BIRMINGHAM, Mich. -- The Birmingham Employees' Retirement System could become one of the few public pension plans in the nation to convert its defined benefit plan to a cash balance plan.
The city, with about $89 million in pension assets, is considering the switch because "it seems to be more responsive to what employees are looking for today, with greater portability and shorter vesting," said Dan Schulte, director of human resources.
"We think the cash balance plan will give us all the features of a defined contribution plan without the headaches," he said.
And because the pension plan has been fully funded for years, switching to a cash balance plan would let the city use up the surplus assets to credit employees' accounts, Mr. Schulte said.
The city has made no contributions to the plan since 1991, according to Thelma Shivel, city treasurer. The pension plan was 147% funded as of the fiscal year ended June 30, 1997, Ms. Shivel said.
The $80 billion California State Teachers' Retirement System, Sacramento, already has a cash balance plan, according to Dennis Coleman, principal at PwC Kwasha, Fort Lee, N.J.
"I don't see any reason why a cash balance plan wouldn't have the same desirable attributes to a public plan as a corporate plan," Mr. Coleman said.
Under the proposal the city is examining, participants would get a choice of letting their account balances grow based on the interest rate on Treasury bills, or the average return (net of expenses) the retirement system had earned in the preceding three or four years, Mr. Schulte said. Employees also would be covered by a safety net, probably a minimum 4% return, he said.
But a majority of the unionized city employees groups, such as the firefighters and police officers, must agree to the switch before the city can consider adopting such a plan, Mr. Schulte said. Only one of the five unions so far has agreed to the change, he said, noting, "We need critical mass to justify the expenses for employee education."
