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Devil is in the details

August 9, 2013
Cape Coral Daily Breeze

To the editor:

This past Tuesday the 6th I attended a candidate's forum at the Dublin Ale House. While there I asked several Council Members, council candidates, union members and members of the general public about the pension reforms and the 5 percent bonus. No one had a functional understanding of the issue. To those of you who may be similarly situated I offer the following.

Basically in exchange for a 5 percent bonus payment certain changes to the pension plan were agreed to. These changes will impact all future employees and some current employees who are enrolled in the defined payment pension plan. The bonus will go to all current employees, union and non-union as well as management so enrolled. No one already retired is affected in any way and the fire union has not accepted the reforms yet.

The changes are different for future employees (those not yet on the payroll) and current employees. Current employees may be divided into two classes as they are treated differently. Class 1 employees are those with 15-years service and are within five years of retirement. They will get the 5 percent bonus but will not be subject to any of the changes. The others, Class 2, will get the bonus but will be subject to all the changes the new employees will get with the exception of the increases in length of service and age required to retire. The bonus payment along with add-on payments and overtime payments will be continue to be used to calculate pension payments not just base salary. Now let's look at the specifics as they will apply to Class 2 current employees, new hires and the risks inherent therein.

First. There will be a cap of $95,000 on annual pension payments to any one individual. However, the cap is exclusive of COLA increases so it may be exceeded by those increases.

Second. There is a three year delay before the COLA (cost of living allowance) kicks in.

Third. The COLA will be reduced from the current 3 percent to 2.5 percent. For current employees this does not apply to accrued benefits, only those earned after date of change.

Forth. An increase of two years in required service and age for retirement will be put in place. Police retirement age will be raised to 52 from 50 and other employees will see 62 set as the retirement age. The years of service for both will be raised from 25 to 27. These increases will affect only new employees. Class 1 and class 2 current employees are not subject to this change.

Fifth. Vesting in the retirement plan will be changed from the current 50 percent at five years and 10 percent each year thereafter to 100 percent at 10-years of service.

Sixth. Pop-ups have been eliminated. A pop-up is a term applied when an employee upon retirement elects to accept a reduced payment in order to make his or her spouse eligible for the pension should the pensioner predecease the spouse, however if the spouse predecease the pensioner the full pension payment pops-up. Under the new plan this will not happen. Once elected the reduced payment is permanent. Again this only affects Class 2 current employees and new employees.

There are other changes but I believe them to be of only minor financial consequence.

The 5 percent bonus will be paid out by the end of October 2013 while the bulk of the anticipated savings are actuarially accrued. That is to say they are anticipated to occur in the future as they mostly impact people yet to be employed and will have a negligible impact on current cash flows. The bonus of course will have an immediate negative cash flow impact; hence the need for all the new taxes being enacted.

The agreement does have another Achilles' heel besides cash flow. It expires on Sept. 30th 2013. By that time millions will have been paid out in bonuses and all of the changes will be up for renegotiation. It is quite possible that we will see erosion that will reduce the anticipated future savings.

Bill Deile

Cape Coral



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