LARGO – After an initial tied vote, Largo commissioners were able to come to a consensus on an emotionally charged issue regarding employee pensions June 18.
At stake was the ability for city employees to take out loans against their retirement fund balance. Employees have complained about the city’s mandated program that requires them to contribute 5 percent of their pay, which the city then matches. They requested staff to allow them to take out loans on the funds accumulated via their 401(a), and potentially a 457(b), retirement plans.
City staff – including Human Resources Director Susan Sinz – has been against the idea, given the potentially damaging financial consequences such a loan program could have on individual city employees in the long run.
“We all feel, I think all of the commission was very clear, in that this money is of course intended for retirement,” Sinz said. “There are exceptional circumstances that come up, and you do want to give employees that option.”
Sinz presented the commission with a proposed loan program on May 7. Some of the commissioners expressed reluctance to allow the leans, but the majority was in favor of the program and suggested changes.
Immediately contended in the revised proposal June 18 was a stipulation that employees could only take out loans against the money they contributed to the plan, not the city’s contribution, whether it is vested or not.
Commissioner Robert Murray pointed out that some of the employees he had talked to wanted to take out the loans to help pay for medical issues or procedures.
“If they’re already vested at that point, it’s their money. If they leave the city, they can take it with them, so why not give them that opportunity to use that money to borrow against?” Murray said.
Under the city’s current retirement plan, the city’s contribution funds are 25 percent vested after the employee has worked for two years, 50 percent vested after three years, 75 percent vested after four and fully vested after five years of working with the city.
Murray initially proposed that the loan program be amended to allow the employees to borrow against their entire vested balance. Commissioners Jamie Robinson and Michael Smith agreed with him. However the first vote on the issue tied, with Commissioner Curtis Holmes abstaining due to being licensed with ING Financial Services, the company that will administer the program on behalf of the city.
Mayor Pat Gerard said she was taking the “more conservative approach” in voting against the amendment to the program.
“Staff was extremely reluctant to do this in the first place. I’m trying to find middle ground to that. We kind of shoved this down their throat,” she said.
Commissioner Harriet Crozier said that her perspective as a retiree guided her decision. She said she understood how much one depended on steady retirement funds, which could be detrimentally affected by the proposed loan program.
“Odds are, you’re going to wish that you had (that money) later on,” she said. “They have other avenues to be able to borrow.”
Robinson argued that sometimes working people can’t always get a loan.
“I don’t understand why someone would sit here and try to tell somebody who is working every single day that, ‘No you can’t do this because I think that I know what you should be doing,’” he said.
He added that since he “grew up with nothing,” he understood that sometimes people need options when they are struggling.
“You have to have retirement, I know. I worked very, very hard to get to that point in my life,” he said. “If they’re responsible to enough, vested in their job and doing what they need to do … (and) if they need some money to do something right now, I’m not going to stand in their way.”
The staff’s proposed loan program required that the employee could take out a loan against only 50 percent of their contribution to the retirement plan. After some confusion regarding the wording of that stipulation, commissioners agreed that they could allow employees to borrow against 50 percent of the vested balance in their retirement fund, no matter how much of those funds were contributed by the city.
The commissioners voted 6-0 to approve the loan program with that stipulation.
Per the new policy, employees must pay back any loans via payroll deductions within five years, unless the loan is for the purchase of a primary residence. The minimum loan amount is $2,000, and the maximum $50,000.
A few of the changes suggested during the May meeting – such as requiring employees to sign a document to ensure they understood the potential consequences of the loan and allowing each employee only one such loan – could not be implemented per ING’s logistics or federal regulations.