by Bradley Parsons
Staff Writer
Starting in October, City employees’ paychecks will shrink as they reach further into their own pockets to pay for their pensions.
For the past three years, the City has used extra pension funds to subsidize its employees’ pension contributions. The pension windfall allowed the City to ease workers’ required 8 percent contributions to 7 percent. The City wants to end that rollback Oct. 1.
“We have an account made up of [pension] over-contributions in times past,” said Finance Director Cal Ray. “We used that money to satisfy both the employee and City contributions to the pension funds.”
Contributions to the pension fund are a cooperative venture. Each year an actuary sets a contribution rate necessary to keep the fund healthy. The employee pays the lions share and the City makes up the difference. The payments are extracted as a percentage of each paycheck and calculated before taxes are subtracted.
Last year, the rate was set at seven-and-a-half percent. Because of the City subsidy, employees contributed 7 percent, and the City paid the rest from a pension subfund. But this year’s actuarial rate was set at 10 percent, which would have forced the City to contribute at a rate of over 3 percent. Ray said the City would save $2.5 million per year by restoring the employee-contribution rate to 8 percent.
But the rate change may have to wait. Ray discovered Tuesday that a labor contract holds the rate at 7 percent until a successor agreement can be reached with the Local 630. Ray said in an e-mail that it was “unlikely” the City would be able to shift the rate at the beginning of October.
City Pension Administrator Peter Bellehumeur said the higher actuarial rate resulted from three years of underperforming stocks.
“Picture the fund like a balloon,” he said. “When its size starts to go down, you have to increase the amount of air you put in.”
According to this year’s rates, a City employee earning $60,000 annually would pay $184 out of each paycheck to the pension fund. The City will pay $46. Compare that to last year when the same employee would have paid $161 while the City paid $11.
Since the 2000 rollback, the City has paid its share of the contribution from the above-mentioned previous-excess-contribution fund. Once valued at $70 million, the subsidies have shrunk the account to $31 million. The account is separate from the $1.45 billion general pension fund.