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City Commission
Ormond Beach Observer Thursday, Jan. 2, 2014 6 years ago

WHAT TO WATCH IN 2014: Unfunded pensions

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Annual contributions for pension funds have doubled to $4 million.

BY WAYNE GRANT | STAFF WRITER

When city leaders discuss the budget at meetings throughout the year, there will be an 800-pound gorilla in the room: the unfunded liability of employee pensions.

City Manager Joyce Shanahan said the total liability to pay retirement costs for all current employees is currently at $37 million.

The money for pensions mainly comes from funds invested in the stock market, and earnings have suffered since the recession that started in 2008.

Based on current contributions, the pension fund is 65% funded for police, 61% funded for firefighters and 69% funded for general employees.

“It’s absolutely not sustainable,” Shanahan said. “It’s a key issue and has been for four or five years.”

She added that all municipalities are facing the same problem.

Another factor in the shortfall is a change in state law. Before 1999, a tax on the fees that people pay for fire and auto insurance was provided to cities to help pay for fire and police pensions.

In 1999, the Legislature froze the amount the city receives at 1999 levels, and the remainder of the tax now goes directly to the unions.

The level of retirement benefits that employees receive is another reason for the liability and Shanahan said less generous terms need to be negotiated with the unions.

Ormond Beach city employees have a defined benefit plan, which calls for specific payouts. A “multiplier” is used to determine how much they receive upon retirement. The multiplier is slightly different for police, fire or general union, and when they were hired.

For example, if a firefighter hired after Jan. 1, 2014, retires after 20 years of service, the multiplier is 3.33. The number 20 is multiplied by 3.33 to determine the amount of salary they will receive. That means if a 42-year-old firefighter retires after 20 years of service, he or she will collect 66.6% of their pay for the rest of their life.

Since 2008, the annual contributions for city employees have more than doubled, surpassing $4 million.

Shanahan said the city was able to negotiate a change with the general employees union so that all employees hired after Dec. 19, 2012, are on a 401k plan rather than a defined benefit plan. State law prevents 401k plans for police and fire, so the existing plans would need to be revised in negotiations.

“The issue going forward is to have a sustainable level of benefits,” Shanahan said.

A fire department union spokesman did not respond to a request for comment.

Almost every municipality in Florida faces the same problem, according to a November 2011, study by the Leroy Collins Institute of Florida State University.

“Floridians face significant costs and liabilities in the many municipal pension plans throughout the state,” the study said. “Cities are facing serious problems trying to balance their budgets, fulfill promises made to their employees and maintain services for their citizens at the same time.”

A change this year will bring the issue more out into the open. For the next fiscal year, net pension liabilities will be included in the Comprehensive Annual Financial Report. This should bring the 800-pound gorilla more into the open.

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