Chattanooga’s EPB replaces retirement plan with improved 401 (k) payments
The Chattanooga municipal electricity company may be government owned, but when EPB is competing for new hires, most workers compare EPB to other private companies.
In such a job market, EPB’s directors decided on Friday to change the type of retirement plan it is offering new hires from 2022 onwards so that it is more comparable to other private employers than to any other government agency.
EPB will replace its defined benefit retirement program offered to employees after five years of employment with EPB with an expanded 401 (k) retirement program for new EPB employees hired after December 31st. Existing EPB employees and retirees will not be affected by the change.
Although EPB expects the change to save the utility up to $ 25 million over the next 25 years, EPB says it isn’t making the change due to inadequacies in its retirement fund. Bill Witt, an actuary at Witt Management Consultants, said EPB’s existing retirement plan has more than $ 76 million in assets and is actuarially sound for the future.
“Your plan is very healthy,” Witt told the Electric Power Board on Friday.
EPB President David Wade said the utility is trying to better align with the private sector employers with whom it is competing for future talent.
“We have seen more and more companies move from defined benefit plans to defined contribution plans to give workers more control and flexibility in their retirement investments,” said Wade Employee retention is not seen as that important. “
Since Congress in 1978 introduced a tax-free method for workers and employers to collectively invest money in individual retirement funds under Section 401 (k) of the Tax Code, an increasing proportion of employers have been replacing traditional retirement plans with contributions and contributions to individuals in their own 401 ( k) accounts. Although 401 (k) accounts don’t guarantee monthly income in the same way that defined benefit pension plans offer retirees, they do give workers and retirees more flexibility in how they invest, switch, or even borrow against their accounts for alternative uses and record individual decisions.
The proportion of private employers who offer traditional pension plans with fixed monthly payments in retirement has shrunk in the last three decades from just under 30% of all employers to around 3% today.
Most traditional retirement plans are offered in the public sector, where 85% of employers still have defined benefit plans, Witt said.
“Our competition for employees is almost entirely private and we want to offer similar opportunities and flexibility to new hires on a defined contribution plan,” said Wade.
Under the new retirement plan, the EPB is setting aside 6% of an employee’s salary, plus up to 4% of an employee’s contribution to their own 401 (k) plan, to ensure that new employees have a retirement option comparable to the current retirement program. Currently, EPB retirees receive up to 55% of their last salary when they have 30 years of service. Since 1984, the EPB has also adjusted employee contributions to a 401 (k) plan, which complements the EPB’s own retirement program for its employees and retirees.
The Tennessee Valley Authority, the federally owned utility that powers EPB Wholesale, made a similar switch for new employees in 2014. Of TVA’s 10,000 employees, approximately 65% ââare still eligible for some form of defined benefit.
In 2016, when TVA’s retirement plan was underfunded by more than $ 5 billion, TVA launched a funding plan for its defined benefit obligations, with the goal of having a fully funded retirement plan by 2036, increasing to $ 9.1 billion and achieved a return of 20%. In addition, TVA contributed $ 300 million to the plan in 2021, and the plan remains on track to be fully funded by 2036, TVA spokesman Jim Hopson said.
Contact Dave Flessner at [email protected] or at 423-757-6340.