By Nick Nunn Staff Writer
The Morgan County Board of Commissioners (BOC) approved of a request for loan proposals in the amount of $2,500,000 for the purpose of fully funding the county’s unfunded pension liability.
By paying off the remainder of the pension liability and, instead, paying back the principal and interest on a 10 or 15 year bond, Morgan County Manager Michael Lamar estimates that the savings to the county could be approximately from $100,000 to $130,000 but that “time will tell” on how much will actually be saved.
The $2,500,000 loan will be structured as a single revenue bond to be issued by the Morgan County Building Authority (MCBA), a body comprised of the county’s commissioners but separate from the BOC, who will purchase the County Administrative Building from the county, enabling the county to fund the unfunded portions of the retirement pension liability.
The MCBA will then enter into an intergovernmental contract with the county, which will agree to make the necessary payments in order to pay the debt service on the bond. The request for loan proposals lists two options for the terms of the loan.
The first option sets forth a 15-year term with quarterly payments, commencing April, 1 2014 and being paid in full on Jan. 1, 2029. The second option is for a 10-year term, again with quarterly payments, which will begin April 1, 2014 and terminate on Jan. 1, 2024.
The request for loan proposals approved by the BOC also states, “Under the terms of the Contract, the County will be obligated to levy a tax sufficient to pay the Contract Payments.”
The deadline for receiving proposals is Dec. 6 at noon. A verbal award will be given at 4 p.m. on Dec. 6, with a formal award being given at the BOC meeting on Dec. 10, 2013.
The county also reserved the right to reject all proposals. During the Nov. 19 work session, the BOC heard from Steve Vaughn, CEO and president of the Government Employees Benefits Corporation of Georgia (GEBCorp), concerning the city’s existing retirement plan with GEBCorp and the county’s plan to move to a defined contribution retirement system beginning in Jan. 2014.
Vaughn stated that the county is “on the right track” to being able to transition from a defined benefit plan to a defined contribution plan for new employees and said that GEBCorp will “stand ready to help continuously” with the transition. Vaughn said that, although defined benefit retirement plans are “still the norm” with government employees, defined contribution plans are prevalent in the private sector.
With defined benefit plans, the employer takes on the market risk of funding the retirement plan for the employee. A defined contribution plan shifts that risk to the employee, who is responsible for making adjustments to their own contributions to their retirement plan in a defined contribution system.
Vaughn said that the benefit to the employee in a defined contribution system is that their retirement funds are more “portable” since the employee can transfer the funds they have already contributed to a new employer, should they change jobs.
Vaughn also explained that, although the market has significantly improved from when it took its biggest hit in 2008, portions of the actuarial losses incurred that year have been distributed over the actuarial assumptions for the county’s current retirement plan during the past five years in order to create a sense of less volatility with the plan.
Accordingly, recent years have shown actuarial losses, despite gains during the year, if taken on its own. Lamar asked Vaughn if fully funding the current unfunded portion of the pension liability would be beneficial for the county, and Vaughn stated that, if the county were to find a low enough interest rate on a loan, then there would be benefits to the county but that those benefits would not become apparent immediately.
Vaughn estimated that it would take seven to 10 years before the largest savings would become manifest. “Unfunded liability is a moving target,” said Vaughn about the county’s plan to fully fund its pension liability, adding to his remark, “not that you shouldn’t do it.”