CT Town to Put New Hires in 457 Plan

August 5, 2011 (PLANSPONSOR.com) – The Trumbull, Connecticut, Town Council nearly unanimously passed an agreement to bar new, nonunion employees from joining the town's established pension system, and instead allow them to participate in a 457 defined contribution plan.

The Connecticut Post reports that town employees would choose how to invest their retirement savings, and the town would provide a dollar-for-dollar match up to 5%. If fully vested, they would be able to take all of their funds with them if they were to leave their town job.  

The Post said only 27% of the town’s pension obligations are funded. Even if the town adds $400,000 to its pension investments every year, by 2035 it will deplete the entire pension fund, Trumbull’s financial director said. At that point, Trumbull would have two options: borrow the money or put pensions into the annual budget. Both moves would result in higher taxes.   

Actuaries calculated that Trumbull would have to increase its yearly contribution to the pension fund to almost $4.5 million a year for the account to be sustainable, Trumbull Finance Director Maria Pires said, according to the news report. In the last three years, the town has steadily increased its funding and added another $675,000 to the fund for the 2012 fiscal year, making the total contribution $3 million, but there is no way the town can afford another $1.5 million to reach the actuaries’ recommended goal, Pires said.   

Pires determined that a fully vested town employee making about $50,000 a year will get a net total of $247,000 from the town under a defined benefit pension plan, assuming he or she lives 10 years after retirement. Meanwhile, the town would pay $75,000 for the same employee under a defined contribution plan in the same circumstances.   

The Post said 37 other towns in Connecticut already use defined contribution plans, according to Trumbull labor attorney Floyd Dugas. At least 20 of those towns use defined contribution plans exclusively, he added.