In The News › Louisiana Senate approves bills to help New Orleans rein in firefighters’ pension costs

Louisiana Senate approves bills to help New Orleans rein in firefighters’ pension costs

By Richard Thompson, | The Times-Picayune

May 30, 2013

A package of bills aimed at helping New Orleans rein in its fast-rising pension costs for firefighters has passed the Legislature and awaits the governor’s signature, but lawmakers and experts agreed this week that the proposed changes are still a long way from dramatically reducing the city’s unfunded pension liabilities.

Mayor Mitch Landrieu included revamping the New Orleans Firefighters’ Pension and Relief Fund among his top priorities in the soon-to-close legislative session. Some of the changes he wanted were approved, such as increasing the amount that the city’s firefighters contribute toward their pension plan, and changing the formula used to calculate retirees’ monthly benefit so as to save money.

Those proposals, which passed the Senate on Wednesday, are projected to save the city about $8.6 million over a five-year span, according to the fiscal note on the bills.
New Orleans has two pension funds for its firefighters: one for employees hired before 1968 and another for those hired thereafter. Firefighters began paying into the plan in 1968, and their contributions have been invested. But returns were never robust, and city and pension officials over the years have been tempted into risky and sometimes unwise investments.

Of every $9 the city spent on general operations in 2011, $1 went to the firefighters’ pension plan. Even so, pension officials say that the city has underfunded the system for years, including by $17.5 million in 2012 for the system for employees hired after 1968.

Overall, the city owed $63.6 million for firefighter pension obligations in 2012, about 13 percent of its total general-fund budget, the Bureau of Governmental Research, a nonprofit government watchdog, said in an April report. That obligation has tied the city’s hands on what can be spent elsewhere, and officials in the Landrieu administration have called it “one of the most serious challenges” facing the city.

What’s more, the new fund has enough assets to cover only about 40 percent of its future pension obligations, according to the BGR report. Many experts consider that for a public pension plan to be healthy, it must be at least 80 percent funded. By comparison, Louisiana’s four pension systems for state workers, taken together, were about 56 percent funded in 2010, according to the Pew Center on the States.

Still, lawmakers say the measures passed in the current legislative session will help curb some of the firefighters fund’s benefits, which were among the most generous of 18 public pension plans in the greater New Orleans area that BGR reviewed in a November report. For instance, city firefighters have been able to retire after only 12 years and receive a lifetime pension benefit of 30 percent of their pay for their four highest-earning years. After 20 years on the job, firefighters were no longer required to contribute to their pension. At 33 years, they received a full benefit for life.

A third bill changes the membership of the pension system’s board, cutting three members and bringing it to seven people. Under the proposed shift, the board in the future will include the superintendent of the Fire Department, the city’s director of finance, and a mayoral appointee, as well as two board members, instead of five, who are active firefighters; two members, instead of three, will be retired firefighters.

The retirement system will also need a two-thirds majority of its board to grant cost-of-living adjustments for retirees and beneficiaries and to grant any disability benefit.
Lawmakers who sponsored separate parts of the compromise package acknowledged in interviews this week that there’s no silver bullet for plugging the city’s pension hole. The proposed ordinances that now await Gov. Bobby Jindal’s signature help close some of those gaps, they said.

A bill sponsored by Rep. Kevin Pearson, R-Slidell, bumps up the the minimum employee contribution rate from 6 percent to 10 percent, and repeals the provision that exempted employees with two decades or more on the job from having to contribute to the fund.

The proposed law that passed the Senate will stagger the increase for employees with fewer than 20 years of service to 2 percent per year, starting in 2014, and reaching 10 percent by 2015. For employees with 20 years or more, the increase kicks in over a three-year period, beginning in 2014.

Over five years, the measure is expected to save the pension fund about $6.9 million.

A separate bill sponsored by Rep. Jeff Arnold, D-Algiers, would change the formula that determines the size of a retiree’s benefits to calculate a monthly pension check based on the five highest-paid consecutive years of employment, up from the highest four.

“You’re not going to fix it overnight, and I think this makes the system a healthier system, but I still wouldn’t call it as healthy as it could be,” Arnold said.
Members will ultimately receive a smaller pension benefit, since it is spread over a longer term, and the present value of future benefit payments will decrease, according to the fiscal note on the bill, which estimates the move could cut about $330,894 from the city’s annual contribution to the fund, based on 2012 figures showing the pension plan’s expenditures at nearly $30 million.

Still, the note also cautions that the proposed changes could face legal hurdles, and that the “realization of these savings may be delayed or may never occur” if the bill is challenged in state or federal court.

“Unless something is done, this system will be a pay-as-you-go system just like the other one where all they’re doing is making a check to retirees,” said Pearson, the chairman of the House Retirement Committee. “It’s not a pretty picture. We can’t really come along and say we’ve done a tremendous amount in this.”
Pearson laid blame for the problem on both the city and the fund’s board.

The city and firefighters have battled in court for decades over how much the city owes in pension obligations and pay.

Earlier this year, Orleans Civil District Judge Robin Giarrusso agreed with the firefighters and ordered the city to immediately pay the retirement system $17.5 million to cover its 2012 obligations. The city has appealed that ruling.

“These problems weren’t created overnight and they can’t be solved overnight,” Pearson said. “It now is probably to the point where I don’t know if there is any solution to the problem. I don’t know. I mean, this can help.”

In 2000, the City Council invested $171 million in bond proceeds to shore up the pension fund, but the market tanked and the fund was saddled with the debt.

BGR President Janet Howard said the proposed changes “are little steps right now, but the huge problem is going to remain,” referring to that debt. “Obviously, increasing contribution rates helps, but you’ve got a mammoth problem to deal with,” Howard said.

Richard Hampton Jr., CEO of the pension fund, said the bills that passed represent a compromise between the firefighters and the city, but that his members are willing to pay more to help improve the fund’s bottom line.

“I don’t think the city’s happy with the way they turned out, and I don’t think that the firefighters are happy with the way they turned out, but I think the compromise is something that we can both live with,” he said.

On Thursday, Landrieu spokesman Ryan Berni agreed with some of that sentiment.

“It was a small step in the right direction,” he said, “but the firefighters’ pension fund is kind of a ticking time bomb, and the bills didn’t really solve the overall problem.”

Fair Use Notice

This site occasionally reprints copyrighted material, the use of which has not always been specifically authorized by the copyright owner. We make such material available in our efforts to advance understanding of issues and to highlight the accomplishments of our affiliates. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is available without profit. For more information go to: US CODE: Title 17,107. Limitations on exclusive rights: Fair use. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.