase is to make up for shortfalls in the fund caused by fluctuations in the stock market.

The change would apply only to new general employees, and not police officers or firefighters, said city human resources director Kimberly Crum.

Martha Stevens, president of the union that represents the city's general employees, said she expects the proposal to be part of contract negotiations that start this summer.

"The union is not in support of it," she said. "We already have two different pensions."

Adding a third would make things more complicated, she said.

Mark Iwry, senior fellow at the Brookings Institution, a public policy think tank based in Washington, D.C., said pensions generally are better for employees because of the ensured lifetime payments.

With a 401k-type investment plan, also called a defined contribution plan, retirees have to make do with whatever the investment is worth when they stop working.

"It's hard for people to determine how to make their money last for their lifetime because they don't know how long they're going to live," Iwry said.

But employers like them because they shift the risk to employees, he said.

They also make it easier for organizations to set annual budgets, said Jan Jacobson, director of retirement policy for the American Benefits Council.

Regulations require pension funds to adjust every year to guarantee there's enough money in them to cover promised payments, regardless of how plan investments perform.

Defined contribution plans are based on a percentage of salaries.

"It's pretty easy to predict within a range what your contributions are going to be in that year because you know what your compensations are each year," Jacobson said.

The city of Orlando in 1998 stopped offering standard pensions and switched to a benefit plans for new employees that pays 7 percent of salaries and matches employee contributions up to another 3 percent. A little more than half of the city's employees are now in the 401(k)-type plan, according to a city spokesman.

The costs to Orlando for retirement benefits for both plans have remained steady at about $7-million a year since making the change.

If the change occurs in Tampa, it will take years for all city workers to switch to the new plan. But if all of Tampa's general employees today were in a defined contribution plan similar to Orlando's, it would cost up to $9.3-million a year.

Since 1985, the city of St. Petersburg has offered managers the option of either a pension plan or a defined contribution plan.

In 2002, the state of Florida started giving all employees the option of a pension or investment account, but most employees are sticking with the pension. As of June 2007, the pension plan had 598,648 enrollees. The investment plan had 81,654.

The trend away from pension plans in the private sector started in the 1980s when the federal government began tightening regulations to make sure companies could pay retirees the benefits they had pledged, said Steve Blakely, communications director of the Employee Benefits Research Institute.

In 1979, 62 percent of people working in the private sector were enrolled in a pension plan, according to the institute. By 2005, that number had dropped to 10 percent. The numbers enrolled in 401(k)-type plans are almost the exact opposite for those same years.

Governments have been slow to make the change in part because they haven't been subject to the same regulations as the private sector, Blakely said.

"The assumption has been that the liability for paying for this ultimately is the authority's ability to tax," he said. "If they need the money they can go out and raise it by raising taxes."

However, regulations of public pension are increasing, along with concerns about whether the pension funds can cover all of their obligations. A 2006 study by the National Association of State Retirement Administrators put the average funding of pension plans at 87 percent of necessary levels.

Wise, the Tampa finance director, said switching to what could be more cost-effective plan is worth a careful look.

"We could do the analysis and say we don't want to change," she said.

Janet Zink can be reached at jzink@sptimes.com or (813) 226-3401.

[Last modified January 4, 2008, 22:47:25]