Unhappy Fort Worth workers should compare their pensions with corporate America's
The City Council decided to change pension calculations, but it's still a sweet plan
It's a difficult time at Fort Worth City Hall.
City Council members, normally deferential to municipal employees, especially police, voted Tuesday to hurt those employees, especially police. The vote was to reduce future pension benefits -- not those based on time already spent on the job, but for all service going forward.
There's no way the employees could be anything but unhappy about it, and they were. The local police association promised a lawsuit.
But there's also no way the council could have acted differently. In fact, the decision should have been made years ago.
City employees are special, but they don't live in a bubble. They have to face financial reality. And reality is that the city retirement fund already owes more than $740 million in pension benefits it cannot afford to pay.
Out in the business world, "defined benefit" pension plans like the one for city employees are fast becoming relics of days gone by. Many workers are seeing those plans replaced with "defined contribution" plans in which employers match their individual contributions to 401(k) investment accounts.
Others' pension funds are frozen, meaning they don't accumulate more in benefits but at least they don't lose any. Some in this category, like non-pilot employees at American Airlines as of Oct. 31, are able to shift over to 401(k) accounts.
Most unfortunate are the thousands of employees whose pension plans have been terminated. A federal agency, the Pension Benefit Guaranty Corp., says last year it took over responsibility for an additional 55,000 workers and retirees in 129 terminated single-employer pension plans. PBGC guarantees those pensions up to a specified limit.
And some companies are exploring other ways of shedding their pension obligations. They call it "de-risking."
General Motors earlier this year and Verizon Communications earlier this month said they were transferring billions of dollars worth of pension obligations to Prudential Insurance Company of America. After the companies make lump-sum payments to their pension plans, the plans will purchase group annuity contracts from Prudential, which then will assume responsibility for future payments to retirees and covered survivors.
Verizon said about 41,000 of its current management retirees are affected. At GM, the change covers about 118,000 salaried retirees, some of whom will be offered a lump-sum buyout of their pensions.
The Pension Rights Center, a Washington, D.C.,-based consumer organization focused on pension fairness, has raised concerns about corporate "de-risking" strategies.
For one, the Prudential annuities won't be guaranteed by the PBGC, raising the risks for retirees. And lump-sum buyouts put the burden on retirees to make that nest egg last as long as they and their covered survivors live -- another risk.
Meanwhile, back at City Hall, the council decided to continue with a "defined benefit" pension plan, the kind with the sweetest benefits and least risk for employees. They put in their years, they get their pension.
But something had to be done about the plan's unfunded liability to stop or slow its drain on scarce tax dollars.
Police have been "spiking" their pension benefits by working a lot of overtime in their final years of service, driving up their annual earnings and thus the pay on which pensions will be based. They grudgingly offered to cut back on "spiking," but the council voted to eliminate overtime from pension calculations.
The council made other fundamental changes in the pension formula. Firefighters, who are covered by a collective bargaining contract, were not included.
Unfortunately, the city pension picture is not clear yet. Next year, the retirement fund is scheduled for an "experience review" that will probably result in lowering its expected rate of investment return and increasing the life expectancies of plan members. Both steps would increase the fund's unfunded liability, meaning more council action might be necessary.
Mike Norman is editorial director of the Star-Telegram / Arlington and Northeast Tarrant County.