In The News › Firefighters’ pension fund

May 6, 2013

Source: Gambit

Filed under: City Government, Government Finance, Orleans Parish, Pensions

Firefighters’ pension fund

By Clancy DuBos, Gambit
May 6, 2013

Mayor Mitch Landrieu has no shortage of political fires to put out these days. He has ongoing disputes with Sheriff Marlin Gusman and the U.S. Department of Justice (DOJ) over consent decrees; he recently vetoed the new food truck ordinance (which put him at odds once again with Councilmember-At-Large Stacy Head); and he’s sparring with board members of the Wisner Trust — to name just a few.

  Add to that list a fight in Baton Rouge with real firefighters. The mayor, who has enjoyed political support from the local firefighters union throughout his career, wants state lawmakers to give City Hall control of the firefighters’ ailing pension fund.

  Last week before the House Retirement Committee, the Landrieu administration and the union pushed competing sets of bills to revamp the fund’s governing board and parts of the retirement plan itself. By a one-vote margin, the committee defeated a Landrieu-backed takeover bill. The committee then advanced other bills altering the pension fund’s governing board and tightening its rules.

  This fight is far from over.

  There’s no disputing that the local firefighters retirement fund is in financial straits. It has $500 million in liabilities and only $200 million in assets. A combination of bad investments, liberal benefits, questionable decisions by the pension board as well as past mayors and inadequate contributions (from the city as well as firefighters) have made the fund “a massive burden on the city’s budget,” according to a recent analysis by the Bureau of Governmental Research (BGR).

  By comparison, pension funds for local cops, city employees, Sewerage and Water Board workers and firefighters in other parts of the state are relatively healthy. BGR notes, for example, that a fund for local firefighters hired before 1968 has been depleted, while the fund for city firemen hired since 1968 covers only 40 percent of its obligations. “This is well below the accepted benchmark of 80 percent,” BGR says.

  Firefighters don’t dispute that number, but they say the shortage is largely the city’s fault for refusing for years to contribute its fair share, which they estimate at $150 million. The firefighters union has filed multiple lawsuits and won multimillion-dollar judgments against City Hall, but the money still isn’t in the fund.

  Regardless of who’s at fault, the retirement system’s problems make it ripe for a makeover, if not a takeover.

  Landrieu supports four bills authored by state Rep. Kevin Pearson, R-Mandeville, who chairs the House Retirement Committee. The firefighters union backs rival bills authored by state Rep. Jeff Arnold, D-Algiers.

  Both sets of bills would change the pension fund’s governance and the contribution levels required of firefighters. They differ dramatically, however, in terms of how they would go about it. The issue has been lobbied intensely by both sides.

  Pearson’s committee last week altered and then approved three of Pearson’s bills and two of Arnold’s bills. In the process, committee members killed the bill Landrieu wanted most — the one transferring control of the fund to the city.

Currently, New Orleans firefighters have a separate pension fund established by state law. The fund is governed by a 10-member board of trustees, eight of whom are chosen by firemen. The other two members are the city’s finance director and the fire chief, both of whom work for the mayor.

  State law allows the board of trustees to grant generous retirement benefits, such as annual cost-of-living adjustments, which the board gave for 19 consecutive years through 2011. State law also requires the city, not the board, to make up for any shortages in the fund. BGR calls this arrangement a “misalignment of powers and responsibilities.” Deputy Mayor Andy Kopplin compared it to giving firefighters a credit card that the city has to pay off.

  For years, the city has refused to make up for the fund’s shortages. Instead, the city has paid retired firemen their benefits — in full and on time, Kopplin says — on a “pay as you go” basis.

  One thing on which the mayor and firefighters agree is that the present course is not sustainable. Where they differ is how to address that problem.

  Pearson’s main bill (House Bill 52) would have abolished the pension fund’s current board of trustees and transferred all authority to the city. By a vote of 4-5, his committee failed to approve the measure — killing it for this session.

