In The News › Watchdog urges state lawmakers to bring New Orleans’ firefighters’ pension fund under local control

Watchdog urges state lawmakers to bring New Orleans’ firefighters’ pension fund under local control

By Richard Thompson, / The Times-Picayune
April 30, 2013

A government watchdog group is calling on state lawmakers to pass legislation that would bring the city’s beleaguered pension fund for firefighters under local control.

Any changes to the New Orleans Firefighters’ Pension and Relief Fund have to go before the Legislature because the system was created under state law. Local officials can’t force the fund’s board to change their rules, even though the city is on the hook financially to fund the pension plan.

The bill, filed by state Rep. Kevin Pearson, a Slidell Republican who serves as chair of the House Retirement Committee, would allow the New Orleans City Council to establish a new retirement system for its firefighters and assume control of all the assets of the current system. A similar bill went nowhere in the previous legislative session.

“The bill will not get the city out of its current dilemma, but it offers hope for stopping the bleeding,” the Bureau of Governmental Research said in its report Tuesday.

Of every $9 the city spent on general operations in 2011, $1 went to find the fighters’ pension plan. Pension officials contend that the city has underfunded the retirement system for years, including $17.5 million in 2012 alone.

“These expenses are a serious problem. Unfortunately for the city and local taxpayers, there is no quick fix, and large costs loom for the foreseeable future,” BGR’s report said.

Richard Hampton Jr., CEO of the firefighters’ fund, did not return a request for comment.

The watchdog group examined how local retirement systems compare with one another and with the public sector nationally for a report released in November. The city’s firefighters’ plan was “far and away the most generous” of the bunch, the group’s president, Janet Howard, said at the time.

Tuesday’s report, in addition to issuing recommendations, pounded away at the outsized impact of firefighters’ pensions on city taxpayers.

The fund has earned annual returns on its investments averaging about 2 percent since 2002, well short of its 7.5 percent assumed rate, the report states. While that was common at the 18 public pension plans that BGR reviewed, the firefighters’ fund had the lowest average rate of return, adding to the city’s liability, the report said.

The city and firefighters have battled in court for decades over how much the city owes in pension obligations and pay. In March, Civil District Judge Robin Giarrusso agreed with the firefighters and ordered the financially strapped city to immediately pay the pension fund $17.5 million to cover its 2012 obligations.

BGR’s report acknowledges the ongoing legal spat. Turning over control of the pension fund to the city is not without risk, the report said, noting that “over the last several years it has failed to make the actuarially required contributions to keep the plan on solid footing.”

When the pension plan was created by Mayor Chep Morrison more than a half-century ago, firefighters were promised pensions, but the city set aside no money for a fund, instead paying them on an as-you-go basis.

Starting in 1968, firefighters began paying into the plan, and their contributions were invested, the usual practice. But the fund was never robust, and city and pension officials over the years have been tempted into risky and sometimes unwise investments.

Though the city’s required contribution to the plan has risen each year, “the city has kept its annual appropriations to the firefighters’ system more or less constant,” the report states.

The Louisiana Legislative Auditor’s office said in a May 2012 report that the firefighters’ fund had nearly $140 million tied up in real estate. Those holdings took a financial hit in the wake of the housing bubble’s 2008 collapse: Through October 2011, the investments had lost about $29 million in market value, according to the auditor’s office.

The report also urged lawmakers to reject a bill backed by the firefighters’ board that would redirect state funds intended for the city to the retirement system when the city fails to meet its financial obligations to the fund.

“It is not clear why the firefighters’ system should receive priority over all the other parties owed money by the city,” the report concludes.

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