FORT WORTH -- With the City Council two days from voting on cuts to close the fast-growing $748 million unfunded gap in its employee pension plan, city employee groups want to throw the brakes on.
The staff-proposed changes reduce benefits for future service and apply to general employees and police officers -- but not to firefighters, who will be negotiating with the city on a new contract in coming months.The Fort Worth Police Officers Association, whose members voted overwhelmingly to raise their pension contributions and leave more money in the retirement fund in exchange for keeping the benefits formula, want their ongoing contract talks to run with firefighters'."I think that would be the smartest move on the city's part: Get the groups together to work in earnest on a deal that is fair to the employees, fair to the taxpayers," said Sgt. Steve Hall, the police association president.The council can accept the results of the police pension vote, and it would be agreeing to negotiate the issue. The police contract doesn't cover the pension, and the council doesn't need an agreement to make changes.Marsha Anderson, president of a city retiree group, said she's OK with reducing benefits for employees hired in the future, as the city did last year. But she doesn't like cuts that affect current employees."I think it's morally and ethically wrong to put that on the backs of the folks who are working their tails off for you and have worked their tails for you," she said. "My hope is that cooler heads prevail and they postpone the vote."Vince Chasteen, president of a general employee association, said the city's general employees perceive themselves as having long subsidized police and fire benefits -- and that separate decisions on the pension worsen things."You can't have one fund being administered in different ways," he said. "I don't know what the overall solution is, but I know it sure seems we're the fall guys on a lot of this."Mayor Betsy Price, who has called the staff proposal "good" and "fair," told council members last week that it was time to vote. Council members have kept their intentions to themselves.The issue is rife with politics. All council members but Price received police association endorsement in their most recent elections. And most received support from business, which has been leaning on them to cut pension benefits, arguing that it's the only way to rein in the unfunded liability.The police association maintains that the staff proposal amounts to a reduction in vested benefits, barred by the state constitution.Much of the tussle over the pension boils down to assumptions on how much money the Fort Worth Employees' Retirement Fund expects to make annually on its investments.The fund dropped the assumed return rate two years ago by a quarter-point two years, to 8.25 percent, and predicted more reduction.A group affiliated with the Fort Worth Chamber of Commerce says 7.5 percent is more realistic, noting that the California Public Employees' Retirement System recently lowered its target to that level.Key voteCouncilman Jungus Jordan, whom others in the debate have pointed to as a key vote, said 8.25 percent is unrealistic.But he's concerned that neither the staff proposal, nor the sharply contrasting one offered by police, pays down the unfunded liability to within a standard 30 years."I've still got some questions about what is the best approach," said Jordan, who has expressed concern about ensuring that the city keeps previous councils' commitments to employees, who don't qualify for Social Security.The pension is "part of the total compensation package," he said. "When their career ends, that's the money they depend on the rest of their lives."The growing pension liability has its roots during more than a decade that began in the early 1990s, when Fort Worth councils cut city contributions to the fund and increased benefits. The fund also raised the assumed rate of return.In 2007, the city added a variable cost of living adjustment to the plan that paid off as high as 4 percent in a given year, depending on the years it would take to pay off the unfunded liability. But the fund's liability doesn't include any money tied to the variable COLA, deepening the potential gap.Moreover, the variable COLA skims from the fund's best years, ensuring that it can't get ahead, staff members and the retirement plan's critics say."It's a disaster," said former Councilman Jeff Wentworth, part of the business group.The market plunge of 2007 exposed the fund's problems, opening a big unfunded liability.The city, trying to close the gap, doubled its contributions from 2007 to 2010. They were $78.4 million in the last fiscal year -- or 5.9 percent of the operating budget, up from 3.3 percent 10 years earlier.The funding gap continued growing, and last year, the council pared benefits to employees hired on or after July 1 that year. The city's contributions to the pension are now 20 percent of payroll, and council members say they won't go higher.City staff members say that the fund isn't in trouble but that the growing liability threatens the city's ability to borrow money at low rates.The staff released a report last week from the city actuary, which said the staff plan would be more effective than the police's in checking the fund liability.Association planPrice has characterized the police proposal as having some impact but not enough. "It's probably not enough, but that's why we offered more," Hall said.Police offered to raise officers' pension contributions to 11.73 percent of gross pay, from 8.73 percent.They offered to cap potential retirement pay for officers hired in the future at 90 percent of base pay, instead of the 120 percent possible today.They offered to cap overtime in retirement calculations -- for future service -- at 12 percent of base pay. Critics have said police often spike their retirement pay with a lot of overtime in their final years.The police association also offered to institute a minimum age 55 -- for officers hired in the future -- at which retiring officers could begin withdrawing benefits. Age 49 is the earliest possible now.The association also offered to double the vesting time to 10 years for officers hired in the future.It wants to keep key components of the retirement formula: the multiplier used in determining the amount of pay an officer retires with, and retirement pay based on an average of the highest three years of service.The staff proposal would lower the multiplier, use the highest five years of service, and eliminate overtime in calculations.Hall questioned the staff's suggestion that 7.5 percent is a prudent annual assumed rate of return.If the fund reduces the assumed return rate, that would raise the unfunded liability and add more pressure for changes."You have to throw out any scenario assuming an 8.25 percent investment return; that's make-believe," said Bill Leonard, a retired certified public accountant and a leader of the business group."Nobody other than the city and Bill Leonard has suggested the assumed rate should be 7.5," Hall said. "That is a number the city has chosen to adopt."He also criticized the city's inclusion of the liability from the variable COLA in its calculations.COLA considerationsThe city plans to offer all current employees who previously elected the variable COLA over a fixed 2 percent annually to move to the fixed rate. The city actuary has said the variable COLA won't pay off again for 21 years.At an 8.25 percent rate of return, under the staff proposal, the actuary estimated that the unfunded liability would grow to $997 million and take 29.4 years to pay off.The police proposal would have a $1.028 billion unfunded liability and take 31.1 years to pay off.At 7.5 percent, the city's unfunded liability would be $1.23 billion and take 50.3 years to pay down, the actuary estimated. The police proposal would have a $1.3 billion unfunded liability and never be paid off, the actuary said.The variable COLA is the primary factor for the projected rise in unfunded liability.The city staff estimates that 90 percent of employees now in the variable COLA will move to the fixed COLA.Scott Nishimura, 817-390-7808
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