In The News › New Orleans firefighters make smart move to change pension management: Editorial

New Orleans firefighters make smart move to change pension management: Editorial

By The Editorial Board, | The Times-Picayune

September 6, 2013

New Orleans firefighters made a strong statement in rejecting four longtime pension board trustees who were running for re-election. The troubled Firefighters Pension & Relief Fund badly needs a fresh start, and this vote could provide it. How the new board members approach the management of the pension accounts remains to be seen, but the wholesale replacement of the old guard is a promising sign.

Those members are leaving a mess behind. During their tenure, the board invested $15 million in a Cayman Islands hedge fund whose manager has been accused of running a pyramid scheme. In addition, the board’s real estate investments took a hit in the 2008 housing collapse, losing nearly $30 million in market value. And benefits were more generous than the fund could afford.

The public and firefighters have to hope that the new board members — firefighters Tommy Meagher and Nick Lavene and former firefighters Martin Gaal and Angelo Marchese — do much better.

In addition to the firefighter members, Mayor Landrieu named Scott Jacobs, a workers comp specialist and husband of education reformer Leslie Jacobs, as his new representative to the board. The other two members are City Finance Director Norman Foster and newly appointed Fire Superintendent Tim McConnell.

The mayor had asked the Legislature last spring to turn pension management over to the city, which is on the hook to cover the cost of pensions. But lawmakers made more modest reforms instead: Increasing the amount of money that firefighters contribute toward their pension plan and changing the formula used to calculate retirees’ monthly benefit to save money.

They also reduced the size of the board from 10 to seven members and gave the mayor a third appointment. The legislative changes prompted the election last week.

Firefighters, current and retired, took that opportunity to make a change, rejecting Darryl Klumpp, firefighters union president Nick Felton, Terry Hampton and Richie Hampton. Three other old members decided not to run for re-election.

A change in direction is badly needed.

In 2012, the city owed $63.6 million for obligations related to the firefighters’ pension, which equates to 13 percent of general fund revenues, according the Bureau of Governmental Research. The massive pension costs limit what the city can spend on other vital services, including crime prevention. They also limit the ability to hire additional firefighters.

The pension system is financially unhealthy. 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.

BGR also found that the fund’s benefits were the most generous by far of 19 public pension plans in the metro area. Firefighters were able to 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 had to contribute to the fund. At 33 years, they got a full pension for life.

The legislation that passed changes some of those calculations. The minimum employee contribution rate is rising from the current 6 percent to 10 percent, which will help over time. The Legislature also repealed the provision that exempted employees with two decades or more on the job from having to contribute to the fund. Lawmakers also required a two-thirds vote of the board for future cost of living raises, which should give the city administration a greater say in spending.

The city also made missteps in the past, including the investment in 2000 of $171 million in bond proceeds into the stock market. The Landrieu administration inherited the burden of that bad decision.

Although the reforms put in place by the Legislature didn’t go as far as the mayor wanted, they should help stabilize costs. And the new board has a chance to break from the bad policies of the past. It is important that it do so.

Firefighters need to be able to count on a decent retirement. They provide a vital public service and put themselves in danger doing so. But the cost of the system has gotten out of whack and needs to be reined in.

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