Tax hit possible as Fort Worth struggles to shore up pension

A committee addressing Fort Worth’s growing pension woes has stepped up its efforts in the past few months, but it appears members may not be any closer to a solution than they were two years ago when the group was put together.

So far, about the only thing the nine-member committee can finally agree on after all this time is that the Fort Worth Employees’ Retirement Fund needs a financial fix. But whatever the fix, Fort Worth taxpayers can expect to be on the hook for some of it. Since 1990, taxpayers have taken on most of the cost increases for contributions.

The committee, established by City Manager David Cooke, is dealing with how to pay for a $1.6 billion unfunded liability that has mounted over the past 25 years from questionable benefit decisions, investment losses and unmet assumptions on investment returns. The unfunded liability is the amount of benefits promised without money to cover it. If it’s not fixed, the retirement fund could run out of money by 2050, consultants recently warned.

“We spent two years trying to understand the magnitude of the challenge,” Cooke said, referring to the committee. “It wasn’t just understanding, it was accepting. We’ve gotten to that point. I don’t think there’s an agreement on how to fix it.”

Cooke, who also recently started sending informational emails to employees to keep them abreast of the issue and the committee’s work, set an aggressive timetable last fall to have a plan to the City Council in February, with the body adopting ordinances reflecting the proposed changes by May.

But the closer February gets, the farther away it seems that will happen. And that should have taxpayers concerned — the longer a solution is not found, the greater the possibility Fort Worth will face having the Legislature dictate a fix. That’s what happened last year for the Dallas police and fire pension system. In that, Dallas taxpayers were told they were going to contribute tens of millions more dollars to the system.

The impact, though, is beginning to be felt by the city. In July, rating agency Moody’s Investor Services lowered Fort Worth’s rating on some general obligation bonds for a second straight year, citing the pension issue. The downgrade could mean higher costs to borrow money. The city’s debt is paid from the city’s property tax.

Joelle Mevi, the fund’s executive director and who serves on the pension committee, doesn’t think the committee will meet the February deadline either, in large part because discussions still need to be had.

“We’re still getting analysis from the consultant,” Mevi said. “February might be a bit aggressive. Nothing has been resolved yet. There’s more work to be done.”

The committee is scheduled to meet again Jan. 18 to hear from its consultant, which has been running numbers on potential proposals and whether those scenarios will generate the money needed to keep the fund solvent.

Leveling the burden

In looking at the proposals spelled out in Cooke’s emails, the committee is working at having taxpayers and employees share the burden. For taxpayers, that means the heavy-lifting will continue. Among the proposals is a 2 percent jump in the amount taxpayers pay to the pension fund from payroll, or another $8.8 million annually.

Fund contributions need to increase at least 8 percent annually to meet obligations.

In 2017, taxpayers and those paying for city services paid $89.9 million toward the pension, while employees contributed $35.1 million, for a total of $125 million, or about 28.6 percent of the city’s payroll. The city’s payroll is about $440 million. Although benefits differ, all city employee pensions are paid from the one fund.

Contributions are also used to derive the Retirement Fund’s administrative budget, which is placed at nearly $5.5 million this year. Of that, $2.2 million is used to pay salaries and benefits for its 18 staff members.

Since 1990, the amount taxpayers put toward the police pension rose 12 percentage points, to 20.5 percent of payroll, while the amount police put in the fund increased slightly more than 3 percentage points, or 8.7 percent of their pay.

And with firefighters and general employees, taxpayer contributions rose 11.2 percentage points, to 19.7 percent of payroll, while employee contributions rose only 2.5 percentage points, to 8.2 percent of their pay.

Under the proposal, employees would have to kick in another 1 percent of pay. Some employees would also see additional incremental increases based on length of service. Moreover, cost of living adjustments would be suspended for everyone until the fund is sustainable, and it would eliminate employees applying medical and sick leave accruals toward retirement calculations.

Suspending the cost of living adjustments alone will means about $400 million toward the unfunded liability, Cooke said.

Fort Worth not alone

Mayor Betsy Price said the work being done in Fort Worth should be enough to stave off legislative pressure. She said she hopes to see a plan by mid-year.

“I’m optimistic we can get this done,” Price said.

Fort Worth is not alone in its struggle and the fixes being proposed are commonly used. For the past decade, hundreds of state and local pension funds have cut benefits, increased employee contributions and converted from defined-benefit pensions to do-it-yourself plans, according to the National Conference on Public Employee Retirement Systems.

In 2016, Austin, Dallas, Houston and San Antonio collectively faced $22.6 billion worth of pension fund shortfalls, the Texas Tribune reported.

Fort Worth has about 6,300 employees. Changes to pension benefits will require an employee vote.

This story was originally published January 12, 2018 at 7:33 PM with the headline "Tax hit possible as Fort Worth struggles to shore up pension."