FORT WORTH -- The city and employee groups say they are prepared to go to court to fight over proposals that would reduce some pension benefits.
City Manager Tom Higgins said the retirement fund is unsustainable without benefit reductions. The Fort Worth Employees' Retirement Fund will never be able to pay off its unfunded liabilities if changes aren't made, he said in a letter to employees late Tuesday.
"The good news is that we believe we can address our pension challenges while maintaining the current defined benefit plan, unlike some other cities," he wrote.
"Furthermore, our proposal doesn't take away anything already earned from existing employees, nor does it ask for taxpayers to increase their contribution to the plan."
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But Stephen Hall, president of the Fort Worth Police Officers Association, called the proposed reductions excessive.
"I can't support changes to current employees. They were hired under a contract, a promise that these conditions would exist throughout their employment. Now the city is wanting to break that promise," he said.
The city informed the police association of its proposal Tuesday during "meet and confer" discussions on a new contract.
If the City Council approves the changes, thousands of employees would be affected, starting as early as this fall. Firefighters could also be affected in 2013, after their contract expires.
One proposal would eliminate overtime pay from the calculation of pension benefits. In the past, the city auditor found that excessive overtime was contributing to a shortfall in the retirement fund.
Some employees were racking up overtime in their final years before retirement to boost pension checks.
Retirement benefits for police, where much of the overtime occurred, are based on employees' three highest-paid years.
Another proposal would change pension benefits that survivors receive when a city retiree dies.
The surviving spouse can now receive 75 percent of the employee's pensions.
Under the proposal, when an employee retires, the fund would evaluate the life expectancy of the covered spouse and reduce the member's benefit accordingly.
The city says the fund has been using an unrealistic expected rate of return on its investments that creates too rosy of an outlook.
The fund has projected an annual rate of return of 8.25 percent on its investments, though it earned 1.34 percent in the past fiscal year and an average of 5.66 percent over 10 years.
In its proposal, the city used a rate of return of 7.51 percent. With that rate and the proposed benefit changes, the funding gap would be closed anywhere from about 33 years to 84 years, according to information from the city.
Mayor Betsy Price said the council will take a hard look at the changes Higgins has outlined.
"This appears to be a reasonable and responsible approach to addressing a major financial challenge," she said in a statement.
A 90-day notice
In the letter to employees, Higgins said he will ask the council to give a 90-day notice to the Employees' Retirement Fund of plans to consider reducing pension benefits for general fund employees and police officers, with the changes most likely taking effect in the fall.
Hall said that the proposal is part of the negotiating process and that the police union will continue to negotiate with the city on a new contract.
"I can tell you, if need be, we are prepared to seek legal remedy to prevent illegal changes to the plan," Hall said.
Assistant City Manager Susan Alanis said that the city believes the proposed changes are legal and that officials are prepared to go to court if necessary. "We certainly could and we're prepared for that if it happens," she said.
General fund employees were still learning Wednesday that the changes could affect existing employees, said Vince Chasteen, president of the city employees association. But Chasteen said he, too, is upset with the proposal.
"To me, this is kind of like reneging on a contract," Chasteen said. "The city promised us a certain benefit and now we get X-number of years down the road and they say, 'We messed up.'"
Fort Worth previously scaled back benefits for general employees hired after last July 1.
Any changes wouldn't affect firefighters until 2013, at the earliest. Jim Tate, president of Fort Worth Professional Firefighters Association, declined to comment, but Alanis said a similar proposal to the firefighters union would "be part of the negotiating process."
In response to the announcement of the proposed changes, the retirement fund board plans to hold a special meeting next Wednesday to discuss the issue.
A spokeswoman said Executive Director Ruth Ryerson wouldn't comment. But a statement on the fund's website said the board and staff were kept in the dark about the proposed changes.
"Proposed adjustments to the City's defined benefit plan announced yesterday to all City employees came as a complete surprise to Retirement Fund Board and staff," the statement said.
"We were not asked for input into these proposed changes, nor were we given advance notice of the adjustments. The City Council and Fund Board have not had a joint meeting since last fall, and no such changes to your benefits were mentioned at that time.
"Please remember that the Retirement Fund only administers the pension plan; City Council has full responsibility for making changes to benefits."
'A sustainable benefit'
Other proposed benefit changes include one that would affect annual cost-of-living adjustments.
Now, retirees can get either a guaranteed 2 percent increase a year or what's called an ad hoc adjustment, which can vary from zero to 4 percent depending on the fund's performance.
That would change to a flat 2 percent for future service accrued by general fund employees and police, but nothing for new police employees.
Another change would affect the minimum retirement age for some employees.
The overtime change would eliminate overtime pay from the pension calculation for all employees.
"Where we find ourselves is we need to come up with a solution of a sustainable benefit for our employees," Alanis said.
City officials said they could not provide a breakdown of estimated savings from the changes.
The city tried in years past to eliminate what it called pension spiking through excessive overtime pay.
In 2007, after the city auditor said overtime spiking accounted for about $120 million of the city pension's $411 million shortfall, the city proposed eliminating overtime from pension calculations.
But the city backed off the change under threat of a lawsuit.
The city then proposed restricting pension spiking by placing a 12 percent cap on the increases in annual earnings used to calculate retirement benefits. The cap was to apply only to annual earnings for work after Dec. 1, 2008.
State Rep. Phil King then asked the attorney general whether that cap would violate the 2003 amendment to the state constitution preventing reductions in some benefits for vested employees of many of the public retirement systems in Texas.
Fort Worth argued that the constitutional provision did not bar changes to benefits that vested employees might earn in the future. Groups representing public employees argued otherwise. Attorney General Greg Abbott agreed with the employee groups. His opinion, issued in April 2008, said that the city's prospective 12 percent cap on increases in earnings would violate the Texas Constitution.
Jason Lamers, chief of staff for Mayor Betsy Price and the City Council, said the city is aware of that opinion.
Keith Brainard, research director for the National Association of State Retirement Administrators, said it is hard to judge the effects of the proposed changes without knowing some of the assumptions the city is making.
But he said other cities, also struggling with shortfalls, have made deeper cuts.
"These reforms are not as dramatic as some others around the country," Brainard said.
The retirement fund has 6,144 active members and 3,517 benefit recipients with net assets of $1.65 billion, according to its annual report for the fiscal year that ended Sept. 30. The fund's net assets fell by about $5.7 million in 2011.
The pension is funded by city and employee contributions. It accounts for roughly 20 percent of the city's payroll.
A presentation before the council will take place in May, and members will likely be asked to give the pension fund a 90-day notice of the proposed changes in June.
The changes won't affect the 2013 budget, Alanis said.
Bill Hanna, 817-390-7698