by Max Marbut
Staff Writer
“It’s cause for concern but not for alarm.”
That’s how John Keane, executive director and administrator of the Police and Fire Pension Fund (PFPF), describes the current underfunding of the pension plan for Jacksonville’s public safety employees who are currently enrolled in the fund.
As of Sept. 30, 2007 the PFPF was underfunded (liabilities exceeded assets) by $534 million. According to figures provided by the Council Auditor’s Office, that means the PFPF is underfunded by 36.5 percent.
“The numbers are certainly eye-opening,” said Keane, adding the reasons behind the current situation go back three decades.
“From 1978 to 1999 the Police and Fire Pension Fund received on average about half of the contribution to the General Employees Pension Fund. It was a political decision to pay the least amount possible to meet the statutory requirements,” he explained. “In that period, the City contributed 23.05 percent of salaries to the General Fund, but only 11.99 percent of payroll went into the Police and Fire Pension Fund.”
Then in the late 1990s America’s economy went through what Keane called “a period of unprecedented economic growth.” But, there was reason for concern.
“We were watching the financial markets skyrocket, but we didn’t have the available capital we should have had to invest,” he said.
The capital shortfall based on the reduced contributions totaled $86,481,909 and Keane said that “caused us to fall behind because we had a smaller base to start. We just didn’t have the resources to participate in the market’s growth.”
Another factor Keane cited for the underfunding is the City’s Deferred Retirement Option Plan (DROP) that has been available to employees since 1999. DROP allows an employee who would otherwise be entitled to retire and receive benefits under the pension plan to instead continue working. Instead of having payroll and additional years of service taken into account for benefits under the pension plan, the employee has money credited during each year of continued employment to a separate account under the City’s retirement plan. The account earns interest and is paid to the employee upon retirement in addition to the benefits earned under the pension fund plan.
“When an individual member enters DROP the City no longer makes a contribution,” said Keane. “Since 1999 the City has saved $33,466,905 in contributions not made for people in DROP.”
The State Legislature has also had a hand in creating the current situation.
“The pension fund used to receive 30 percent of court fines, but since 2004 the State has taken those fines,” said Keane. “That has cost us $18,820,096 in four years.
“Add it all up and it’s close to $150 million that we haven’t had available to invest.”
The Police and Fire Pension Fund is almost entirely dependent on investment income. If contributions from the employees, the City and the State are subtracted, Keane said, “Return on investment provides 90 percent of the pension fund’s income.”
Despite an amount of underfunding equal to more than half of the City’s proposed $972 million operating budget for FY 2008-09, Keane is confident it’s not time to push the “panic button.”
He pointed out the Police and Fire Pension Fund has been in existence since 1937 and its assets have weathered tough economic times including World War II, recessions and years when interest rates topped 20 percent.
“That’s why we diversify in order to get the highest rate of return with the least risk. We invested in commercial real estate with the Laura Trio which we sold to Cameron Kuhn and also the AOL Building which we sold to the University of North Florida. We made significant returns on both of those investments,” said Keane.
He’s confident based on history that the housing market will rebound and the stock market will rise again as it always has after a downward correction. Keane said there’s another important factor that gives the Police Fire and Pension Fund its stability despite how municipal revenues and expenses can change from year to year or even what the stock market might do.
“We know everybody’s not going to retire on the same day and we’d owe all this money at once,” he said.
356-2466