FORT WORTH -- City Council members are heading toward a vote Oct. 23 that could reshape general and police employees' retirement benefits in a move designed to bring the city's fast-growing, multimillion-dollar unfunded pension liability under control.
The council has starkly contrasting choices that would affect several thousand Fort Worth employees at one of the region's biggest employers.A staff proposal -- supported by a local business group pressing the city -- would change the retirement formula, reducing benefits for future service and eliminating overtime from calculations. Critics of the current rules say police routinely spike their pension by piling up overtime in their final years.A proposal overwhelmingly supported by police in a recent vote raises officers' pension contributions by 3 percentage points in exchange for keeping key parts of the benefit formula. It also offers up changes meant to reduce the money retirees withdraw from the employee retirement fund, including capping overtime in calculations.Mayor Betsy Price has called the staff proposal "good" and "fair." She said early indications from the city's actuary are that the police proposal "will make some impact, but it won't be enough to stabilize the pension long-term.""It's got to be affordable and it's got to be sustainable," she said in an interview.The city actuary has not presented its final assessment of the police association proposal. Council members have been reluctant to express their views heading into the vote on the city proposal. They're scheduled to get a staff briefing Tuesday that includes the actuarial report.All the current council members, except Price, had the backing of the Fort Worth Police Officers Association in their most recent elections, and most had support from the business community.Council members say they want a plan that solves the funding problem and is fair to employees, most of whom aren't eligible for Social Security.Some members say privately that they hope the city and police association can compromise. The city's proposed changes apply to future service, not to benefits already accrued.But the police association maintains that the proposed changes are tantamount to a reduction in vested benefits -- an act barred by the Texas Constitution.Sgt. Steve Hall, the police association's president, wants the council to put off the vote or reject the staff proposal."The ideas haven't been fully fleshed out. There's been no back-and-forth. There's been no dialogue," he said in an interview. "I don't think the council's even had an opportunity to study the ideas."The association is willing to talk, he said."It's in our best interests to have the fund stay healthy," he said. "If we can find ways to make adjustments that don't have an impact on public safety, we're always willing to talk about that."The association and the city are in talks on a new contract. The current one doesn't cover the pension, so the council doesn't need an agreement to make changes to the pension. And, except for a staff presentation this year, the topic hasn't come up at the table, Hall said.The major revisions to the Fort Worth Employees' Retirement Fund would come two decades after the early-1990s City Council and the fund set the plan on the path it's on, decreasing city contributions, increasing the assumed rate of investment return and boosting benefits. The fund sets the rate of return.The market plunge of 2007 bared the plan's problems. The unfunded liability shot up, to an estimated $748 million last year, the fund and city agree.The group of local business leaders says that gap is even larger -- $918 million -- when investment losses, spread out over several years, are figured in.The city's contribution to the plan -- $78.4 million in fiscal 2012 -- was 5.9 percent of the total operating budget, up from 3.3 percent 10 years ago. Bond rating agencies -- whose ratings affect a city's borrowing costs -- have inquired into how Fort Worth is handling its obligation, city officials have said.More changes are coming.Firefighters nextIf the council approves the current proposal next week, the city would pursue similar reductions during upcoming contract talks with its firefighters.And the fund actuary, which reduced the assumed rate of return by a quarter-point to 8.25 percent two years ago, indicated at the same time that more reduction was probably necessary. The fund is set to review its assumptions next year.If the fund lowers the assumed return rate, that would increase the liability and add pressure to make changes. The city's contribution now represents 20 percent of payroll annually, and the council says it will not increase that.Bill Leonard, a retired Fort Worth certified public accountant and a leader of the business group that wants changes, has maintained that the 8.25 percent assumed rate of return is too high.All of the fund's other assumptions crumble once it doesn't meet investment return, his group argues in a well-traveled PowerPoint presentation that quotes the billionaire Warren Buffett: "Only when the tide goes out do you discover who's been swimming naked."The fund publicizes an 8.9 percent annual rate of return dating to August 1983, but Leonard says that figure is misleadingly high, given the market's gyrations in recent years."Only a fool would guarantee an 8.25 percent investment return," Leonard said. "We know our city manager doesn't buy that, and I don't believe our council will continue to take the bait that got us in this mess in the first place."His group suggests that 7.5 percent is more realistic, citing a decision this year by the California Public Employees' Retirement System to cut its assumed rate of return by a quarter-point to 7.5.Ruth Ryerson, the Fort Worth fund's executive director, said it makes more sense to make gradual changes to assumptions rather than abrupt ones."If you overcorrect, you end up either penalizing, from a benefit perspective, the current employees for something that really should