Changes to Police Pension Approved

Posted by Bob on September 30, 2011 under Daily Blogs | Be the First to Comment

The Board of Mayor and Burgesses unanimously authorized execution of changes to the Police Collective Bargaining Unit (“CBU”) pension that will place new hires in defined contribution pension plans.  After a year of “off-the-record” negotiations, an agreement was reached to make changes to the existing collective bargaining agreement (“CBA”) that expires June 30, 2011.  An early retirement incentive package (“ERIP”) will be offered in conjunction with the changes, and can be viewed here.  The changes to the pension plan can be viewed here.

A summary of the changes is as follows:

  • All new employees to the Police CBU hired on or after September 1, 2011, will be eligible for the Borough’s defined contribution pension plan only.  The Borough shall contribute a maximum of three and 75/100ths (3.75%) percent of the employee’s “W-2″ wage (excluding private duty) to the plan.
  • Current employees shall double their existing contribution in the defined benefit pension plan from four (4%) percent to eight (8%) percent.
  • No further changes will be made to the defined benefit plan for existing employees through September 1, 2051.
  • The calculation for defined benefit pensions for existing employees shall be changed from the “last three (3) years” to the “best three (3) calendar years”.
  • Employees in the defined benefit plan currently can retire and earn a pension of seventy five (75%) percent of W-2 wages after twenty five (25) years of service.  This requirement remains the same under the changes.
  • Employees in the defined benefit plan could previously retire between twenty (20) years and twenty four (24) years of service at the following respective percentages of W-2 wages:  Twenty (20) years – sixty (60%) percent; twenty one (21) years – sixty two (62%) percent; twenty two (22) years – sixty four (64%) percent; twenty three (23) years – sixty six (66%) percent; and twenty four (24) years – sixty eight (68%) percent.  UNDER THE CHANGES, current employees in the defined benefit plan can retire between twenty (20) and twenty four (24) years of service at the following respective percentages of W-2 wages:  twenty (20) years – seventy (70%) percent; twenty one (21) years – seventy one (71%) percent; twenty two (22) years – seventy two (72%) percent; twenty three (23) years – seventy three (73%) percent; and twenty four (24) years – seventy four (74%) percent.
  • Up to eight (8) of ten (10) employees who are within five (5) years of twenty five (25) years of service, shall be offered a one (1) time opportunity to retire early at seventy five (75%) percent of W-2 earnings.  Employees electing to retire will be allowed to do so through December 31, 2012, based on seniority and agreement between the retiring officer and the Chief of Police.

An actuarial projection provides the costs and calculations associated with the pension changes, and can be viewed here. The study has been commonly referred to as a “bend” projection, showing when the changes to the pension plan will eventually reduce costs to the Borough.  The projection is that costs saved will outpace costs incurred by 2016.  Costs associated with the early retirement will depend on which officers and how many elect to retire under the ERIP, and will be provided upon request after those variables are known.

The most significant part and primary reason for these changes is the switch to defined contribution pensions for all new hires in the bargaining unit.  A defined contribution pension is similar to a 401 (k) plan commonly used in the private sector.  The cost savings in future years will be significant.  While there will be initial costs associated with retirement and accelerated pension payouts, the change will yield long-term fiscal stability for Borough taxpayers and a more sustainable government in terms of benefits paid to future employees.

The Police CBU will now become the sixth (6) and largest of Naugatuck’s seven (7) municipal bargaining units to move to defined contribution pension plans for new hires since 2009.  We would like to thank the representatives from the Police CBU for their many months of professional and respectful dialogue that were necessary to reach this deal.  Our police officers do an outstanding job of protecting and serving our community with limited resources and often in the midst of dangerous circumstances.

I would again like to thank Borough Labor Council Nick Grello, Director of Human Resources Jeannette Deschesnes and Comptroller Wayne McAllister as well as Borough Actuary Shirley Assantes for their efforts.  I also sincerely appreciate the collective vision of the members of the Board of Mayor and Burgesses to support this complex decision, the benefits of which will be realized in the long-term much more than the short-term.  We welcome any questions residents may have on the subject.

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