What Happened?
The Cheshire Town Council in Connecticut recently ruled on a pension dispute that created a divide between local unions and officials. The tension arising from the decision is representative of conflicts seen nationwide as cities try to reform failing pension systems.
Goal
The Town Council’s arbitration panel ruled in favor of the city’s local patrolman union concerning a defined pension benefits debate. The decision prohibits Cheshire officials from ending enrollment of new police officers in the department’s defined benefit pension plan until the end of the year. The maximum pension benefit as a percentage of final average compensation for members was also increased to 72 percent up from 68 percent.
The decision angered local officials who felt it stopped the local government from doing what is necessary to curb increasing pension liabilities that directly impact taxpayer dollars.
The town council originally tried to end enrollment in the defined benefits pension plan of new police hires in July 2013. The ruling moved the enforcement date back to January 1, 2014. From July of 2013 and January 2014, the Cheshire police department brought on eight new officers, half of which will be covered under the old defined benefits plan. The police union was the last union in Cheshire to remain on the old defined benefits plan after all public employee unions were moved to a municipal employees’ 401(k)-type investment account a few years ago. Prolonged negotiations between police union and council members delayed the transition, which forced the arbitration panel to step in.
Fresh Blood
Because pension problems and reform efforts nationwide are resulting in negotiations and disputes similar to those in Cheshire, many governments are bringing in new investment professionals to make better decisions and support a more sustainable pension system in the future.
New York City’s $150 billion pension system recently hired a new chief investment officer to offer guidance to 58 pension trustees. The role of the chief investment officer is becoming increasingly complex as pension reforms are altering how benefits will be delivered to public employees in retirement, The New York Times reported.
The investment advisor will work with trustees of five funds, each operating as unique entities with their own board and voting structure. Previous efforts to consolidate the five pension boards for more efficient operations failed to reach fruition. Luckily, the city has passed several measures to increase investment performance and stability, and the new investment advisor will continue to push for more reforms.
In Detroit, proposed cuts to pension benefits are facing weekly protests. The state-appointed emergency manager is calling for:
- 4.5 percent cut in pensions
- Elimination of the 2 percent yearly cost-of-living adjustment for the next 10 years for nonuniformed retirees
- Recovering interest payments from the pension fund on annuities of retirees
- Full payment for police and firefighters
The proposed cuts will be voted on by Detroit public retirees.
Pension Troubles
Gov1 has monitored the debates between governments and public employee unions as necessary reforms are negotiated at the local levels.