Grand Rapids, Kent County tackle pensions

May 1, 2010
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The elected officials of Kent County and the city of Grand Rapids intensified their efforts last week to control their respective pension costs, which rose dramatically following a nearly complete collapse of Wall Street.

In the years prior to the financial market meltdown in 2008, both the county and city pensions were either fully funded or overfunded, making the employer contribution rate very manageable. But that isn’t the case today, for the county or the city. The county’s plan lost $136 million in 2008, while the city’s two plans lost $200 million in the same year.

As for the county, the Legislative Committee agreed last week to lengthen the amortization period of the employee retirement plan’s unfunded liability from 15 to 25 years. “It helps to keep the employer contribution rate from going quite high,” said Michelle Balcom, the county’s pension plan administrator.

Balcom said the county’s retirement plan was in better shape than most public pensions and extending the amortization period would help keep the county’s contribution rate from spiking in the short term. “Staying with a shorter amortization period will make the county’s contribution rate higher,” she said.

Balcom said the county’s contribution rate is 7.15 percent of roughly $100 million in total payroll this year, meaning Kent will contribute slightly more than $7 million to the pension this year. But she added that the rate could rise to 9 percent next year and to as high as 13 percent in 2013, estimates that are based on the retirement plan’s current market status and the demographics of current employees.

“It takes about 15 percent of our payroll to fund our plan,” said Balcom. County employees contribute about 6 percent of their wages to the plan annually, which can leave the county to contribute from 9 to 10 percent of payroll. But when the return rate on the plan’s investments is good, like last year’s 17 percent return, the county can keep its contribution rate in check.

The county’s pension statute allows the amortization period for the unfunded portion to range from one to 30 years. Balcom said that not too long ago it was 12 years, before it became 15 years. “It’s a well-funded plan,” said Balcom.

The county’s pension board approved the extension. County commissioners will vote on whether to extend the amortization period next week. In March, they authorized county administrators to ask unionized and non-unionized employees for wage and benefits concessions for the next two years.

Last week, city commissioners took similar action but on a different path, when they instructed City Manager Greg Sundstrom to develop an ordinance that would cut the city’s share of pension costs by 5 percent of payroll. They gave Sundstrom some leeway to arrive at that reduction. Commissioners said he could increase the employee contribution rate, lower the pension multiplier, or use other methods.

The city offers two plans: a general pension for most employees and a separate one for police and fire. Both pensions cost the city about $5.6 million this year, but that figure is expected to rise to more than $15 million next year. Pension funding comes from the city’s general fund and the new fiscal year begins July 1. “It’s a bleak picture in front of us,” said Mayor George Heartwell.

Commissioners also unanimously recommended last week that the city’s compensation commission consider lowering the salaries of the mayor, city commissioners and the city comptroller when it meets next year. In January, commissioners who receive health coverage through the city agreed to raise their premium rate from 10 to 20 percent. City employees pay 10 percent.

“We intend to demonstrate our commitment to fiscal concessions,” said Heartwell, who is covered by the city’s insurance plan. The mayor said earlier this year that city employees have made $5 million worth of concessions over the past few years.

“We’re all in this together. We’re all making concessions,” said 2nd Ward Commissioner Rosalynn Bliss. “We need to get through this. We need to sacrifice together to do this.”

The compensation commission set the salaries for the mayor and the six commissioners at $39,141 and $22,496, respectively, in 2002, and didn’t recommend an increase for this year. The mayor also gets to use a city-owned vehicle. City commissioners told Sundstrom to give compensation commissioners a report on the pay of elected officials before the board meets next year.

“I think in the interest of fairness we should take a cut, and I haven’t even received a paycheck yet,” said 2nd Ward Commissioner Ruth Straayer-Kelly, who was sworn in April 13.

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