Non-uniformed employees with the city of McAlester were told Friday to expect major changes in the city’s Defined Benefit Pension Plan.
“It’s under-funded and has been under-funded,” City Manager Pete Stasiak said in an interview with the News-Capital.
Stasiak related the situation this way:
“For every employee we owe a dollar for their pension, we only have 64 cents in the bank.
“At this point, we can’t maintain this going forward.”
The city manager has a proposed solution, which he plans to submit the city council for approval.
“We are doing a ‘hard-freeze, effective June 30, for the defined benefit plan for existing employees,” Stasiak said.
“There will be no new participants and no further benefits accrued.”
The changes Stasiak referred to Friday affected only the 126 non-uniformed full-time city employees with full-time benefits, according to the city manager.
Agreements with the police and fire department unions are by contracts determined through negotiations.
Bruce Nordstrom, senior consulting actuary with a Dallas-based company called MHBT which works with the city said previous benefits will remain in place.
“Nothing that’s happened prior to June 30 will be taken away,” he said, referring to benefits which have already accrued.
Chris Whatley and Jodi Cox, of the Oklahoma Municipal Retirement Fund joined Stasiak in the employee meetings Friday and also spoke with the News-Capital. Cox said the OMRF is a non-profit group working with more than 200 cities and towns in Oklahoma.
“Starting July 1, and moving forward, employees will move to a new defined contribution plan,” Whatley said, that will require both employer and employee contributions.
“It will be the responsibility of each employee to invest that money,” he said, adding that the OMRF has a number of investment options.
The situation with the pensions has been building for some time, according to the city manager.
“It has really come to a head in the last year,” he said.
The problem has been building during the last five years, the city manager said.
“In the last five years, it’s gone from $1 and a-half million to $6 million underfunded,” Stasiak said of the pension fund.
He maintained the reason was not because the city failed to make its payments in the form of employee contributions during those years.
“We made all of the required funding contributions, year-after year,” Stasiak said.
So what happened?
“In 2009 and 2010, when we had the recession, it did not meet interest projections,” Stasiak said.
For at least two of those years, the city not only did not make the interest which had been projected — it even went in the hole, or “negative,” Stasiak said.
“Once you go negative or do not get a return, it’s difficult to make that up,” he said.
When the News-Capital asked specifically how negative the city’s losses were during that time, Nordstrom said he would get the numbers.
In a later conversation, he provided the numbers for 2008 and 2009.
“In 2008, it lost approximately 9 percent and in 2009 it lost approximately 12 percent,” Nordstrom said.
“That’s bigger than it sounds,” he added.
“If you’re expecting to get 8 percent and you lose 9 percent, that’s a 17 percent differential.”
The number is even larger when an expectation of an 8 percent return turns instead into a 12 percent loss — resulting in a differential of 20 percent.
Regardless of how the city got into the current mess with its Defined Benefit Pension Plan, how will it get out?
“To take care of the underfunded balance requires the city to contribute $600,000 a year for the next 14 years,” Stasiak said.
Even that won’t get the city out of the quagmire on the issue.
“Then, it will be $300,000 for another 14 years,” Stasiak said.
Whatley said some of the city’s pension plan enhancements contributed to the situation, and Stasiak agreed.
For example, employees with 25 years of service can retire at the age of 55 and be paid 50 percent of their salary for the rest of their life, he said.
That’s an enhancement Stasiak wants to see changed regarding the future.
“We have about 57 retirees we are paying currently,” Stasiak said.
The new plan is described as similar to a 401 K.
“Starting July 1, we will be helping employees in McAlester,” said Cox, one of the OMRF representatives in the city on Friday.
Stasiak maintains the new system will be better for the city’s finances.
“We’re not saying it’s not going to affect our employees,” Stasiak said of the proposed changes. He said it’s better to get the system stabilized at this point.
“We did what’s best for the employees and what’s best for the city.”
Next: How is the new plan designed to work?
Contact James Beaty at email@example.com.
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