In The News › New Orleans firefighter pensions need full reform: Editorial

New Orleans firefighter pensions need full reform: Editorial

By / The Times-Picayune
Editorial Board

The pension system for New Orleans firefighters is overly generous in its benefits, is not fiscally sound and is devouring a large chunk of the city’s budget every year. The situation requires wholesale changes, yet legislators so far have approved only minor revisions.

The House Retirement Committee approved legislation last week changing the makeup of the pension board and requiring individual firefighters to pay more toward their retirement going forward. But the committee rejected true reform.

Rep. Kevin Pearson’s House Bill 52 to put the pension system under city control failed 5-4. That means state lawmakers would maintain authority over the firefighter pension, even though the city has to pay for the benefits. That is a bad combination, and legislators ought to reconsider.

The Bureau of Governmental Research, which has analyzed the pension structure and the various bills filed to revise the system, says giving the city control is the best “hope for stopping the bleeding.” Allowing the City Council to create a new pension system that absorbs the old one “offers an opportunity to create a governing board that better balances the interests of the city’s taxpayers and firefighters, and to dial back the system’s excessively generous benefit structure,” BGR said in a report last week.

The status quo is unacceptable. In 2012, the city owed $63.6 million for obligations related to the firefighters’ pension, which equates to 13 percent of general fund revenues, BGR said. The massive pension costs limit what the city can spend on other vital services, including crime prevention.

In addition, the firefighters’ pension system isn’t financially healthy. The original pension fund, which covers firefighters hired before 1968, has $157 million in unfunded liabilities. The fund covering firefighters hired post-1968, called the new fund, has only enough assets for 40 percent of its benefit obligations, BGR said. That figure is half of what pension experts say it should be.

It is crucial to stabilize the firefighter system and bring benefits in line with other employees, including police officers. Giving the city authority over the firefighter pension is the best way to start that process. Currently, any changes to the pension board or benefits have to go before the Legislature because the system was created under state law. As evidenced by the Retirement Committee’s actions last week, that makes it difficult for the city to make needed changes.

The fund’s benefits are the most generous by far of 19 public pension plans in the metro area reviewed by BGR. Firefighters can retire after only 12 years and get a lifetime pension of 30 percent of their highest-earning years. After 20 years on the job, they no longer have to contribute to the fund. At 33 years, they get a full pension for life.

That isn’t sustainable, but lawmakers seem content to allow it to continue.

Increasing the amount of money firefighters contribute from their paychecks, as the Retirement Committee agreed to do, is important. But it won’t solve the problem. And although lawmakers agreed to reduce the pension board from 10 members to seven, the board majority would still be made up of current and retired firefighters. The Landrieu administration has argued for a five-member board that better balances the interests of the public and firefighters. Lawmakers did approve legislation requiring a two-thirds vote of the board for future cost of living raises, which should give the city administration a greater say. Still, these are fairly modest reforms.

Firefighter representatives argued last week that the city is to blame for the mess the system is in, but both sides bear responsibility. The city failed to put aside money to pay benefits in the early years, and then foolishly invested $171 million in bond proceeds into the stock market — which crashed.

On the other side, the pension board put $15 million into a Cayman Islands hedge fund whose manager has been accused of running a pyramid scheme. And the board’s real estate investments took a hit in the 2008 housing collapse, losing nearly $30 million in market value.

Opponents to city control argued in committee last week that the city can’t be trusted to take over the system. But BGR found that the retirement fund for general city workers, which was established under city ordinances, is in far better shape. As of its last actuarial report, the city’s plan was 75 percent funded — compared with 40 percent for the firefighters’ system.

Firefighters ought to be able to count on a decent retirement. They provide a vital public service and put themselves in danger doing so. But the current system is out of balance, and that is not fair to New Orleanians, who are stuck paying the bill.

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