The local police union in Thomaston, CT, has agreed to a plan that will place all new police officers on a defined contribution plan and will eliminate retiree health care insurance. The plan is estimated to save millions of dollars in coming years.
According to media reports, the town will offer new hires a 457(b) plan, which is similar to a 401k, but without a pre-59 year old redemption penalty of ten percent. The town will offer a match of the first 6 percent contributed to the 457(b) plan.
As funds become available due to the reforms, the town will have more money to expand police staffing. This in turn will further cut expenses by reducing overtime.
Stephen Turner, a member of the town’s finance committee and advisor to the pension board, has been working on this project for more than six years. “The reality is that we have a huge unfunded liability – only 66 percent funded.” He said a key was using a 7 percent annual return on investment to get a more realistic feel for how much money the town would need going forward to fund the existing plan.
“Even though this process has taken a long time, we got lucky in that some of the Police force live in town so they started to understand the long term impact of the current plan,” said Turner.
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A primer on 457(b) plans is available, as is a decent comparison of 401(k) and 457(b) plans, courtesy Calhoun Law group.