Pension Costs Weigh on City BudgetCouncil Considers "Tweaks", Not Drastic ChangesBy Carl Wagenfohr CLEARWATER - Employee cost represents nearly 70-percent of the expense of running city government. That cost is not only employee salary and medical benefits; it's the burden of providing employee pensions as well, a fact that became painfully obvious during Monday's City Council worksession. According to Clearwater's 2009 Pension Plan Actuary's Report prepared by Price Waterhouse Coopers (PWC), the plan's assets fell in value by 27-percent last year versus an expected gain of 7.5-percent, creating a shortfall of more that $178-million in expected market value. But because a 5-year weighted average is used to smooth the effects of market volatility, the actuarial value of plan assets declined by only 10.61-percent, or $74-million. Either way you measure it, that precipitous decline must be made up from somewhere, and it's the taxpayer who will be expected to foot the bill. "For the next fiscal year, we will need to contribute 29-percent of pay," said Clearwater Finance Director Margie Simmons of the city's 2009/10 pension plan funding. The planned 2009 contribution of $23,948,586 is more than double the $10,074,978, or 12.4-percent of pay, that was required in 2008. To lessen the impact on the 2009/10 fiscal year budget, Simmons recommended that the city use $7.5-million of the pension plan's $15-million "credit balance" to reduce the contribution to 20-percent of payroll. This would lower the city's 2009/10 contribution to $16.42-million, an increase of only 6.4-million over 2008/09. But unless financial markets rebound soon, depleting the plan's "credit balance" will simply delay the inevitable. Simmons said that the city would "slowly ramp up to equal the 30-percent of pay for the next couple of years." Under the terms of the city's defined benefit plan, an employee's pension is determined by the number of years worked and the average of the last five years earnings. Police officers and firefighters are eligible to retire after 20 years of service, or at age 55 with 10 years of service; non-hazard employees can begin collecting after 30 years of service, at age 55 with 20 years of service, or at age 65 with 10 years of service. Throughout their careers, city employees contribute 8-percent of their earnings to the pension plan; the city contributes the rest and is responsible for paying a defined retirement benefit. The benefit formula uses a multiplier of 2.75-percent times the number of years worked times average earnings over the employee's last five years. A 20-year employee's retirement income would replace 55-percent of his/her five year average earnings, while a 30-year employee's pension would be 82.5-percent of pre-retirement earnings. "It's pretty generous, I'll be quite honest with you," Donna White, the plan's actuary, told the Council on Monday while reviewing alternatives to the current plan. The richness of the city's retirement plan could be seen in the estimated annual benefits of 16 employees whose retirement was approved at Monday's meeting. They included:
White's alternatives included several drastic measures as well as a handful of "tweaks" that by themselves offered little savings, but when combined could become more significant. Among the more drastic measures that seemed to find no favor with the Council were:
"You don't want to make changes that will radically affect your ability to provide quality service," said the city's pension attorney Bob Klausner urging the Council not to reduce benefits for current employees, "don't just trash the system just because of a short-term emergency." "My big worry is running out of money, and that's the path we're heading down," said Vice Mayor Paul Gibson. He dismissed suggestions of increasing employee contributions and decreasing future cost of living increases, but he asked for better estimates of cost reductions from implementing the other "tweaks" proposed by White:
"I don't believe that we can do nothing in light of what's going on," Gibson said. His colleagues agreed. Councilmember John Doran said, "Although I'm not at all comfortable with the idea of reducing benefits for employees, I'm afraid that we've reached the point where we have to make some really hard decisions, and this may be one of those areas where we have to tinker." "I don't object to looking at a second tier program for new hires; I don't object to some tinkering with the program," said Councilmember George Cretekos, but he objected to reducing benefits for current employees, especially those nearing retirement. "We need better numbers to figure out whether there's a cost benefit to doing so," said Mayor Frank Hibbard, who agreed with Cretekos that a second tier defined benefit plan for new employees should be considered. The Council authorized an additional $20-thousand for an actuary's report that would more accurately estimate the cost savings from the "tweaks" and compare that to the savings from establishing a second tier retirement program. White promised the results in four to six weeks. But implementing any of the proposed changes will take a lot of time and effort. Any retirement plan changes must be negotiated with the city's several labor unions, and be submitted to a public referendum. The soonest referendum date coincident with a city election would be March, 2010. |