Ocean City Today

City Council split on surplus in pension plan contributions

By Katie Tabeling | Sep 14, 2017

(Sept. 15, 2017) After much debate, the Ocean City Council has agreed to pay into the employees’ pension plans what it needs, rather than the greater amount it set aside for that purpose in the new budget.

Now, it has $606,000 left over between what it spent on pensions and what it budgeted, with no current plan on what to do with the surplus.

The council voted 3-3 on Tuesday on a motion to continue funding the pension plans at the combined budgeted amount of $8.45 million.

Since the budget was passed, a study by the city’s actuary, Cavanaugh MacDonald, found that the city could meet the pension funds’ needs with less money, because of better market and liability considerations that the budget could not anticipate.

Consequently, Finance Administrator Martha Bennett told the City Council Tuesday that the recommended contribution had been revised down to $7.94 million.

Ocean City determines contributions to its pension plans each year through an actuarial study, which examines the resort’s employee base and estimates what the cost will be to support that number of people after they retire. Differences between what the city has in its trust funds and its estimated future liability are paid off via contributions over several years.

The city typically “smooths out” the unfunded portion of the pensions through a 10-year amortization, but Councilmen John Gehrig and Wayne Hartman pushed to apply that extra $606,000 to the fund as a cushion against more difficult times.

“The stock market has been on an epic rise, and I get nervous because I don’t trust it to keep going up,” Gehrig said. “At some point, we’ll have a year or two on decline. Right now, we have the opportunity to get ahead.”

Hartman argued that waiting to pay off the plans’ unfunded liability of roughly $50 million would be unfair to the taxpayers.

“This isn’t that we hired Joe employee, and his pension is coming, this is liability of benefits the town already had,” he said. “Pushing the debt is pushing it to future generations … if we don’t pay more now, we’re kicking the can further down the road.”

Mayor Rick Meehan and other councilmembers expressed confidence in the actuarial recommendations. In the past, city officials had followed the firm’s suggestions, even when the city would have to pay over the budgeted amount.

“I think we have a very aggressive funding schedule and funded the pensions very high,” Meehan said. “Very few communities are that aggressive. If we have excess, I don’t see how it would impact the liability [if it pays off less than one percent]. But if it goes to fund balance (the general rainy day account), then we would have that next year when the situation could be different.”

Dare, who is a retired city employee, reminded the council that pocketing the money could mean more if Ocean City is struck with disaster like a hurricane. He also suggested tabling discussions on the excess money until strategic planning sessions in two weeks.

“When I turn on the news and I see the Texas and Florida, I think this is a drop in the budget in comparison to what we could face,” Dare said. “As a retiree, I don’t have a problem voting on the budget or what the actuary recommends, but if we’re going to take exception, I’m going to have to abstain.”

The final vote was Hartman, Gehrig and Councilman Matt James in favor of paying in the $8.45 million, and Councilman Lloyd Martin, Council Secretary Mary Knight and Councilman Tony DeLuca against.

Meehan echoed Dare’s suggestion and asked the council to consider funding the pensions to the recommended amount in the meantime. Hartman questioned the legality of the proceeding since the last motion on a budget item failed, but City Solicitor Guy Ayres allowed the motion.

“Just because you allocated money in the budget doesn’t mean you’ve approved the exact expenditure after hearing the recommendation,” Ayres said.  “You need to vote one way or another.”

The motion to fund the pensions at $7.94 million for the time being and to discuss the matter further at the strategic planning session passed, 5-2, with Hartman and James dissenting.

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