Fayette’s new defined benefit pension plan over-funded for now
Just 15 months into its new hybrid pension plan, the anticipated costs for Fayette County is roughly half of the initial projections.
The combination defined benefit/defined contribution plan requires employees to pay 2.5 percent of their salary into the plan, and the county pays approximately 3.8 percent of each employee’s salary.
And while the costs for the county have been half of what was expected, the county is continuing to fully fund the plan, creating an overage that will help even out fluctuations in the future, said Steve Vaughn of GEBCorp, the company that oversees the program and investments for the county.
Vaughn said the county’s pension fund would earn money on the assets created by the surplus. He added that the actual costs are expected to rise over time to the 3.8 percent level.
The first six months of the plan’s life created a cost to the county of $298,000. But it also created a cost savings of $450,000 a year compared to the county’s annual contributions to its previous retirement plan, said County Manager Jack Krakeel.
Commissioner Eric Maxwell said he was hoping to see data about the performance of the pension fund’s investments, but Vaughn said that data would not be available for another few weeks. That information will be presented to the commission at one of its work session meetings either on Wednesday, Oct. 6 or Wednesday, Nov. 3.
Maxwell said he didn’t want to leave office at the end of the year with problems in the pension plan, so he wanted to see the data on the investments, earnings and assets.
It was noted that the county’s new hybrid pension plan caps the maximum years of service an employee may be rewarded for at 30. The plan calls for an employee upon retirement to be reimbursed 1.5 percent of their final salary at retirement for each year of service with the county. That means the maximum an employee can garner at retirement is 45 percent of their last salary earned.
Vaughn noted that county employees were allowed to “buy in” credit for years of service by purchasing them at their full actuarial value. That process has been completed and resulted in $14.3 million additional funds contributed to the plan, Vaughn said.
While numerous pension plans in both governmental and private sector businesses have made headlines in recent years for financial problems, county officials insist this plan is different because it does not provide a 100 percent of salary payment upon retirement.
Vaughn was asked by Commission Chairman Jack Smith if there were any worries about the assumptions made to create the plan. Vaughn replied that as long as benefits aren’t changed drastically in the future and the demographics of the county’s workforce don’t change much, there should be no problems with the plan holding up over time.