Whittling down the City’s $1.7 billion issue of unfunded pension liability will take political discipline and possibly extra payments.
It also might require a tax increase.
The Retirement Reform Task Force Wednesday reviewed recommendations relating to governance and the creation of an investment authority that could aid the Police and Fire Pension Fund, while also hearing a subcommittee report about ways the plan could be funded.
One of its key findings: the City should make contributions for amounts greater than what is required. This past year the City contributed $148 million to the plan.
But, with rising unfunded liability, playing catch-up through extra contributions could be part of bringing the funding levels closer to 100 percent instead of the 40 percent mark where it currently hovers.
How to come up with the additional contributions is another matter.
Bill Scheu, the task force’s chairman, said the group’s next meeting Jan. 21 will include funding discussions but recommending tax increases to cover the gap is still “absolutely” a possibility.
“Everything is on the table,” he said, before adding that Mayor Alvin Brown’s administration and City Council are ultimately responsible for finding solutions.
“We’re all in this together,” he said.
What compounds the issue is a decision to potentially set the rate of estimated investment return to 5.4 percent, instead of if a 7 percent rate was assumed. By choosing the lower rate, the City would have to contribute more funds to make up the difference.
It’s about the difference in risk. Pew Charitable Trusts has assisted the task force in its work the past several months and says its 75 percent probability invested funds would earn at least 5.4 percent. That figure drops to 50 percent with a 7 percent assumption.
“Using 5.4 percent for forecasting cash contributions provides assurance for all but the worst 25 percent of scenarios,” the subcommittee’s report states.
And if the contributions actually do have a 7 percent return, the extra contribution is a windfall toward paying down the liability.
The subcommittee also recommended making level annual contributions. Preliminary findings show that a 5.4 investment return rate could mean a needed annual contribution of $220 million to fully fund the plan by 2036.
With the 7 percent rate, the amount drops to $190 million. Just paying the minimum with that same 7 percent rate would mean it would rise from $140 million in 2014 to more than $400 million in 2036.
One aspect that won’t be included is pension design, which includes contributions made by the city, current employees and future employees. Those are matters of collective bargaining, according to group, referencing a Dec. 31 Circuit Court decision.
Randy Wyse, firefighter union president, said after Wednesday’s meeting that the group’s opinion about the collective bargaining portion is “making a lot of assumptions” by not referring to the mediation order by a federal judge.
Still, he said he is “cautiously optimistic.”
“This is what we have been doing for five years … and I am cautiously optimistic this group can bring the change to that,” Wyse said.
Fund Administrator John Keane and Chris Hand, Brown’s chief of staff, are scheduled to address the group at its Jan. 21 meeting.
The task force also scheduled meetings for Jan. 29 and Feb. 12, in what could be its final meetings.
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