Summarizing a detailed report, Mayor Alvin Brown’s Pension Transition Committee recommended three general options to “reduce the current crisis of cost” in funding the City’s pension plans:
• Reducing benefits for new and current employees.
• Increasing employee contributions.
• Terminating, freezing or closing current pension plans and setting up lower-cost plans.
“It is with a strong sense of urgency that we report to the mayor our findings and recommendations regarding the City of Jacksonville’s defined pension benefit system,” said the committee report.
It said the total of all City plans was most recently reported to be more than $1.6 billion and pension costs are expected to “skyrocket by more than 50 percent or more in the next five years if the current pension structure remains in place.”
The committee, in its Aug. 8 report, said that state law requires an actuarial study for each pension plan on a three-year rolling basis. The last accepted actuarial studies were completed in September 2008 before a large decline in the stock markets.
Since then, the report said, the pension funds may have underperformed the 8.4 percent to 8.5 percent expected rates of return, which could increase the $1.6 billion deficit.
The report said the new actuarial studies could require an increase in pension funding ranging from 10-50 percent more, or $132 million to $180 million, for the 2012-13 City budget, which is due in a year.
“Jacksonville faces a short-term and a long-term crisis as the escalating costs of pensions are projected to increase with significant volume and velocity over the next 20 years,” it said.
According to the committee, Jacksonville’s pension plans, primarily the Police and Fire Pension Fund, are less funded than others across the state.
It said the fund is 48.8 percent funded while comparable police and fire pension plans in the state are 83 percent funded on average.
The next least well-funded plan is in Miami. That one is 62 percent funded and is moving to a defined contribution plan, according to the report.
The report cited a legal source that public pension plans in Florida are in better shape than those in many other states because Florida law requires that plans be funded on a “sound actuarial basis” and that in 2009, the average annual pension costs for Florida cities accounted for 8.6 percent of total expenditures.
“Unfortunately, in Jacksonville, these facts do not hold true,” it said.
According to the report, Jacksonville’s pension plans are weaker than the national average and for 2011-12, accounted for 12 percent of total expenditures and are projected to rise to more than 18 percent in 2015-16 “if left unchecked.”
“This could mean our pension costs would grow from $118 million this fiscal year to more than $180 million by 2016,” it said.
Without an increase in City revenues, it said, the City could be forced to reduce all other City services by 10 percent to 25 percent to compensate for the growing pension obligation.
According to the report, inaccurate actuarial assumptions and the granting of retroactive benefits are among the factors contributing to the pension issue.
“A debate also exists as to whether the City has taken ‘pension holidays,’” said the report.
“This committee does not attribute funding issues to any so-called pension holidays,” it said.
The report said the Police and Fire Pension Fund ‘s structure makes it responsible for projecting its pension costs (actuarial assumptions), managing its investments and billing the City what it believes will cover its costs.
The City paid the “bill” at 100 percent or more every year for the past 32 years, said the committee. It said in the past 20 years, the fund was near 100 percent funded.
It said the pension “holiday” relates to the City not paying more than the fund requested, “which is an illogical reason to be so far under-funded.”
“The PFPS has a responsibility to apply accurate assumptions to its plan in order to properly fund it,” said the report.
Also, the committee said that more than 1,000 City employees were excluded from the City’s defined benefit pension and enrolled into the Social Security system over a long period of time.
The employees have since been enrolled into the City’s defined benefit pension plan at a cost to be added to previous projections. The committee said that potential cost is estimated to be up to $50 million.
“Even if the City alters benefits for new employees, that step may not provide all of the savings required to fund this immediate and fast-growing gap in costs without increasing taxes substantially,” it said.
The City, it reported, might need to consider the proper level of employee contributions or benefits for current employees.
Among the committee’s recommendations:
• A study of best practices among the pension plans in the state.
• A review of the governance policies of the pension plans to improve decision-making and the cost structure, and to reduce “conflicts of interest which jeopardize the quality of fiduciary oversight.”
• Maintain the current review and advisory capacity of the Pension Transition Committee or a similar group of advisers to help provide checks and balances.
• Review options to fund or reduce the pension deficits.
It also said that a defined contribution system could reduce costs to taxpayers and employees as well as “align employee interests and benefits with the private sector, avoid budget crises as a result of the correlation between City revenues and pension deficits and reduce the potential for political influence to create massive budgetary issues related to employee benefits.”
It said that “multiple national resources” estimate that 80-90 percent of employers in the private sector offer only defined contribution plans.
“People are working longer and living longer, so City benefits should reflect this in order to align public sector employee pensions with taxpayer benefits,” it said.
The committee also offered several pages of details regarding “options for consideration” in benefit and funding management, divided into “cost-saving strategies” and “revenue-intensive strategies.”
All transition reports can be found at www.coj.net.
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In transition
Mayor Alvin Brown and his staff are reviewing reports submitted Aug. 8 by 18 transition policy committees. The committees consisted of 217 people and another 125 subject area experts and staff. More than 110 meetings were held over a month. The Daily Record will summarize one report daily and include the names of the committee co-chairs and members. Today’s summary covers the Pension Transition Committee.