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Mayor Alvin Brown presented his pension reform plan Monday for police officers. He says the plan, which cuts and adjusts benefits, is fair to employees and taxpayers.
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Brown says proposed police pension reform will save $1.5 billion

by David Chapman, Staff Writer

 Mayor Alvin Brown on Monday unveiled his pension reform plan for police employees, which he estimates will save $1.5 billion over 30 years but trims benefits in several areas and eliminates others.

“It’s a plan that’s fair to City employees, fair to taxpayers,” Brown said.

Under the plan, police employees would double their current retirement contributions, work longer before being eligible to retire and not collect benefits until a later age, among other proposals.

Several proposed changes in Brown’s plan, including how they compare to the current plan and former Mayor John Peyton’s proposal that was not approved:

• A pension start date for vested and terminated members at age 60. That means members could start to take their pension at that age, up from the current normal retirement date. Peyton proposed the age of 55 with 10 years of service or age 65 with five years but less than 10 years of service at termination.

• The employee pre-tax contribution to the plan would double, from the current 7 percent, to 14 percent. Peyton proposed an 8 percent contribution rate.

• Annual employee benefits would be capped at $99,999.99, ensuring no one collected a six-figure benefit. There is no cap under the current plan, nor was there one in Peyton’s plan.

• The retirement age would be bumped up to 27 years of service at any age, up from the current 20 years. Peyton’s plan called for 25 years of service before retirement.

• Benefit accrual rates would drop to 1.67 percent for all years of service and subject to a cap of 50 percent at 30 years. That rate is down from the current 3 percent for the first 20 years followed by 2 percent for 10 years and a cap of 80 percent at 30 years.

• The final average pay for employees would be based on the last five years of service instead of the last two, which is the current rate. Peyton’s plan also had a five-year benchmark.

Brown’s plan also would eliminate two additional perks: an annual cost-of-living adjustment and the Deferred Retirement Option Program, commonly referred to as DROP.

Under the current plan, eligible employees receive a 3 percent cost-of-living adjustment that begins as soon as three months after the option program. Under Peyton’s plan, it was capped at 3 percent and began two years after employee termination.

The deferred retirement program allows retirement-eligible employees to remain in the workforce to accrue benefits in addition to those already received.

Under the current plan, employees could enter the program after 20 years of service, while Peyton’s plan would have altered the timeline.

According to the City, the proposed pension plan would save $1.5 billion over 30 years, up from Peyton’s proposed $700 million over 35 years and the current plan of no savings.

The City said the changes, combined with a lowered assumed rate of return – from 7.75 percent to 6.9 percent, would trigger those savings and put the City back on track to fully fund the plan.

Police and Fire Pension Fund advisers projected the 6.9 percent return rate is more realistic for investments over the next 10 years.

The City contributed $150 million from the general fund toward pension plans in the fiscal 2012-13 budget approved in late September.

Of that, $121 million went toward police and firefighter personnel.

According to the City, if it lowered the rate of return without changing benefits within the plan, that figure would balloon to an estimated $181 million for fiscal 2013-14.

With the changes, the contribution would be an estimated $133 million – up almost $11 million from the year before, but fully funded.

Brown said the $48 million saved in next year’s budget would equate to about 800 City employees keeping their jobs. The $48 million is derived from lowering the assumption rate but making no plan changes.

Brown said the plan will not affect current retired employees, but would affect the benefits of current employees for those benefits accrued after a plan start date, should it be approved.

The plan was presented Monday to Fraternal Order of Police local leadership.

Asked Monday whether he thought its leadership

would approve the plan, Brown said he was

“optimistic.”

Similar plans will be rolled out to different unions, including firefighters, this week.

 

dchapman@baileypub.com

356-2466

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