City Pension Fund Assets Fall 34-percent
By Carl Wagenfohr
CLEARWATER – “As the economic conditions continue to worsen, the value of our pension investments have fallen dramatically,” Finance Director Margie Simmons wrote in a report to the City Council in mid-November.
The numbers are startling. Pension plan assets were valued at $625-million on January 1, 2008. By November 17, the fund's assets has fallen in value to approximately $410 million, a decline of 34-percent.
Because the city's contribution to the pension fund for Fiscal Year 2009 has already been budgeted, the impact of the fund's recent decline will not be felt until FY 2010 (beginning October 1, 2009). Unless the financial markets rebound, those effects could be severe.
According to Simmons' calculations, if the pension fund asset value remains at $410-million until January 1, the city would be required to contribute $28.8-million to the plan in fiscal 2010, a whopping 35.8-percent of the city's $80-million of eligible payroll. The city's 5-year forecast had assumed a 2010 contribution of only 16-percent of payroll, or about $12.8-million.
Simmons suggested that the $16-million 2010 shortfall could be made up by increasing the city's contribution to 23-percent of salary, or $18.4-million, and applying about $10-million of the fund's existing $14-million credit balance to the required 2010 contribution.
Looking beyond Fiscal Year 2010, Simmons forecast that city contributions could grow to “33% of pay in FY11, and 35.8% of pay thereafter, or until values recover and the contribution requirements decline to a more normal level.”
Until and unless those values recover, it's the city's taxpayers, whose own retirement assets have been subject to the same economic forces, who will have to make up the difference.
Looking only at 2010, the increased pension fund contribution could represent a general fund budget hit of approximately $5.6-million. And if asset values remain flat for several years, future pension contributions could exceed the city's 5-year forecast by about $10-million annually.
For actuarial purposes, the asset value of the city's pension fund will be determined on January 1, 2009. The Actuary's Report, to be delivered in May, 2009, will precisely define the required 2010 city contribution to the pension fund and the resulting budget impact.
Councilmember Paul Gibson, whose questions prompted Simmons' report, said, “Pension costs are funded from the general fund operating budget. Our actuaries advised us that our funding levels would need to double, and that was before the recent market collapse.”
“The City's outside council for the pension fund advised us at a City Council Meeting a few months ago that a Defined Contribution plan would be more expensive than our current pension plan. I questioned that statement, and the recent events in the stock market support my opinion that we need to reexamine the risk that our employee pension plan imposes on our taxpayers,” Gibson concluded.
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