New Orleans Council passes pension changes affecting only new hires

By Kevin Litten

Source: | The Times-Picayune

December 5, 2017

Current New Orleans City Hall employees will avoid changes to their retirement plans under a deal City Councilwoman Stacy Head cut to apply changes designed to save taxpayers money only to employees hired after Jan. 1.

Head has been seeking changes to city employee pensions over the past several months, as the cost to provide benefits has ballooned to nearly 20 percent of the city’s total budget.

But Head received strong pushback from city employees who panned her proposal during a meeting in April. Those employees said they were angry that the proposal included reductions in benefits to pensions for employees who had worked for the city for 10 years or less.

Head’s main goal was to reduce the city’s reliance on the general fund to pay for benefits. Between 2002 and 2016, funding for the New Orleans Municipal Employees Retirement System went from being completely funded without reliance on additional general fund money to a 68.2 percent funding level. The city spends about $105.5 million paying for employees’ defined benefits under all pension plans, according to the Bureau of Governmental Research.

According to the 2016 audit for the pension fund affected by the changes the City Council approved, that fund received $24.9 million from the city of New Orleans. Not all of that money was from the general fund; some city salaries are grant-funded.

One of the ways of reducing the amount the city is paying into pensions is to reduce what’s known as the “multiplier,” a number used to calculate an employee’s defined benefit using their salary and their years of service. The multiplier for current employees is 2.5 percent for up to 25 years of service and 4 percent for more than 25 years. The new multiplier is reduced to 1.9 percent for new employees.

The changes also include increasing the minimum retirement age to 62 for anyone with 20 years of service; it had previously been age 60 with 10 years of service. It also eliminated the so-called “rule of 80,” which stipulated that an employee could retire when they reached 80 years when their years of service and age was combined. In some cases, the rule of 80 could allow some employees to begin receiving benefits before age 60.

All employees are still eligible for retirement in the city after 30 years of service, no matter their age.

The final major change affects cost of living increases to retired employee benefits. Head’s proposal stipulates that the NOMERS board can only approve cost of living increases when the plan’s funded ratio is at or above 95 percent.

Because the changes only affect new city employees, it will likely take years for the city to begin realizing a financial benefit from the changes. But Head noted in a statement that “over time,” the city will “reverse the negative trend, make the fund healthier and allow more taxpayer dollars to go to basic city services.”

She also noted that the Council voted during the same meeting to approve a 10 percent pay raise for employees earning less than $24,000 annually.

Head added, however, that she hopes the next City Council can do more to improve City Hall employees’ performance in the future.

“We also need improvements in employee evaluations, employee management, professional development and career advancement opportunities,” she said.

Correction: This story was updated to correct the amount of funding NOMERS receives from the city’s general fund. Information was also added about  what the city contributed to the NOMERS pension fund in 2016.

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