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Florida Times-Union: There are answers to Jacksonville’s pension crisis

Monday, July 30, 2012

Jacksonville’s pension quagmire — enabled by elected officials’ negligence and lack of fortitude — is sapping city resources, forcing layoffs and threatening to further imperil essential services.

For the Police and Fire Pension Fund, the annual cost to Jacksonville taxpayers was less than $10 million only 10 years ago but was $75 million last year and will jump to $122 million next year. That means every dollar of police and fire salary must be matched with 82 cents for retirement benefits, a growing rate that is unsustainable.

To cover the 1,900 retirees and 2,900 active participants, the Police and Fire Pension Fund has a liability of $2.3 billion but assets of only $927 million. In other words, it is 40 percent funded compared to the 80 percent recommended for healthy plans.

It is rated as one of the worst pension plans in Florida, according to a study by the LeRoy Collins Institute. The city’s pension plans for other employees are also underfunded but not nearly so much as the Police and Fire Pension Fund.

After more than a year in office, Mayor Alvin Brown, who recently submitted his second proposed budget, has yet to address pensions. He promises to propose changes by December.

Power and politics

One reason for the pension mess is that mayors and City Council members have been intimidated by police and fire unions and the Police and Fire Pension Fund board and staff, even to the point of leaving retirement benefits off the table during collective bargaining.

For years, retirement benefits have been part of agreements worked out with the pension fund as opposed to during collective bargaining. That unnecessarily weakens the city’s hand in collective bargaining.

But the state Supreme Court has made it clear that retirement benefits, like wages and other benefits, are mandatory subjects of collective bargaining and that contracts are not valid for more than three years.

Although likely to be contested by the Police and Fire Pension Fund, that should pave the way for the city to insist that retirement benefits are part of collective bargaining, just as is the case in other cities.

While the starting point in the mayor’s reforms should be that everything is on the table, police and fire and other employees should be treated fairly. But so should taxpayers.

State law does not allow adversely changing benefits for those already retired, but just about every other key aspect of pension provisions can be changed through negotiations.

Here are options — all painful — for curbing costs if the mayor and City Council have the mettle to take on pensions in the face of stiff opposition from powerful police and fire unions.

Less costly plan

The greatest savings can come from changing from a defined benefit plan, which guarantees an income stream upon retirement but is becoming rare in the private sector.

Freezing benefits under the current plan — allowing participants to keep what they have earned — and moving to a defined contribution plan would probably mean switching city employees to Social Security and contributing to a plan similar to a 401(k).

Such a defined contribution plan could cost taxpayers 50 percent less than a traditional defined benefit plan, according to the mayor’s transition committee report.

Increase retirement age

In the private sector, Social Security’s normal retirement age is 66 with a reduced benefit beginning at age 62.

Police and fire employees can retire after 20 years with 60 percent of pay and after 30 years with 80 percent of pay.

Many retire in their 40s and 50s and draw pensions for 30 or 40 years — longer than they worked.

Other city employees can retire at 55 if they have 20 or more years of service.

In both cases, increasing the retirement age would reduce costs to taxpayers while aligning city employees with trends in the private sector.

Revise pension calculations

Police and fire employees get 3 percent of final average pay for each year worked for 20 years and 2 percent after that.

But “average pay” is calculated over the last two years, which shoots up benefits.

Changing the percentage calculation to 2 percent per year would reduce costs.

Changing the “average pay” calculation from the last two years to the last 10 years would better reflect average pay.

Other steps to reduce the city’s burden would include changing the guaranteed 3 percent annual cost of living and pegging it to the Consumer Price Index, similar to Social Security.

If major changes aren’t aggressively pursued soon, then taxpayers will find themselves in a crisis, paying more of today’s revenue for yesterday’s workers, shortchanging the future.

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