News Talk 94.1/AM 1600 Where The Upper Cumberland Talks
The City of Algood will explore options to potentially transition city employee retirement plans from a 401k to defined benefits.
City Administrator Keith Morrison said the transition has been some time in the making, with the first phase completed previously in a move to a state 401k plan through the Tennessee Consolidated Retirement System. Morrison said the next step to defined benefits would allow for a more robust retirement option for employees.
“A 401k will run out when the bank accounts empty,” Morrison said. “The defined benefits is a guaranteed dollar amount for however long you live. So once you retire, whatever that’s set at, you’re going to draw that. Whereas 401k, eventually the bank is going to go dry and you just can’t draw any more off of it so it moves us to a different level in retirement.”
Morrison said the first option would be to increase the city’s current plan of 10 percent of payroll to TCRS’ cost of living allowance baseline of 11.2 percent. He said this is the most ideal option and would cost the city some $18,000 for the first year. Morrison said option two would lower the multiplier and raise the age for retirement.
Morrison said the final option is a hybrid of the two, with the city contributing 5.9 percent to defined benefits and the remaining 4.1 percent goes to the 401k.
“As you move forward and you get an actuarial,” Morrison said. “If this 5.9 percent changes then we can adjust the percentage that goes to the 401k to balance out. So if the 5.9 went up to 7.3, then the 401k percentage would shift down to the 2.7 percent remaining. So the employees would still get 10 percent total, it’s just broke up where it’s going to.”
Morrison said that in addition to benefitting city employees, the new plan could serve as a better recruiting tool for the city. He said with more robust benefits, they could attract future employees that want a long-lasting career with Algood.
“Really what we’re looking for is to recruit employees that want to to be here, that want to close out their career here and retire and give us that long-standing employee that has years of service with us who knows the operations and performs well and does well and we get a better employee, and longer employee and they’re not looking for somewhere else that’s got better retirement or better benefits.”
Morrison said that the first phase has already gotten good feedback from employees who have transitioned. He said that in talking to advisors, employees say they feel like they have more control over their retirement plan. In order to continue this positive transition and to increase recruitment to the city, Morrison said he wants the city to continue to that next step of the retirement plan.
He said that current employees can continue contributing to their 401k should they prefer, but if city council selects a new program new employees would ibe signed up for that one.
Morrison said the city can decide to perform an actuarial study, which stands as an estimated six-month process. He said should the city decide to move forward with a plan option without the study, he hopes to have it in place by January 1st.
