Tuesday, April 17, 2012

Mayor Drew Plans to Stiff Retirees & Cops

City employees rely on pensions, because by law they are ineligible for social security.
Mayor Drew plans to under-fund  their pensions
Dear Middletown Insider,
I was hoping that you'd consider investigating something I was told recently by an individual who is a reliable source of information.  I was told that the Mayor has dipped into the city employees' pension fund to the tune of 1.5M to get the budget balanced.

I am anxious to know if this is true and if it is legal for him to do so.  I was told that  Councilwoman Hope Kasper is aware of this as well.

This idea makes me very uneasy.  After years of paying into Social Security, I expect that it will be bankrupt before I am eligible to retire.  Is this what I am to be faced with from the city's pension fund as well?

 Signed Anonymous. from Middletown

Dear Anonymous-  Yep, Dictator Drew wants to stiff retirees.  And we aren't just talking about the senior center!  Just a few notes about the City of Middletown Pension Plan as there seems to be a lot of misconceptions out there. The general public hears the word pension and think how lucky the municipal employee is but there are advantages to working social security that the municipal employee does not get.

First of all the City’s Pension plan was established back in the 40’s under a 218 Agreement with the State and under Federal laws. Through the years, there have been several changes to the laws but for the most part, municipalities across the country are bound by the same regulations. However, those regulations are not necessarily the same for state and federal governments.

The City of Middletown’s Pension Plan is controlled by the City of Middletown’s Code of Ordinances and is a defined benefit plan. This means that the retirement benefit is based on a formula rather than the contributions an employee has made to the fund. The formula is set by the ordinance however the formula has been modified over the years by the various union contracts and the City is responsible for the funding of the plan.Membership in the pension plan is also set by the ordinance. Although it is a defined benefit plan, the employees do contribute a percentage of their pay to the fund; at this point either 6% or 6.5% depending on which union they belong to. Currently people who work under and contribute to social security pay 4.2% of their pay.

Municipal employees, unlike state and federal employees because of the regulations, are not allowed to participate in Social Security. This means that they do not receive any social security benefits; their retirement income will come from their pension plan. The municipal employee is not able to apply to Social Security for disability pensions. Also, there are Social Security Acts that affect municipal employees only that the general public isn’t necessarily aware of: the windfall elimination act and the government offset act. Basically if a municipal employee works also under a job that participates in Social Security, when the times to collect their social security benefits, those benefits will be offset or reduced by their government pension. The other act affects those employees who are collecting social security benefits based on their spouse’s social security record; when the employee starts to receive a government pension, then the social security benefit is reduced, usually stops.

While the municipality is responsible for funding the pension plan, Middletown has done well: it’s plan is healthy due to the fiscal responsibility exercised by the City, the Pension Board and the Actuaries. The municipalities gain by having a pension plan by not having to pay into the social security system the matching 6.2% of ALL employees’wages. This is significant!!! That’s 6.2% on ALL MONIES PAID!!

In this year’s budget proposed by Mayor Dan Drew, he has reduced the amount of funding
proposed to be paid into the pension fund. The City of Middletown’s pension fund in
ONE FUND that all retirees are paid from no matter what department they retired from.
The actuaries compute each year the “health” of the fund and make recommendations as to what the City should pay to the fund to keep the fund “healthy”. Police employees are part of the general fund; fire retirees and sanitation employees although paid from the same retirement fund are funded through their respective budgets so any contributions made are not included in the general fund budget. Some employees cost more for their retirement due to some of the actuarial assumptions and rules for their benefits such as police officers and therefore the actuaries recommend that the City add to the pension fund to ensure the “health” of the fund to cover for these added benefits. Middletown is in a somewhat unique position in that the pension fund has made money over the years and could actually get away with not putting the recommended amount for the extra cost of the police members. The downside would be that should the fund not do so well in the future, because the City is ultimately responsible for the funding, it may have to contribute more at a future date to cover the savings of today.
The question becomes: do we want to open that door?? Once a door is opened, it’s hard to close. This budget is not proposing to actually take any funds from the Pension Fund but to change the amount that it pays into the fund to meet it’s obligations by law. The first kneejerk reaction is to change the police retirement benefits however, that’s not a realistic proposal in our opinion just because there are numerous factors involved including the age of police officers. And, the Insider for one would for the most part, rather have police officers start young especially if they’re going to physically chase someone down rather than have officer start later in life when is more likely ( no not always)  is working against them physically speaking. Police need the extra retirement benefits because of the physical demands of them on their job and the toll they take.

 Underfunding the pension fund is a slap in the face to all City employees who will one day become retirees. Underfund one year, what about the next??

But again, the Insider has reservations about doing this as it seems to be postponing the inevitable.
Save today to pay more later?? 

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