Roanoke, Virginia, Ensures a Financially Sustainable Retirement Plan.

• Author: Shawver, Ann

The City of Roanoke's "Ensuring a Financially Sustainable Retirement Plan" initiative won a GFOA Award for Excellence in 2013.

The City of Roanoke, Virginia, revised its retirement benefits for future employees, giving them a choice between two new plans. The project--a smooth and successful process that involved stakeholders from beginning to end--had the full support of the seven-member city council. Although these benefit modifications are not drastic, the changes are expected to ultimately lower the city's long-term contribution rate by 10 percentage points, to 15 percent of wages. In today's dollars, that amounts to approximately $6 million. The main reasons for the project's success are stakeholder involvement, good timing, and transparency

BACKGROUND

Roanoke is one of about a dozen communities in the state that provides its own defined benefit pension plan instead of participating in the Virginia Retirement System. (See Exhibit 1 for key elements of the retirement benefits provided before and after the plan modifications.) The city has more than 1,800 retirees, compared to an active workforce of approximately 1,700. The average active employee earns a little more than $40,000 and has been employed for 11 years, and the average retiree served Roanoke for 28 years.

The plan's funded rate was consistently at 80 percent or greater, and Roanoke had always made its full actuarially required contribution, but contribution rates had risen steadily since fiscal 2001 (see Exhibit 2). A 2009 forecast by the city's actuary indicated that rates could climb to 35 percent within a decade. Contributing to this trend were benefit enhancements, the practice of awarding ad hoc cost-of-living adjustments (COLAs), and the increasing longevity of retirees. The city's director of finance felt that long-term financial planning was needed before contribution rates became a public and political issue.

GETTING STARTED

To get the project underway, the Roanoke city council's agreement was obtained, a core team was appointed, goals were set, and a financial advisor was selected to provide any expertise needed to augment core team members' skills. The core team initially comprised the Roanoke city manager, both assistant city managers, the director of finance, assistant director of finance, director of human resources, director of management and budget, director of general services, and retirement supervisor.

While the core team had significant experience and expertise in relevant areas, it was also entirely made up of individuals who were 45 or older, most of whom had been employed by the city for ten years or more. To make sure the views of incoming employees were considered, the team added an accountant who was in her mid-twenties and had less than five years of service. To make team activities as efficient and effective as possible, only individuals who had relevant professional expertise were included--although this also made the group fairly homogenous. Therefore, the team was careful to use a variety of methods for making sure input from other city employees was considered.

The first thing the team did was establish project goals, even before it engaged a retirement benefits financial advisor. Once the advisor was chosen, he helped review the goals and assisted in finalizing them, as shown in Exhibit 3.

Outside expertise was an invaluable part of the project. Over the first few meetings, the benefits advisor provided a number of ideas about retirement benefits for future employees. (The changes went into effect July 2014.) His specialized expertise in benefits, coupled with the team's deep knowledge of city employees, led Roanoke to the best set of recommended changes. The benefits advisor provided information about trends in retirement benefits and explained which benefit modifications had the greatest impact in...