After more than a year of negotiations, the Fort Worth City Council has unanimously approved a resolution outlining potential cuts in pension benefits for firefighters.
The decision last week follows city negotiators’ refusal earlier this month to take the contract talks with the Fort Worth Professional Firefighters before an arbitration board. In December, they also rejected a suggestion from firefighters to work with a mediator in an effort to break the logjam.
Now, firefighters must decide if they will sue the city before the changes take effect Oct. 1.
Jim Tate, president of the Fort Worth Professional Firefighters, said the association will have a statement about the city’s decisions within days.
The resolution approved by the council notifies the Employee’s Retirement Fund that they plan to reduce the multiplier used to calculate benefits to 2.5 percent and raise the number of high salary years used to determine a firefighter’s retirement pay to five years. Overtime pay is not included, unless it is overtime built in to the pay base.
Currently a firefighter’s retirement pay is based on the three highest salary years, the multiplier is 3 percent, and the final calculation of retirement benefits can include overtime.
“The pension has to be sustainable, not only for employees — we want them to have a pension when they get ready to retire — but it also has to be a sustainable expense that our citizens can bear,” said Mayor Betsy Price.
Tough on pensions
The city has been talking tough on the pension fund because, as of of January 2013, the unfunded liability of the fund was over $1 billion, said Assistant City Manager Susan Alanis. The amount of obligation may fluctuate following other changes for police and city employees, which the council voted on in October 2012.
“We feel like even with the changes, it is a high-quality plan that will allow us to continue to attract employees,” Alanis said. “At the end of the day, employees can choose to work a little bit longer or choose to take a little bit lesser of a benefit.”
The reductions for general employees and police affected future service, not benefits already accrued, with the city reducing the multiplier used in calculating benefits, raising the number of years for service for retirement pay and eliminating overtime in the calculations.
The city is already facing a lawsuit from police on the changes, with Steve Hall, former president of the Fort Worth Police Officers Association, and Rick Van Houten, the current president, filing a federal suit in November 2012.
The lawsuit alleges that the city violated the Texas Constitution in cutting benefits promised to officers when they were hired.
The suit is pending resolution by summary judgment, according to records from district court.
General employees do not have contracts, so city council did not need an agreement to change their plan.
The firefighters association had proposed separating the firefighters’ pension fund from the Fort Worth Employees’ Retirement Fund, which includes other city employees and police, to allow firefighters to boost their contribution — now at 8.25 percent of their pay — by 4.39 percentage points. The increase would not require an increase in city contributions.
The city, however, maintains that breaking funds apart would expose the city to litigation from police and fire employees. The city would also be liable for covering the increased payout if the health of the fund fails, Alanis said.
The December meeting ended with a tense impasse between the city and its firefighters.
“So for the record, after 15 months, you give us a counterproposal on pension and because we don’t respond immediately you're ready to declare impasse?” Jim Tate asked at the end of the meeting last week that lasted from 9 a.m. until after 1 p.m.
“That’s where we are,” replied Lowell Denton of San Antonio, the private attorney representing the city.
Denton compared the meetings to beating a dead horse, saying, “We think it's time to stand down.”
The city also declined the option to continue negotiating the remaining terms of the agreement without the pension clause.
Some of the issues left unresolved include the city’s efforts to reduce overtime, such as requiring verification for sick leave, offering incentives for perfect attendance and staffing trucks with two crew members instead of four for non-structure incidents.
The city also wanted to require that written policies would guide operations, instead of allowing decisions based on past practices. The city also wants to install assessment centers to determine promotions.
A national concern
Cities across the nation are dealing with the a similar problem, with the 2008 crash revealing unexpected unfunded liabilities.
Most major Texas cities have large unfunded accrued liabilities, according to the State Pension Review Board’s 2013 Guide to Public Retirement Systems in Texas. The Dallas Police and Fire Pension was unfunded at $1.19 billion; the Houston Police Officers’ Pension System was unfunded at $770 million, the Houston Municipal Employee’s Pension System was unfunded at $1.46 billion, and the Houston Firefighters’ Relief and Retirement Fund was unfunded at $335 million.
The total unfunded pension liability for states and cities across the United States is about $4 trillion, according to a study by economists at Northwester University.
And many government entities are now working toward a defined contribution plan, similar to a 401(k) found in private companies, to offer more secure retirement plans and bridge the unfunded gap. Rhode Island made the switch among sweeping pension changes in 2011.
Since 2009, Providence has suspended cost-of-living increases for 20 years and is requiring retirees 65 or older to switch from the city’s insurance plan to Medicare. Omaha has imposed a restaurant tax to raise money for city pensions.
“Just look around the country at the number of cities struggling so much with the unfunded liabilities. … They are either going bankrupt or can’t deliver anything in the way of streets and other services,” Price said.
“We are working through this in good faith, and we believe we are moving down the right process.”