by Bradley Parsons
Staff Writer
The City’s annual contribution to the Police and Fire Pension Fund will increase to $40 million in next year’s budget.
That’s about $4 million more than last year. The City’s contribution has more than quadrupled since 2003 when the Fund received $9.7 million. Both parties hope a recovering stock market will mean an end to the run up.
The stock market’s 2001 crash receives most of the blame for the slowdown in the Fund’s performance. The market’s sputters caused a widening gap between the Fund’s projected assets and the expected cost of future pension payments. The City helps fill that gap, which is known as the unfunded liability.
But with the market climbing toward its pre-crash high, Fund officials expect to start recovering ground. A 2003 actuarial report showed the unfunded liability at $494.4 million. Fund Administrator John Keane expects that number to shrink before another actuarial study scheduled for the end of this year.
“The stock market is recovering nicely,” said Keane. “We think that number will go down.”
The increase this year wasn’t stock market-related. It was a product of changes in state court funding. When the funding burden for state courts shifted to the state, local governments lost out on millions of dollars worth of court and filing fee revenue. The City used to send $5 million of that money to the Fund every year.
“That used to keep the City’s contribution artificially low,” said Keane. “They didn’t protect that money when the state called it back.”
City Finance Director Cal Ray said growth in the unfunded liability was also due to a series of benefits increases dating back to the early ‘90s when the stock market started its record run.
Ray noted that many private companies are moving away from defined benefits pensions. The private sector trend is to guarantee contributions not to promise benefits.
But Ray said the City needs to continue to offer an attractive retirement package to stay competitive in the state labor market for police, fire and rescue workers.
“A lot of our competitors also have defined benefits plans and, arguably, they’re richer than what we’re doing,” said Ray. “We’re sort of stuck with the benefits package we have if we want to stay competitive.”
Ray said the growing contribution is a challenge in an era of tight budgets, but just one of many budget complications faced by the City.
“Clearly it’s a contributing factor, but so is medical inflation a contributing factor, fuel prices are a contributing factor. We’re trying to wean away from one-time revenue sources and that’s a contributing factor,” he said.