  The committee then approved one of Pearson’s bills and one of Arnold’s bills restructuring the board — after amending them both to give firefighters four votes on a seven-member board. Both bills also impose a two-thirds vote requirement to increase benefits, which somewhat strengthens the mayor’s hand.

  Pearson’s committee also amended his bill to raise firefighters’ pension contributions to 10 percent — gradually. Currently, firefighters employed less than 20 years pay 6 percent; those employed more than 20 years pay nothing. The bill originally made the increase to 10 percent effective July 1; now it will be phased in over two-to-three years. The committee also approved a Pearson bill — and a similar Arnold bill — changing the formula used to calculate retiree benefits to make them less generous.

  Although two of Arnold’s bills were deferred, he said he’s comfortable with the committee’s action because the amendments tacked onto Pearson’s bills made them more like his own — and more palatable to firefighters.

  “We feel guardedly positive about the committee’s decision,” said fire union president Nick Felton after last Thursday’s vote. “The committee imposed a compromise on both parties after we failed to reach a compromise on our own.”

  Kopplin was less optimistic.

  “This is not much of a compromise,” he said. “If you think the Legislature ought to be running the New Orleans firefighters retirement pension system, this I guess it’s OK. But the city still is being stuck with having to pay for it.”

  Kopplin also noted that several of the committee’s 12 members were absent when the takeover bill came up for a vote. Had all members been present, the outcome might have been different.

  In the game of legislative politics, “Woulda, coulda, shoulda” is a daily mantra.

While the facts attendant to the pension fund’s problems are not in dispute, the solution is very much a political fight. As Landrieu puts it, “Everybody is entitled to their opinion, but not to their own facts. This is an unsustainable model, but it’s fixable.”

  Union president Felton, a 30-year veteran firefighter, agrees. He just doesn’t care for Landrieu’s fix. “We agree that things need to change,” he says. “We think the committee’s changes are reasonable in terms of meeting in the middle.”

  Although Landrieu has a key ally in Retirement Committee chairman Pearson, he might have fared better if he had gotten someone from New Orleans to carry the bills for him. One of the unwritten rules of the Louisiana Legislature posits that “local” bills should be handled by “local” legislators. Lawmakers generally give great deference to their colleagues when a bill involves a local dispute — and they rarely author bills that affect their colleagues’ constituents exclusively.

  The significance of that unwritten rule, and the fact that Landrieu’s bills are authored by a lawmaker from St. Tammany Parish, was not lost on Felton. “The mayor couldn’t get a single legislator from New Orleans to handle his bill,” he says. “I think that speaks volumes.”

  Landrieu and Kopplin counter that the pension system’s financial troubles say much more — though Felton says the fund would be in good shape if the city honored its state-imposed obligations.

  Kopplin says the city currently manages two other retirement funds very well. According to the deputy mayor, the Municipal Employees Retirement System is 75 percent funded, and the Sewerage and Water Board retirement system is 80 percent funded. Kopplin adds that both funds improved their financial standing in recent years because of changes, backed by the mayor, similar to those proposed by Pearson’s bills.

  “The city has done well with the two retirement systems it manages,” Landrieu says. “The solution is simple: Send the firefighters’ system back to the citizens of New Orleans, who have the responsibility to pay for it. If we can do that, we can fix this problem for future mayors and future citizens.”

  The mayor and Kopplin concede that firefighters are a powerful force in the Legislature, but Landrieu says this issue isn’t going away even if the city loses this round. “We’ll be back every year until we get it fixed,” he says.

  Felton says firefighters want to fix what’s broken, not tear down the system entirely. “We support giving more mayoral and council oversight, limiting cost-of-living adjustments, changing the method of calculating retirement benefits and making firefighters contribute more,” he says. “The bills as amended do that.”

  Kopplin told Gambit after the committee meeting he’s not sure what Landrieu’s next move will be.

  Fights such as this end often end with competing interests striking a compromise late in the game. It will be interesting to see if that happens before this political fire scorches both sides.

May 6, 2013

Source: Gambit

Filed under: City Government, Government Finance, Orleans Parish, Pensions

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