With the clock ticking for the city to find $1.6 billion to fix its pension without going to Austin, a compromise may be on the horizon, but Fort Worth taxpayers will have to kick in a little more.
For about three years Fort Worth has searched for a solution for the pension gap. If no action is taken, the city’s $2.3 billion Fort Worth Employee’s Retirement Fund could run out of money between 2040 and 2050. A proposal city manger David Cooke put forward in August would have required 3 percent more from the city, but employee unions wouldn’t budge on changes to the cost of living adjustment.
A plan unveiled Tuesday would cost taxpayers an additional 4.5 percent or about $21 million annually, but includes a compromise on cost of living Cooke said he hopes will lead to employee approval.
The Fort Worth City Council will vote on the plan Nov. 13 with the goal of having an employee vote in January. Cooke and employee unions want to avoid sending the matter to the Texas Legislature.
Manny Ramirez, president of the Fort Worth Police Officers Association, said the compromise is a step in the right direction, but more work may be needed. The police union has pushed for not touching cost of living adjustments for retirees.
“We just don’t think that would be fair,” Ramirez said. “We’re all looking for a compromise. This is a Fort Worth problem and Fort Worth can find a solution.”
Under the compromise, city employees would kick in an average of 2.6 percent more toward their pension. Additional money would come from benefit adjustments.
If a 4.5 percent increase from the city is approved, the $21 million would have to come from budget cuts in city departments, Cooke said. Between $3 million and $5 million would likely come from the general fund.
Cooke said the compromise should be favorable to rating agencies that earlier this year downgraded Fort Worth debt rating.
Part of the compromise includes adjusting the cost of living raise to 2 percent for the first $30,000 and 1 percent after that. An employee an employee with a pension of $50,000 would see an $800 adjustment. That change, from a 2 percent cost of living adjustment, would eliminate a portion of the unfunded liability immediately, a positive for rating agencies.
“I’m going to sell the rating agencies on anything that we do as wanting to position ourselves better,” he said.
The compromise also calls for eliminating future cost of living adjustments for employees, something Ramirez called “troubling.”
“That being said, I don’t think what David has put on the table is unfair,” he said.
Last year, taxpayers contributed nearly $90 million to then fund while employees paid in $32 million. More than $190 million was paid out.
Fort Worth has just over 6,600 employees and more than 4,4400 retirees receiving a pension. A majority of employees must to vote in favor of the compromise for it to go into effect. Even with approval, the pension shortfall won’t instantly be fixed, Cooke said, and relies on a the assumption investments will have a 7.5 percent return.
“We’re making predictions for the future that if they don’t pan out we’ll be back talking about this again in a few years,” Cooke said.