Life insurance option ‘cosmetic’ fix for pension problems.
A proposal to use life insurance policies to buy more time in solving the city’s unfunded pension liability was met with a lukewarm reception Thursday by a group seeking funding ideas to solve the $1.7 billion problem.
The idea was to eliminate at least $700 million of the liability through entering a contract where annual contributions are put into a trust to pay for life insurance premiums on police and fire members, and bond premiums.
An example provided set those contributions at $43 million over 20 years.
The contract requires a life insurance company, investment manager for the funds and a guarantor that could establish there would be the $700 million at the end of the term.
Proponents said the contract could then be used as a fund asset, wiping away at least $700 million, with the investments possibly earning more. That would allow the city to reduce its payments immediately instead of waiting on pension reform to take hold over many years.
The Police and Fire Pension Fund would be the beneficiary.
The idea was passed to a Jacksonville Retirement Task Force funding subcommittee from the fund, which in December had sought requests on how to use life insurance policies to help.
But, while it relies on government accounting standards to make the case, those questioning the idea said might not be actuarially sound and was more cosmetic in nature.
City treasurer Joey Greive said he didn’t think the idea would help and would want to understand risks more and talk to ratings agencies like Moody’s and Fitch Ratings to determine the viability.
Jonathan Trichter of MAEVA Municipal Solutions, which is helping Pew Charitable Trusts assist the task force, told the group he’d be “shocked” if the ratings agencies considered such a contract as an asset and instead view it as an “accounting trick that makes things look better than they
The chair of the task force said the idea “has got its difficulties” and he would be reluctant to include as a funding recommendation.
“It seems cosmetic instead of substantive,” Bill Scheu said.
He called the idea and others presented thus far part of “brainstorming” to find solutions.
The full task force will meet Feb. 12 and again Feb. 17.
Scheu said he expects a report to the full group regarding Thursday’s idea.