Township Makes Changes to Employee Pension Plans

The Upper Saucon Township Supervisors this week decided to change its retirement plan for future non-union hires from one with defined benefits to one with a defined contribution.

Here are five things township taxpayers may want to know about the decision:

• While the township’s up-front contribution toward retirement benefits for future non-union hires will not change from its current 5 percent of salary, the shift to defined contribution is meant to reduce the township’s risk of liability should retirement investments underperform in the future.

• Defined benefits guarantee employees a regular pension check upon retirement; defined contributions only guarantee that the employer will contribute a certain amount to a retirement fund while the employee works. In a defined contribution plan, the employee picks the investments and also assumes the risk.

• The change will not affect any of the 11 current township management and non-union, non-uniformed employees, only those who are hired from this point forward. The township is planning to hire a new finance clerk in the next month to replace an employee who is retiring.

• The shift is part of a recent strategy to reduce township retirement costs. The township recently ratified a new five-year contract with its newly nionized, 25-member group of non-uniformed public works employees. The contract includes an across-the-board 1 percent reduction in their defined benefit plan formula.

• The township has budgeted $200,000 for employee retirement plans in 2013, a figure that includes funding for about 55 employees, including the police department. That figure can change annually and often is fully or partially subsidized by the state of Pennsylvania.