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Shelby Township

Shelby Township clinches deal with fire union

Police and fire new hires will have 401(k)-type plans — no more pensions

May 14, 2014

SHELBY TOWNSHIP — On May 6, the Board of Trustees unanimously approved what Supervisor Rick Stathakis called the biggest news since he took office in 2008.

The 54-member firefighters union entered into a four-year contract, which effectively would transfer new hires to a defined contribution plan similar to a 401(k) retirement plan instead of a pension.

On April 1, the board approved a four-year police patrol officers union contract, which also will steer new hires in the Police Department away from pensions and into defined contribution plans.

Pension reform has been the Township Board’s No. 1 priority since 2012.

“We’ve gotten rid of that cloud over Shelby Township that we’ve had for many, many years. It’s gone. The program is capped,” Stathakis said. “Everybody currently on the defined benefit program will stay on it, and all new hires starting immediately will go to defined contribution.”

In return, the township promised to pay off the approximately $24 million in currently unfunded accrued police and fire pension liability by March 2015 at the latest.

Township labor attorney Craig Lange said the defined contribution plan more closely resembles the traditional 401(k) plans common in the private sector and carries less financial risk for the township.

The new police and fire hires’ retirement plans would be identical to other township employees’ — the employer pays 10 percent of the salary, and the employees pay 5 percent into the same retirement plan, Lange said.

He said the board intends to use bonds as its primary vehicle to pay off the accrued $24 million in unfunded pension liabilities.

“Right now, the township is paying the unfunded accrued liability off annually, including the assumption cost of 7.5 percent a year. With bonds, you’re basically exchanging one debt for another with a lower interest rate,” Lange said.

The board will consider Public Act No. 329, which allows municipalities with extremely high bond ratings to bond unfunded liabilities and expires Dec. 31, 2014, Lange said. The union allowed until March 2015 to tie up any loose ends.

The contract also allowed for a 5 percent wage increase over four years for current firefighters union members — 2 percent immediately, followed by a 1 percent increase each year after; an increase in life insurance from $40,000 to $80,000; and the promotion of three lieutenants to captains.

The union’s previous contract expired Dec. 31, 2013, but members will not collect retroactive pay under Public Act No. 54, which legislators penned to speed up negotiations.

“This contract, I’ll be honest, was a tough pill for me to swallow,” said John McCoy, president of the firefighters union and fire battalion chief. “But it’s nice when you deal with an HR Department and board willing to listen when you explain your position on things.”

He said he did not like the idea of creating tiers in the department between those with pensions and those without, as it might make future negotiations more difficult and create dissention.

“Unfortunately for our members, this ties us more into the private sector, and our jobs aren’t like private sector jobs,” McCoy said. “I’m concerned about what (bonding) will do to financials in the future. Some cities who have gone to a direct contribution plan for new hires converted back to a defined benefit plan because of financial costs.”

He added that he hoped the Shelby Township Fire Department would not become a training ground for firefighters before they seek a municipality with a pension plan.

“I’m not especially a fan of it, but there was a big push from the township,” McCoy said. “Overall, the majority rules, so I’m okay to be content with it and live with it.”

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