by Bradley Parsons
Staff Writer
The City will have to spend about an extra $9 million next year to help shore up a slow-growing Police and Fire Pension Fund.
The total contribution will likely exceed $30 million in the upcoming budget. The City is essentially picking up the slack for an underperforming stock market, according to a Feb. 15 letter sent to the City Council by Fund Executive Director John Keane.
The $850 million Fund has traditionally been about 60 percent invested in the stock market, which has struggled since peaking in 2000.
The sputtering market has caused a widening gap between the Fund’s projected assets and the expected cost of future pension payments. The Fund has plenty of money to pay out current benefits-payments totaled $77.8 million last year, but it’s supposed to have enough money invested to pay benefits for the next 30 years.
By that standard, the Fund is falling behind and it’s the City’s responsibility to help it catch up.
The Fund is $494.4 million short if those pension payments were called due today, according to an actuarial evaluation by Pension Board Consultants, Inc. That means the Fund has 59.55 percent of the money it needs to be considered fully funded.
In comparison, the Fund was 86.7 percent funded during the stock market’s peak in 2000.
As the gap has grown, so has the City’s required annual contribution. From $9.7 million in 2003, the City’s contribution ballooned to just over $22 million in 2004. Now it appears the contribution will exceed $30 million in the 2005 budget.
These numbers were sent to the City Council and its auditors last week. Several Council members were already projecting a tight budget year in 2005.
Keane said the City’s contribution, like the stock market, runs in cycles. It swells when the market does badly but shrinks when the market performs.
In this case, the City is still paying for the 2000 collapse, even though the Fund and market have rebounded in recent years.
“The increases (in City contributions) help smooth out the bumps in the road,” said Keane. “But in this case, it wasn’t a pothole, it was a total washout.”
In the last two years, the Fund has actually outperformed its targeted rate of return on its investments, said Keane. The Fund targets an 8.5 percent return. In 2003, it earned 15.5 percent; in 2004 it earned 9.5 percent.
It will take a while before those gains are felt because of the size of the losses in 2000. But when they take effect, the City’s contribution to the Fund will drop, he said.
For at least the next two years the City will have to find a way to pay an extra $9 million. The City used to budget around $10 million total for its contribution. Now it’s looking for new revenue streams to cover three times that amount.
Some of the money will come from the budget’s general fund and some will come from a $13 million reserve account, according to Council auditors. Neither of those sources are expected to be enough however, so the City will have to find additional money or else borrow it.