Pension ascension
Star-Telegram
The long-troubled Fort Worth city employees' pension fund isn't so troubled anymore.
A new report by the Gabriel Roeder Smith & Co. actuarial firm shows that the fund's long-term funding shortfall has decreased from $410.7 million to $237.5 million -- a pleasing 42.7 percent drop.
As of Jan. 1, it is estimated that the shortfall will be eliminated in slightly less than 14 years. The fund no longer is projected to have a perpetual shortfall, as was the case in recent years.
That's significant progress.
However, the actuarial firm said the biggest single factor contributing to the shortfall reduction was implementation of an "ad hoc COLA" (cost-of-living allowance) that altered the formula for increasing pension benefits to compensate for a rising cost of living. Under the new formula, the increase could range from nothing to 4 percent annually, depending on the fund's financial health.
There is no guarantee that a COLA would be granted in any given year, so no future costs are projected for it. But the pension fund could incur real costs for future ad hoc COLA benefits. Therefore, an actuarial gain of $123.5 million recorded based solely on the new COLA could paint an unrealistically rosy picture of its long-term impact on the pension fund shortfall.
Over the long haul, an increased city pension contribution of 5 cents per $1 of employee earnings could prove far more important than the ad hoc COLA in trimming the shortfall. The City Council approved the contribution increase, which this year will cost about $15 million. That can be expected to rise in coming years if the workforce grows and salaries increase.
Fort Worth taxpayers will bear the brunt of the added pension cost. The more the city contributes to the pension fund, the less there is available for other expenditures unless other measures are taken. Such measures could include raising the property tax rate to increase revenues, a move that would be unpopular with many residents.
The pension fund's actuarial assumptions are based on an annual rate of return of 8.5 percent, net of all expenses. But its average rate of return for the past 10 years has been only 7.1 percent.
The Star-Telegram Editorial Board continues to believe that the assumed rate of return is unrealistically high. Perhaps the Retirement Board that oversees the pension fund is reluctant to lower the assumed rate of return because that would increase the projected long-term funding shortfall.
We're encouraged by the progress being made by the pension fund. But it still bears close watching by the Retirement Board, the City Council and the city's Audit and Finance Advisory Committee. That's now more true than ever, because Fort Worth taxpayers now have more skin in the pension funding game.
Employees retirement fund
Figures are as of Jan. 1, 2008
Assets: $1.899 billion
Active employees contributing to pension fund: 6,399
Retirement benefit recipients: 3,204
Average annual retirement benefit: $28,326
Ratio of active employees per retiree: 2.0
Source: Gabriel, Roeder Smith & Co.
