Can East Lansing Increase Employee Contributions to Retirement Plans?

East Lansing’s Financial Health Team (FHT) recommended that the City increase employees’ contributions to their retirement plan, particularly employees who have defined benefit (DB) plans.

There were 143 City employees in DB plans (types of retirement plans are described here) as of December 2016. Two-thirds of these people contribute to their plans now and do so at a rate of 1% to 6.7% of pay, and one-third do not contribute to their plans. The FHT noted that “as of 12/31/2014, the average employee contributions under MERS’ 700+ DB plans was 5.5% of pay.”

Almost all of the East Lansing employees who are not making employee contributions are police officers and firefighters hired since 2011, for whom the benefit calculation and retirement age were changed in 2011 to reduce the cost to the City of these plans by about 60%, according to City Manager George Lahanas. These two groups have an average annual salary of $52,300, as of December 2016. (Fire and police personnel hired before 2011 make employee contributions ranging from 2 to 5 percent of their salaries.)

The FHT recommended, “As a matter of equity, [the City should] bargain in the future to increase employee contributions to not less than 5.5% of pay for non-uniformed employees, and 11% for police and fire. Bargaining should take into consideration the funded level for the employee group (MERS Division), current contribution rate (if any), and the pattern of compensation increases or concession over the past few years.”

Regarding the FHT’s reference to considering the pattern of changes to compensation, City Manager George Lahanas has pointed out that City employees have received an average raise of just under 1% per year between 2010 and 2017. The budget for Fiscal Year 2019 (beginning July 1, 2018) that the Council is currently considering contains a 1% salary increase.

Lahanas’ response to this FHT recommendation, circulated in October 2017, states: “Additional employee cost sharing will be implemented. Over successive years of bargaining the City has agreed to a combination of a compensation increase and pension contributions that attempt to provide equity. An across the board modification that treats every group the same does not recognize that balance. The City also needs to reflect bargaining differences when setting employee contribution amounts.”

This article is part of a larger investigation of East Lansing's government’s response to the Financial Health Team’s recommendations about pension plans; click here to read the lead article for that investigation.