MSD Moves to Change Pension Plan

By Phil Sutin psutin@post-dispatch.com 

Posted: Saturday, November 13, 2010 12:10 am

The Metropolitan St. Louis Sewer District is becoming the first public agency in the area to change its pension system to one that the private sector has been using for years.

District trustees on Wednesday tentatively approved a 401(k)-style pension for employees who start work Jan. 1 and thereafter. A final vote will be in December.

Although various entities, particularly the city of St. Louis, have long complained about the financial unsustainability of some of their pension programs, the only one to act so far is MSD. It says it expects to save $18 million over 10 years by making the switch.

Under the new system, employees will assume some of the cost and risk of the pensions. Heretofore, employees were guaranteed defined benefits on retirement. Hereafter, benefits may fluctuate with how the employee directs investment.

Public employee unions have generally resisted the change. In MSD's case, its five unions agreed in negotiations. They were unavailable for comment Friday.

Both Missouri and Illinois legislatures have tightened some rules on pension eligibility to reduce costs but have stuck with the defined-benefit model.

Other states are moving toward the defined-contribution model — which sets limits on how much governments have to contribute to pension funds. Two states — Alaska and Michigan — have already adopted such systems.

"The public sector is lagging but following the trend," said Mary Anne Dutemple, a senior pension consultant in the St. Louis area office of the Towers Watson consulting company.

St. Louis County has established an eight-member committee to consider revisions in its pension plan. Its cost has tripled since 2000.

The group may consider making the same change as MSD did, after first reviewing the county's defined-benefit plan, said Kirk McCarley, the county's personnel director.

Officials are aiming to carry out any pension changes on Jan. 1.

Current MSD workers will remain in the district's traditional pension plan, but those with fewer than 10 years of service can choose to switch to the district's new plan.

The change will affect relatively few people at first; the district has a hiring freeze.

MSD will put about $11 million this year into its pension fund, a 45 percent increase in pension costs since 2007. The pension plan was fully funded in 2008 but now is 83 percent funded.

The district wants to offer "a benefit package that is fair to its employees yet does not create an undue burden for the ratepayers," MSD spokesman Lance LeComb said.

The district would contribute 7 percent of workers' wages to the new plan. If workers decide to contribute, the district will match 50 percent of workers' contribution up to the workers' first 4 percent of contributions.

In general, current employees who have been with the district for 30 years receive a pension equal to about half their salaries. St. Louis County expects to spend $31 million next year on pensions, down $2 million from this year because of improved investment return, McCarley said. The county has about 4,200 employees and about 2,200 retirees.

In 2000 the county, with about the same number of employees, spent $10 million for pensions, McCarley said.

The county already has a 401(k)-style plan for workers who wish to participate in it as well as the regular pension plan. Only workers put money into that plan.

The city of St. Louis is keeping its pension options open, said Kara Bowlin, a spokeswoman for Mayor Francis Slay. The city only controls the pension plan for its civilian workers; the Legislature sets the rules for police and firefighter pension plans, she said. But the city pays the costs of those plans, and officials have repeatedly said in the past that it cannot afford the cost increases.

Metro transit agency and its unions have agreed to not talk publicly about pension changes because labor negotiations are under way, said Dianne Williams, a spokeswoman.