By Mitchell Schnurman
mschnurman@star-telegram.com
(This column was originally published on May 12.)
A year ago, the Fort Worth pension fund issued a news release to trumpet a big improvement in its financials.
"It was good news," a spokeswoman explained.
Last month, a new report showed a sharp reversal in the same measure, and officials didn't send out anything.
A year ago, in a newsletter to members, the pension boasted about its annual results: "It's important to know that the Fort Worth Employees' Retirement Fund is not 'going broke,'" the front-page article said. "Last year, our investments returned 10.8 percent."
This year's newsletter doesn't cite the bottom line for 2011, probably because investment earnings barely topped zero. But it does say that January returns rose 2.75 percent.
The headline: "2011 ends with a whimper, January enters with a bang."
If this were politics, we'd call it spinning the story, and most people would roll their eyes and forget about it. That would be a mistake here, because Fort Worth's pension problem is growing, not abating. And when funding falls short, taxpayers must make up the difference, as they have before.
There's a secondary message, too. With much on the line, the public, elected officials and pension members should be skeptical of upbeat pronouncements from the fund operators.
Think of the staff, led by Executive Director Ruth Ryerson, as advocates, not independent brokers. They look out for their members first, not taxpayers, and in the public arena, they often paint a rosy picture and deflect criticism.
They also pay $72,000 a year to political consultant Bryan Eppstein, which is more than they pay their auditors.
The pension board includes residents appointed by the City Council and a city financial officer, but police, fire and general city employees hold a majority of votes.
The city acknowledges this reality by hiring a consultant to do an independent analysis. In the past, the outsider's projections often unsettled employee groups.
It's difficult to summarize the financial health of pensions. They're large, they span lifetimes, and they're heavily influenced by market returns, life expectancy and benefit formulas. Advocates can always find reason for optimism, and critics can cite evidence of impending doom.
That said, consider this trend with the Fort Worth pension: In four years, the city's annual contribution has doubled, from $37 million to $75 million. Yet over the same time, the pension's unfunded liability has tripled.
So we're spending a lot more, and the hole is getting deeper. Based on the market value of assets in the fund, the liability hit $918 million last year -- higher than after the stock market crash and Great Recession.
This is why city officials have proposed real cuts to the program, including a crucial reduction in the benefit formula. More details may come Tuesday, when the City Council is scheduled to hear a presentation from the city staff, presumably in preparation for a future vote.
These are necessary steps in a long slog toward reform, and the city hopes to appease both taxpayers and employees. Residents want a sustainable pension whose expenses won't crowd out city services or require higher taxes. Workers want a solid retirement, and because they traded raises for pension enhancements in the past, they have high expectations.
Changes in future benefits can be imposed on general service employees, but police and firefighters have labor contracts, so negotiations will be intense. The city also wants to persuade current members to voluntarily give up their ad-hoc cost-of-living increase; that benefit kicks in during good times (3 percent at the end of 2011), making it even more difficult to fund the pension adequately over the long term.
Here's an enticement: The fund does not expect to pay another ad-hoc COLA for 21 years, according to an actuary report presented to trustees April 25.
Publicize that detail, and workers may flock to the city's alternative, a guaranteed 2 percent increase every year. New hires are out of luck either way, because the city proposes no COLA for them.
Pension leaders are already challenging key assumptions from the city proposal, starting with the assumed rate of return. They said they use industry standards and more accurate numbers, but who believes that the Fort Worth fund will earn 8.25 percent annually?
Much larger pensions have already scaled back assumptions, requiring more contributions or benefit cuts.
Last year, Ryerson touted a sharp reduction in the pension's amortization period as a sign of its health. The 19.5-year payoff was "well below the 40-year funding period required by the [state] review board," she wrote in an Op-Ed.
Well, there's less breathing room now. On Jan. 1, the amortization period rose to 28 years, and the fund's actuary projects that it will rise to 41 years in 2013. It will remain near the 40-year mark for the next decade, and that's assuming annual gains of 8.25 percent.
This is yet another sign that changes are needed. But whenever the subject surfaces, members complain that the city didn't make all its pension contributions in the past.
In October, Ryerson made that case in another Op-Ed with Trustee Billy Samuel, a retired policeman. After my column questioned the fund's turnaround, they said they wanted to put the facts in "correct context."
"The retirement fund became more and more unsustainable," they wrote, because the city didn't make its required contributions in six of the past 10 years. That sounds like more spin.
While the city held back some contributions, more than half the unfunded liability from 1993 to 2009 came from weak investment returns.
Longer lives, earlier retirements and benefit improvements accounted for nearly all the rest, according to the city consultant.
The shortfall in city contributions? Less than 6 percent of the pension's unfunded liability.
Mitchell Schnurman's column appears Sundays and Thursdays. 817-390-7821Twitter: @mitchschnurman
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