Facing the prospect of letting the Texas Legislature make the decision, Fort Worth city officials are working to figure out a way to salvage the city’s pension fund. That involves working with police and fire officials to come up with an equitable solution.
City Manager David Cooke gave the council an update on the latest proposals at its Nov. 6 work session.
“It’s not that we don’t like Austin, it’s that we don’t want the Legislature to fix something we can fix locally,” Cooke said.
The city’s pension fund is on a path to insolvency with a liability of about $1.6 billion. There are many reasons for this, said Cooke, but the bottom line is that the plan needs to be fixed.
Mayor Betsy Price and the city council have made progress over the past several years, increasing city contributions and changing the benefit structure for new employees and current employees from that point forward. These changes, however, have not been enough to pay for the benefits accrued before the changes.
The challenge is the benefits that were given over the years without sufficient contributions, and the fact that the retirement fund is not achieving projected investment returns.
Cooke made a recommendation in August that was revised a month later. On Nov. 6, he presented the council with the two latest proposals.
The first was a compromise proposal discussed by Price with police and fire associations, which amounted to 10.2 percent of the city’s annual payroll. It includes:
· Increased city (taxpayer) contributions to 4.5 percent.
· Changes to benefits/eligibility to 3.1 percent, which includes replacing 2 percent simple and ad hoc cost of living adjustments (COLAs) with a 1 percent simple COLA, current retirees with at least 25 years of service retaining 2 percent COLA on the first $30,000 of benefits, eliminating COLA for future service employees, eliminating service credit for future accruals of major medical and sick leave, and establishing a minimum retirement age of 55 for future service of fire and general employees.
· Increased employee contributions of 2.6 percent, including general of 1.1 percent plus 0.7 percent for blue service (long-term) employees; 3.8 percent for police and fire; and 0.9 percent for police officers in a 25-and-out capacity.
· Employee contribution increases start on May 1, 2019, and phase in over two years for fire and three years for police.
The other proposal came from the Fort Worth Police Officers Association for 10.1 percent of the city’s annual payroll. It includes:
· Increased city contributions of 4.5 percent.
· Changes in benefits/eligibility to 2.5 percent, which includes eliminating COLA for future service, eliminating service credit for future accruals of major medical and sick leave, establishing a minimum retirement age of 55 for future service of fire, establishing a minimum retirement age of 62 for future service of general.
· Increased DROP (Deferred Retirement Option Plan) maximum period to eight years.
· Increased employee contributions to 3.1 percent, which includes general of 1 percent plus 2 percent for blue service, 4.5 percent for fire, and 4.1 for police with an additional .9 percent for 25-and-out.
Cooke also recommended an automatic risk-sharing mechanism, which he said is not a choice of the police and fire departments. These are additional changes to be automatically implemented if required after the successful implementation of immediate reforms.
If the contribution is less than the actuarially determined contribution (ADC) for two consecutive years based on the actuarial valuation:
· The city and employee contributions will be increased by the city council as required to meet two-thirds of the deficit up to 2 percent of pay in one year or 4 percent of pay in total – in a 60 percent/40 percent proportion (city/employee).
· The COLA will be reduced as required to meet one-third of the deficit
· Such contribution increases may be unilaterally reduced by the city council, without approval of members, if two consecutive actuarial valuations indicate the ADC will be met without those contributions
· If the maximum contribution increase and COLA reduction have been applied, and the following actuarial valuation indicates the actual contribution is still insufficient to meet the ADC, the city council must consider additional benefit reductions.
District 4 Councilman Cary Moon equated the pension fund to Social Security. He said that since city employees don’t pay into Social Security, the pension fund is replacing it for them. He said he doesn’t see a detriment in the Police Officers Association plan that has a minimum retirement age of 62 for general employees, calling it a “better parallel to Social Security.”
“We’ve got to have a retirement plan that’s attractive for everyone,” he said. “What are we going to do to put a better plan together for everyone?”
Cooke recommended whatever changes the council settles on be adopted Nov. 13, along with workforce and retiree education Nov. 14 through Dec. 14, a January contribution election for employees, and an April/May implementation of employee contributions.
“All the groups in Fort Worth want to see it get done,” District 3 Councilman Brian Byrd said. “We’re working hard to get there.”