City Council holds work session to review employee benefits program
Published on February 4, 2021
The Huntsville City Council is holding a work session Feb. 4 to review the municipal employee benefit program. A key topic will be the two tiered system for employee retirement benefits.
“The dual system was set up some ten years ago by the Alabama Legislature because of investment shortfalls at RSA (Retirement Systems of Alabama) during the 2010 recession,” said Mayor Tommy Battle. “The concern was having enough return on investment to meet the RSA obligations for retirement.”
The Alabama legislature passed State Act 2019-132, which would allow conversion of the Tier 2 pension plan to more closely align with the current Tier 1 benefit plan. If the conversion is adopted, it would come at some cost for employees.
Current City of Huntsville benefits include:
- Longevity pay of $5.25 per month of service
- Sick leave pay that accrues and is paid out at 50% of value at retirement
- Annual leave of 4 to 7 hours per pay period that caps at 260 hours (6 ½ weeks) to carry forward
- Health care costs of which the city pays 85% and the employee pays 15%
There are 880 Tier 2 employees and 1,563 Tier 1 employees in the City of Huntsville. Tier 1 employees are retirement eligible with ten years of service at age 60 or can retire with benefits after 25 years of service. Tier 2 are retirement eligible with at least ten years of service but must be 62 to receive benefits. The retiring after 25 years of service is probably the biggest benefit to employees.
Act 2019-132 gives cities the opportunity to change benefits from Tier 2 to Tier 1 – but at a cost. The cost to the City is estimated to be $733,106 for the first year. For each year afterward, the cost to the City will be set by the RSA through the calculated City contribution rate.
If approved by Council at its Feb. 25 meeting, the Tier 2 employee contribution rate is mandated to increase from 6% to 7.5% (7% to 8.5% for Police and Fire). The City of Huntsville will have the option through Council action to raise Tier 1 contribution rates from 5% to 7.5% thus having all employees contribute the same amount. Retirement benefits are determined by average final salary, length of service times and RSA investment factor. Presently, Tier 1 employees contribute 5% (6% for Police and Fire) of pay to the Retirement System while Tier 2 employees contribute 6% (7% for Police and Fire). Note that Police and Fire contribution is more because of a difference in their plan.
The City of Huntsville pays 11.45% or 14.33% of payroll for retirement depending on which Tier. These rates are set up under the rules of participating in the RSA retirement program.
The major thrust of the Thursday night work session is to lay out the Tier 1 and Tier 2 benefit programs as presented by the state, the cost to both the employee and the city budget, and to receive City Council input. Afterward, the administration will meet with the City Insurance Committee, which represents employees, for further study and review before making a recommendation to City Council on Feb. 25. Council is expected to vote March 11.
The work session will be available for viewing on HSV TV, the City’s website, or on the City’s Facebook page. Employee input is also encouraged by contacting their respective Department Head, City Insurance Committee representative, or through email at contact@huntsvilleal.gov.
