Case $9\mathrm{.}1$

Case Study $9\mathrm{.}1$ Tough Times in Garden Junction New federal mandates, a failed sewer system, the loss of a major employer, and a national economic recession have slammed the finances of Garden Junction. The city council and City Manager Donald Lilly cannot be blamed for worrying about the financial viability of the small $($pop$.50,000)$ town. Few opportunities for growing municipal revenues appear to exist. Hence, the council and Manager Lilly have been engaged in serious discussions about tough long$-$term changes. The municipal workforce numbers $175$ employees. Collective bargaining contracts govern pay, benefits, and working conditions. All six major contracts are presently in negotiations. There has already been a flood of retirements, with the recent retirees joining the ranks of nearly $1200$ earlier pensioners. The retirement plan is defined benefit, with participants enjoying generous payouts that are pegged to cost$-$of$-$living increases. Pension expenses are consuming a growing portion of the operating budget, as the system has been funded from the annual budget. Switching to a defined contribution plan in which the city would dedicate a percentage of employee salary to a fund presents an attractive option. Present contributions would fund future payouts, with participants determining the distribution of their pension investments and the level of their monthly pension check dependent on individual investment choices

Labor relations in Garden Junction have been fairly constructive, but the shift in retirement plan funding is likely to provoke strident union opposition. Union president Vinny Calabria has already voiced the union$$s position and suffice it to say that it is not positive. Calabria asserts that the city pension system is based on past understandings, and benefits cannot be reduced without union agreement. However, a consultants$$ study has recommended that the city establish a mandatory defined contribution plan for all present and newly hired employees. Significant savings are anticipated once the plan is implemented. The consultant$$s proposal is brought before council and, following the views of the consultant and the city manager, it is approved. The issue moves to the bargaining table. Union and management negotiators work out agreements on pay and some minor changes in conditions of work. The pension issue ties them up in a serious impasse. Under state law, the issue moves to conventional, binding arbitration under a single neutral appointed by the state PERB. Each party presents its arguments: the union for continuation of the defined benefit plan, but with a small $(2\%$ of salary$)$ copayment into the pension fund from the salary of current employees; management for adoption of a defined contribution plan, with the city transferring $6\%$ of employee salary matched by $4\%$ of city funds into individual retirement accounts. You are sent by the PERB to Garden Junction to settle the impasse:

$1.$ How would you begin to carry out your assignment?

$2.$ What information would you examine in determining the viability of the benefit change and the nature of your decision?

$3.$ Are there reasonable alternatives to a mandatory defined contribution plan for all employees

$4.$ Explain and defend your decision