Fort Worth employees approved a compromise this week that keeps the plan away from state lawmakers and ends a three year fight to fix the city’s $1.6 billion pension shortfall.
Nearly 60 percent of Fort Worth employees who voted favored the plan, which aims to fill a pension hole that would leave the retirement fund in danger of failing in 20 years. City manager David Cooke said he is confident the plan will shore up the fund, but its future will largely depend on investment performances. Investment experts say it’s too early to know if the reform will have a positive impact on the city’s finances.
Had the employee vote failed, the pension solution would have been passed to Austin, where the deal would have uncertain terms in lawmakers’ hands. The Fort Worth City Council approved the package in December.
Both Dallas and Houston faced pension woes that required the Texas Legislature to intervene. In both cases the cost of living adjustment was stripped.
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Cooke said employee voter turnout out, about 75 percent, exceeded his expectations. The city needed 50 percent plus 1 to vote in favor of the pension plan. Between 30 and 40 meetings on pension changes were held with employees, he said.
“Our goal was simply to encourage employees to vote, not how to vote,” he said.
State Rep. Dan Flynn, R-Van, praised local leaders, including Fort Worth Mayor Betsy Price, for finding a solution without bringing the issue to the Legislature to solve.
“I’m proud Fort Worth was able to solve our pension problem locally in a civil, collaborative manner,” Flynn wrote in a statement. Flynn is former chairman of the House Pension Committee and worked with the city on the issue.
”It is commendable that the employees understood the gravity of the problem enough to make this tough vote,” he said.
The future of the city’s pension still remains unclear, but with out acting, Cooke said the fund would run out between 2040 and 2050.
The city is assuming a 7.5 percent return on investment and if performance drops, taxpayers and employees will be on the hook for a combined 2 percent increase each year for two years. Cooke said it’s hard to know how well invests will preform, but staff predict that safety net will be triggered in 2022 and 2023.
That trigger, along with greater contributions from the city and employees, should benefit financial outlooks, Cooke said.
In two of the last three years Moody’s Investors Services downgraded city general obligation bonds, citing the ballooning pension liability. Fort Worth debt service is rated Aa3 with a negative outlook, meaning the rating could be downgraded again. A lower rating makes the city’s ability to borrow money more expensive.
The investment service was calculating the impact of the new pension plan, said Gera McGuire, a Moody’s vice president for local government ratings based in Dallas.
“We’re getting our arms around the numbers, but generally Moody’s views any type of pension reform as the step in the right direction,” she said.
Moody’s calculates the unfunded liability as $3.75 billion, significantly higher than the city’s $1.6 billion estimate.
That’s because Moody’s applies a standard calculation to all the municipal funds it tracks with a more conservative anticipated yield of about 4 percent. The city assumes a return above 7.5 percent, which is in line with what municipal governments typically assume.
The plan comes at a cost for both taxpayers and employees. Taxpayers will pitch in an additional 4.5 percent or about $21 million annually to the Fort Worth Employees’ Retirement Fund, bringing the contribution to $115 million each year.
General employees will pay an extra 1.1 percent while police and fire employees will pay 3.8 percent more.
The average fire department retiree has a $69,852 pension while the average police retiree’s pension is $68,244. The average general city employee’s pension is less than $33,000.
Civil employees do not qualify for Social Security, but more than 160 retirees received $100,000 or more in pension payments in 2018. The highest pension earner, who retired from undisclosed department with just under 29 credited years of service, made $177,372 in pension payments last year.
In a previous plan, the cost of living adjustment, seen an unfunded liability by financial analysts but as a necessity for unions, was scrubbed. That plan failed to gain support from unions or the council.
This plan would chop cost of living adjustments for new hires, but it remains in place for retirees and those who retire by 2021. Manny Ramirez, president of the Fort Worth Police Officers Association, and Michael Glynn, president of the Fort Worth Firefighters Association, told the council in December their unions would neither support nor oppose the new plan.