be spread over a career or you penalize the city and the taxpayer because you're asking to have too much money going in that maybe should be spread out," she said.Carter Burdette, a former councilman who's been helping the business group make its pitch, said the council may eventually be forced to consider raising taxes if it doesn't check the liability."You either change it, or you can take the city's revenue stream and borrow money from parks and libraries and other uses so you can use it for the pension, or you can raise taxes and it costs the citizens more to live here," he said.The fund actuary, which the police association hired to perform calculations on its proposal, said the police association plan would decrease the fund liability and the number of years to pay it down."I think it would be hard to argue that isn't the case," Hall said.The business group said it's not possible to tackle the unfunded liability without reducing benefits, noting that the city's contribution steadily increased but the funding gap didn't close.'Skin in the game'Councilman Jungus Jordan -- a retired Air Force officer and finance specialist who is regarded by those observing the debate as a key vote -- said he hasn't made up his mind."The solution that has got everybody with a little skin in the game is probably the solution," said Jordan, who likes to preface his remarks on the issue by saying "a promise made is a promise kept," which he says refers to honoring the commitments of previous councils."There's two things you can do when you have an unfunded liability," he said. "You can either take less [money] out, or you can put more in."Pointing to the recent police vote, he said, "I think it's commendable that our employees are willing to put skin in the game and willing to put more in of their own salaries."What we have to see is what combination [offers] best results for a sustainable fund that benefits both the financial commission of the city and the purpose of compensation, [which] is always to make sure that you're getting the best and brightest and most efficient government you can," he said.Asked whether anybody in the business community has threatened to withdraw support depending on his vote, Jordan said, "You always have somebody that expresses their opinion, and some issues they take more serious than others. This is the most serious issue confronting our city."Mayor Pro Tem W.B. "Zim" Zimmerman, like other council members, said he is awaiting final data and staff recommendations before locking in his vote. "We don't have enough facts in place right now," Zimmerman said.Councilwoman Kelly Allen Gray, whose husband is a Fort Worth police officer, defended the city's general, police and fire employees as "the protectors of our society.""This issue has to be worked out for the good of everyone involved," she said.Gray recused herself from the council's July 10 votes on giving 90-day notice of potential pension changes. Asked whether she'll be able to vote Oct. 23, she said: "At this point, we're still working on it. It may be the police issue gets pulled out."Scott Nishimura, 817-390-7808
Pension details
The city's proposed changes, and the police association's offer:
Contributions
City: Proposal doesn't raise contributions.
Police association: Raise officers' pension contributions to 11.73 percent of gross pay from 8.73.
Multiplier
City: Lower the multiplier used in determining the percentage of base salary an employee retires with, to 2.5 percent from 3. The change is already in place for general employees hired since July 1, 2011.
Police association: Retain the 3 percent multiplier for current and future officers.
Base years
City: Use the average of the highest five years of base pay instead of the highest three to calculate base retirement pay. The change is in place for general employees hired since July 1, 2011.
Police association: Retain the average of the highest three years of base pay for current officers, but make it five years for officers hired after a future date to be negotiated.
Overtime
City: Eliminate overtime in benefit calculations.
Police association: Cap overtime in calculations at 12 percent of base-year pay for all officers. Cap is already in place for officers hired after 2007.
Retirement age
City: Must be at least 55 to begin withdrawing benefits for general employees hired after July 1, 2011. No minimum age for other general employees. Police have a "25 and out" provision.
Police association: Implement the age 55 requirement for all officers hired after a future date to be negotiated. Now, the police association says, age 49 is the earliest an officer could retire and begin withdrawing benefits.
Maximum annual retirement pay
Police association: 90 percent of base average for officers hired after a future date. Now, a maximum 120 percent is possible, a controversial point.
Cost-of-living adjustment
City: Certain retirees and current employees, who several years ago chose a variable annual COLA on their retirement pay instead of a fixed 2 percent, would be given a one-time opportunity this year to switch to the fixed 2 percent for past service. That switch would be available to police now on the payroll and general employees hired before July 1, 2011. The city would switch to the straight 2 percent for future service.
There would be no COLA for new police employees. A zero COLA is already in place for general employees hired after July 1, 2011, which some council members have questioned.
City staffers have recommended the move to a fixed COLA to lower risk and give employees and the city more certainty. The variable COLA pays off up to 4 percent based on an annual assessment of how long it would take to pay down the unfunded liability. But the city actuary estimates that the variable COLA won't pay off again for 21 years.
Moreover, the variable COLA isn't included in the fund's liability. The straight 2 percent would be included.
-- Scott Nishimura
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