Mt. Vernon Register-News

December 25, 2013

Pension data eye-opening


The Register-News

---- — Editor:

On Dec. 7, I submitted a letter to the editor concerning the city of Mt. Vernon’s proposed increase in property taxes to meet its financial obligation to the Police and Fireman’s Retirement funds. Since the letter was printed by your newspaper, I have had several telephone calls concerning the subject, including a call from a city council member who asked if I would be willing to meet with him, the city manager and the chief of police to hear the city’s position on this matter.

I agreed to the meeting, and went to city hall three days later. Now knowing what to expect, I was pleasantly surprised that I had not been summoned to get a “chewing.” Instead, they wanted to explain to me the problems the city was facing with both the Police and Firemen’s Pension funds.

The city manager began the meeting with an overview of both pension funds. Both funds are controlled by two local boards, the Police Pension Board and the Firemen Pension Board. Although the boards are locally controlled, they must operate within certain parameters established by state law.

Both boards have five members. Three members of each of the two boards are selected by patrol officers and firemen (two from the active ranks and one from the retiree ranks) for their respective funds. The city, on the other hand, appoints two members to each board. Such an arrangement gives control of the two boards to the employees working for the city and not the city council.

To continue, state law dictates how monies are generated to support the two funds used to pay the retirement benefits. First, each police officer and each fireman must contribute 9.91 percent of his salary to his respective fund. Second, the city must also contribute monies to the two funds. Unlike the officers’ contributions, which are fixed by law, the city’s contribution will vary each year depending on what is needed to fully fund retirement obligations.

In addition, monies are also generated through the investment of those funds by the local boards overseeing their operation. The only caveat placed on the local boards by the state is that investments are limited to 55 percent in stocks. The balance of funds must be invested in fixed assets such as bonds or CD’s.

With that brief overview, the city manager continued by producing data showing the increasing financial obligations of the city for both funds. First, he presented information showing the increased benefits for retirees that have been mandated by the state in recent years. As he pointed out, the increases must be paid by the city and not the state.

The most obvious costs were related to disability and survivor benefit provisions of state law. Both increases have been created by the state with little regard to how the city share is generated.

The city manager produced data that shows that presently 16 individuals are regular police pensioners and are drawing monthly annuities from the fund. Eight individuals are disability pensioners receiving an annuity, and eight are surviving spouses receiving monthly checks from the fund.

The firemen’s pension payouts reveal that 11 individuals are listed as regular pensioners; 15 are listed as disability pensioners; and 11 are listed as surviving spouses for a total of 37 fire fighters receiving retirement benefits.

The data for both funds is very revealing and alarming. A total of 32 retired police officers receive a monthly annuity with an active police force of only 42 officers. In simple terms, the retired officers almost match the active officers. If this trend continues, the number of retirees will exceed the active officers.

Data presented by the city manager is even more revealing and more troublesome for the fire fund. Thirty-seven retired fire fighters are receiving monthly annuities from the fund with only 29 active employees.

The city manager also stated that in 2007, the state Legislature eliminated the requirement that the local pension boards rely on the assessment of an independent physician when determining disability. The elimination of this requirement creates a situation where an applicant for disability is determined by a board of his own peers and friends. If this does not create many opportunities for abuse, nothing does. If the state Legislature ever considers any reform, this is it.

The city manager continued his assessment of the problems faced by the city by presenting data that revealed that due to the relaxed disability requirements imposed on the city by the state, average retirement age for fire fighters of Mt. Vernon is now 47 years old. Given that the life expectancy in the United States is now 79 years, the payout will quite likely continue for 32 years.

The city manager ended his assessment of the city’s problem by presenting information related to the survivor benefits. According to him, in 2004, the state increased the benefit for spouses from 50 percent to 100 percent of the retiree’s monthly annuity payment.

From my perspective, the meeting was very productive. Leaving the meeting, I came away convinced that police and fire pension reform is badly needed. The first place to “fix” the system is to abolish both the local police and fire pension boards and replace them with one state board to oversee the two pension funds. Such a change would bring uniformity throughout the state and eliminate the practice wherein fellow peers in both the police and fire departments determine eligibility for disability. Moreover, the elimination of hundreds, if not thousands of local boards would free monies used for administrative costs to pay benefits. According to the city manager, these overhead costs amount to approximately 5 percent of that paid out to retirees.

Leaving the meeting, I also came away believing that much, though not all of the blame can be laid at the feet of the state Legislature. However, to place blame does not solve our problem. The city is on a path that is unsustainable, and our leaders must solve this problem by taking draconian measures without continuing to raise taxes.

To say the city has absolutely no control in these matters in incorrect. The state does not dictate the number of police or fire fighters must maintain. The city has control of this item and with resolute determination can introduce cost saving measures by reducing the number in their ranks through attrition. In this way, no one presently employed would lose his/her job.

As I suggested in the previous letter to the editor that precipitated my invitation to city hall, I in no way advocate laying off police or fire fighters. These officers place their life on the line every day for the safety of our citizenry. They deserve our respect, and they and their families have a right to expect the benefits the city and/or state, has pledged to them.

Jere Shaw

Mt. Vernon