As of July 1, all current and future employees of the Town of Sykesville will enter into the Maryland State Retirement and Pension Plan System.

When the system was first presented to the town council in mid-April, the council members deliberated the pros and cons of the program. It wasn't until its next meeting that it chose to allow the employees to vote on it.


"It's ultimately up to the employees," Mayor Ian Shaw said at the council meeting April 28.

A vote of 60 percent was needed to ensure the town's participation. On May 2, the 21 employees chose emphatically to do so, with 95 percent voting to join the system.

For now, by law all employees will be credited for 75 percent of their service when determining their retirement package. However, Sykesville Town Manager Dawn Ashbacher said the next step would be to appeal to the state Legislature to begin the process of changing the law to allow 100 percent of an employee's tenure to be taken into account going forward.

The retirement system is funded by three sources, explained Michael Golden, director of external affairs for the Maryland State Retirement and Pension Plan System. Employees contribute 7 percent of their annual salaries, employers add to the fund as well, and the final source is investment returns.

"As of the end of June 30, 2013, the average employer contribution was 16.4 percent," Golden said. "The assumed rate of return is 7.7 percent annually; the plan earned 10.6 percent last year."

Final investment decisions are made by Dr. A. Melissa Moye, the chief investment officer for the system, and her team, while asset allocations are set by the program's board of trustees, Golden said.

"The key is to hedge against vulnerability so the system's goal of minimizing risk and increasing profitability can be achieved," he said.

Ashbacher said the biggest difference between retirement systems is the old plan was a defined contribution plan while the new one is a defined benefits plan. In a defined contribution plan, each employee has an individual account with a formula that determines employer and employee contributions known in advance, but the actual benefit to be paid out is not known ahead. Conversely, in a defined benefits plan, the formula that determines benefits is known in advance and one large communal fund supplies the employee's specified monthly benefit.

Ashbacher added that in the old system, employees only contributed 5 percent of their annual salaries.

Shaw said that some potential future employees may not want to contribute 7 percent of their salary to the retirement fund but stressed it is important to look ahead.

"You have to think long term," Shaw said.

Knowing exactly what goes into the communal fund and what the individual employee will receive upon retirement will reduce the turnover rate of the town and act as a recruitment tool, Ashbacher said.

Based on the overwhelming approval of current employees, she said she feels confident in the program.

"I think people do like it more," Ashbacher said. "Employees will be paying more now to receive more later."