Changes to Ann Arbor's pension ordinance could eventually save $230K a year, study shows
The Ann Arbor City Council voted 10-0 Tuesday night to give initial approval to pension ordinance changes expected to significantly reduce future retiree costs.
The changes passed without discussion and now go on for second reading and final approval. They increase both the vesting period and final average compensation period used for calculating pensions of nonunion city employees hired after July 1, 2011.
Earlier this summer, the City Council directed city staff to draft an ordinance amendment increasing the pension vesting period from the current five years to 10 years for nonunion employees hired after July 1, 2011. That means nonunion employees will have to clock twice as many years of service in order to collect pensions from the city.
The directive also asked for an increase in the time period used to determine final average compensation — a figure used in pension calculations that historically has been based on the highest-paid three consecutive years of service within an employee's last 10 years. The council is changing that to five consecutive years, which should equate to lesser pension payouts.
The city had an actuarial valuation completed to see how much the city's pension costs are expected to go down as existing employees are replaced with new hires.
Eventually, when all nonunion employees are under the revised plan provisions, the actuary estimates the city's costs would be about $230,000 less per year, according to a memo from senior assistant city attorneys Mary Fales and Nancy Niemela.
Council members hope the city can negotiate more pension and retiree benefit changes through collective bargaining agreements with the city's labor unions.
In a breakthrough deal reached recently with the city's largest labor union, the vesting period for all future AFSCME hires also will be 10 years instead of five now. The contract includes other major concessions expected to help reduce the city's long-term costs.
As of June 30, 2010, the most recent actuarial valuation date, the city's pension plan was 90.3 percent funded. The accrued liability for benefits was $466.9 million, and the actuarial value of assets was $421.4 million, leaving an unfunded liability of $45.5 million.
The covered payroll (annual payroll of active employees covered by the plan) was $48.7 million, and the ratio of the unfunded liability to the covered payroll was 93.4 percent.
Meanwhile, the city's retiree health care benefits plan and trust was 30.1 percent funded as of June 30, 2010, with $169.6 million in unfunded liabilities.
Council Member Mike Anglin, D-5th Ward, was absent from Tuesday's meeting.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at email@example.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's e-mail newsletters.