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Are Too Generous Pension Plans a 'Prescription for Disaster?'
Will pension and disability benefits turn Florida cities into the municipal equivalents of General Motors?
The ‘unsustainable’ card
Worker reps and pension administrators say claims of pension troubles are overblown. Pension funds lawyer Steve Cypen in Miami, who represents about 40 pension funds, says anyone who wants to change the system always plays the “unsustainable” card. “Don’t take (Jacksonville) as the norm,” cautions Ray Edmondson Jr., CEO of the Florida Public Pension Trustees Association. Florida’s local pensions are the best in the nation, well-funded for the most part and well-managed, he says, by trustees certified after days of class work and testing by his organization.
 The problem, says John Keane, executive director of Jacksonville’s police and fire pension, isn’t an overly generous plan. It’s with the city, which hasn’t funded the plan as it’s supposed to, he says. [Photo: Kelly LaDuke] |
Edmondson suggests that the state has imposed regulations meant to drive up the costs of operating a pension fund locally — and to force the municipalities to invest their funds with the state. “The state of Florida wants all of the pension investment funds in the Florida Retirement System. That would be total control of all that money. They are making local pension systems, with local control and employee contribution, more expensive in an attempt to make FRS look better,” says Edmondson.
The executive director of Jacksonville’s police and fire pension, John Keane, says Jacksonville’s problems don’t stem from too-generous benefits. That perception comes from slanted reports, including Florida TaxWatch’s, he says. Rather, they come from years of the city not paying what it should. He’ll show anyone who will listen a chart contrasting the city’s annual contribution rates to the police and fire pension with its contributions to the general employee pension. Bottom line: The city all but stiffed the police and fire fund for eight years in the 1990s. Even counting recent years of higher contributions — and a three-year “holiday” in which the city zeroed out regular appropriations to the general employees fund — the cops and firefighters have still gotten less, percentage wise, since 1978, he says.
The city’s problem is its misguided and “unsustainable” cutting of its tax rate and the “extraordinary” weak market returns since 2000, he says. The fund is suing the state for the right to invest more aggressively. Florida law limits local government pensions from investing more than 10% of assets in international instruments, prohibits buying bonds rated below A and prohibits hedge and alternative investment plays.
In the meantime, Keane says, the city has 50 years to make up the gap. The S&P 500 jumps an average of 35.3% in the first year after market declines, he says. “Once this period of recovery emerges, the pain of the current episode will be removed with the associated favorable impacts upon the (unfunded gap) and the city contribution rates.”
There are signs that more cities are under stress. From two to eight public safety pension plans have been closed annually in Florida since 2000. Pensacola last year closed its pension for new hires other than police and fire and switched them to the state retirement system. It has talked with the police and fire unions about changing their plan. “The cost of the pension plans has dramatically increased over the last five years,” says Cheryl Jackson, Pensacola payroll and retirement manager.
Indeed, the city’s contribution to police and fire is up 481% in five years, but the fire plan still has unfunded liabilities to the tune of $15 million and $12.2 million for the police pension. (Police in Pensacola can retire at 100% of pay; firefighters at 75%. )
Asks the League of Cities’ Conn, “At what point do you call this a crisis? When you talk to the big cities, a lot of them are struggling. I can’t tell you what the breaking point is. I have a feeling there’s going to be a lot of cities going to the state Legislature saying provide us with the tools to address this.”
Next two pages: Charts showing how cities pensions were funded prior to the 2008 market disaster, and charts of the best funded, and worst funded local government pensions in Florida.
