Shelby Township top priority, police and fire pension reform, 'almost a done deal'

The Shelby Township Board of Trustees’ approval of a new collective bargaining agreement with Township’s firefighters union May 6 was historic as it was the completion of the most critical step to truly reform the police and fire pension system.

The call to reform the police and fire pension system has been at the top of the Township’s annual priorities, as dictated by the Board, Township department heads and residents, since 2012, but moves to enact these historic reforms started well before that.

“This has been on the community’s mind for as long as I have been in office,” said Township Supervisor Rick Stathakis, who was first elected in 2008. “The only real opportunities to address these pensions come through negotiations with our unions, and since 2008 we’ve only had two chances and this was the second. It was a tremendous team effort and commitment from the Board of Trustees that got this done.

“I am proud today, though, to tell our residents that the foundation has been laid for these reforms and the plan is in place to close the book on the financial cloud these pension systems have cast over our Township.”

The solution began April 1 when the Board approved an agreement between the Township and the Patrol Officers Union that placed new police department hires on a defined-contribution retirement plan. The new agreement with the firefighters union holds the same defined-contribution retirement package for all new hires in the fire department as well.

Shelby Township Labor Attorney Craig Lange said defined-contribution plans mirror the traditional 401 (k) plans common within the private sector and pose less financial responsibility by the Township.

“Shelby Township agrees to contribute a particular amount of money, a percentage of pay into a retirement account on behalf of our employees,” Lange said of the defined-contribution structure. “Under the terms of the new collective bargaining agreement, the Township contributes 10 percent of salary, which goes into each employees account. After retirement, the township’s liability and risk is ended.”

Lange outlined defined-benefit plans as more costly and a greater financial risk to employers.

“Defined-benefit plans guarantee that, when the patrol officers, the command officers, the firefighters retire, they will be provided with a particular amount of pension annually, irrespective of what happens with the investments,” Lange said.

“In other words, the risks of loss in these defined-benefit plans falls upon the Township when investment turns south or there are underfunded costs, perhaps by assumptions that are not met. In the case of defined-benefit plans, whether or not there are sufficient funds to pay these monies, the risk totally lies with the public employer.”

Under the defined-benefit plan, Stathakis said employees accrue a retirement valued at roughly $2,265,000 after 25 years of service. For this employees contribute roughly $1,735 per year of employment. This equates to approximately a $75,000 to $80,000 pension annually.

“The Township currently pays 37 percent of salary into the defined-benefit plan; that means, for each dollar of salary that is paid to a member of these bargaining units, the township also pays 37 cents into the pension plan,” Lange said.

The next step in the reform process comes as Township officials seek to fully fund the $23 million liability incurred under the defined-benefit plan to formally close the book on the Township’s top priority.

“During the last election I asked voters to ‘stand with me to reform pensions,’” Stathakis said. “I am grateful to those who did stand with our Board and provided the support necessary as we saw this issue through. This is why I could not be more proud to tell these supporters that this is almost a done deal.”