In The News › New Orleans must get a grip on firefighter pension costs: Editorial

New Orleans must get a grip on firefighter pension costs: Editorial

The Times-Picayune
October 5, 2012

The pension fund for the New Orleans Fire Department has long held too few resources to meet its obligations, but the problem has reached a crisis point.

The city paid $54.1 million to the Firefighters’ Pension and Relief Fund last year and still left $17 million unfunded. That’s a large piece of the city’s roughly $488 million general fund budget, and the amount is rising. For perspective, the amount the city paid into the pension fund was 11 times more than it spent fixing streetlights and more than five times what it spent on recreation.

This simply isn’t sustainable. It threatens to diminish other public services that are essential for the city’s quality of life, and it leaves retired firefighters in a precarious position.

An attempt to reform the system got nowhere in this year’s legislative session. The Landrieu administration and the firefighters’ pension board agree that sweeping changes are needed, but they haven’t agreed on what those changes should be. After more than a year of negotiations over the city’s contribution, the pension board filed suit in July and the city filed a counterclaim.

To top it off, the fund’s benefits are the most generous by far of 19 public pension plans in the metro area being reviewed by the Bureau of Governmental Research. 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 force, they no longer have to contribute to the fund. At 33 years, they get a full pension for life.

Firefighters provide a vital public service and put themselves in harm’s way doing it. They should be able to count on a decent retirement.

But the benefit costs to the public have to be reined in.

It’s possible that a solution will be hammered out in court. Because the fund was created in state law, though, the Legislature would have to codify any changes. The city expects to file legislation either way — and lawmakers need to act on it.

State Rep. Walt Leger introduced legislation last spring on behalf of the city, but it never moved out of committee. One bill would have authorized the city to set up a new firefighters’ retirement system and transfer over the assets from the current fund. It also would have provided a stream of revenue from city licenses to the new fund.

Other bills would have reduced the size of the pension board and changed its makeup, changed the calculation of benefits and require firefighters to pay into the system over a longer period of time. Those seem like sensible changes.

The pension board has proposed changes that would reduce annual costs by $15 million, but the board and the city disagree on what to do with those savings.

No reform will fix all the problems immediately. This mess has been decades in the making. Foolishly, the city for years put no money aside for the fund and initially didn’t require employees to contribute anything. In 2000, the city made a bad situation worse, plowing $171 million in bond proceeds into the stock market in a misguided attempt to shore up the fund. The market plummeted, and the fund went down with it.

Not to be outdone, the pension board made its own bad investments in recent years. The board put millions of dollars into a hedge fund whose manager has been accused of running a pyramid scheme. The board has demanded its money back but has gotten nothing and is now in court. The fund also has $140 million in real estate investments that took a hit in the 2008 housing market crash.

New Orleans Chief Administrative Officer Andy Kopplin told the City Council at budget hearings last fall that the firefighters’ pension situation is one of the administration’s most serious problems. That is no exaggeration. And it clearly is going to get worse unless it is restructured.

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