What Happened?
The city of Jacksonville, Florida, reached an agreement with police and fire unions on annual pension compensation caps that aim to provide $1.1 billion in savings over the next 30 years, with $50 million in cuts for the 2013-2014 budget alone.
So What?
For all new police or fire department hires added to the pension after October 1 the city will require a 10 percent contribution toward pension funds, compared to the 7 percent currently in place. Current employees will also see their salaries reduced to allow for certain benefits to be preserved. The changes also include a cap on how much employees can collect from benefits each year to help the state strengthen its pension fund as it struggles to manage unfunded liabilities. Florida is one of many states in a similar position looking to balance public employee pension plans with budgetary restrictions and mounting debt.
Major Changes
Along with contributing more toward pension plans, firefighters experienced a 2 percent drop in salary in October 2010, and police salaries were reduced 3 percent in January 2012. After restoring those salary levels, 50 percent of all future increases in pay will be applied to rising contribution levels for current employees up to 9 percent. Other changes include:
- New employees can retire after 30 years of service at any age, up from 20 years of service
- A cap of about $100,000 in annual benefits has been enacted with an inflation cap of 1.5 percent
- Elimination of the Deferred Retirement Option Program which enables employees to work past 20 years of service while accruing interest on unused benefits
- A cap of 1.5 percent of cost of living adjustments after a set period of time from being terminated, down from 3 percent
- Benefit accrual rate of 2.5 percent up to 75 percent
- Final average compensation determined by last 60 months of employment
The unions agree with the city on the changes, but prefer to preserve their collective bargaining rights when negotiating with officials. To finalize this pension reform, those collective bargaining rights were sacrificed.
External Support
While Jacksonville is making internal changes to make pension funds more affordable, cities such as Dunmore, Pennsylvania, are seeking outside support to counter rising pension fund debt. This past December, the city took out a $5 million loan to help sustain its three pension plans to bring the fund out of distressed status. The city plans to pay off the loan over the next 15 years, and will use the funding to meet contribution requirements established by state governments.
Because Dunmore’s mandated contribution rate has escalated greatly over the past few years, a third party loan was required to keep pension funds solvent.
There are varying levels of unfunded liability states are experiencing with their pension funds. Municipalities with funding ratios between 70 to 89 percent are minimally distressed, 50 to 69 percent are deemed moderately distressed and less than 50 percent are severely distressed. Dunmore’s firefighter and police pensions were both severely distressed prior to taking out the loan.
Innovative Reforms
Gov1 has tracked other public pension reforms that make changes to employee benefits to counter city financial struggles.