Cities' Pension Overhauls Feature Similar Changes

WASHINGTON — As cities continue to struggle meeting public pension obligations, many are requiring employees to contribute more or turning to less costly defined benefit plans, a report by the U.S. Conference of Mayors found.

The report, the fourth in the USCM’s series on city pension systems, describes efforts undertaken in 19 cities of all sizes to alter unsustainable pension plans in which they are participants or they administer for themselves.

Across the 19 cities in the report, many of the initiatives shared common elements, such as retaining defined benefit plans and changing the balance of city and employee contributions.

The report was released over the weekend at the USCM’s 81st annual conference in Las Vegas. It details approaches to public pension overhauls  in: Allentown, Pa., Arlington, Tex., Barrington, Ill., Chula Vista, Calif., Fort Worth, Tex., Jacksonville, Fla., Long Beach, Calif., Louisville and Jefferson County, Ky., Milwaukee, Wis., Murfreesboro, Tenn., Newport Beach, Calif., North Miami Beach, Fla., Pembroke Pines, Fla., Phoenix, Ariz., Redmond, Wash., San Jose, Calif., Springfield, Ill., and Westland, Michigan.

Some or all of the public employees in these cities are enrolled in state-administered pension plans and, while their ability to motivate and shape changes within the plans may be limited, they are actively engaged in the effort,  the report said.

Fort Worth’s public employee pension system has been a large strain for taxpayers for years and changes have been made in the past few years. Between fiscal year 2007 and 2012, taxpayers’ contributions to the pension fund nearly doubled. The additional revenue to the system still wasn’t enough and the pension fund continued to fall.

In late 2012, the Fort Worth City Council voted to reduce the future liability of the pension fund. Some changes included: pension earnings will be based on the five highest salary years, rather than three; overtime will not be included in pension calculations; and the multiplier that determines the percentage of pay a retiree was adjusted to 2.5% from 3%.

Milwaukee’s pension system was one the best-funded in the U.S. No employer contributions were required between 1996 and 2009. After the financial crisis hit in 2008 the system’s funded status fell from 131% to 99% on an actuarial basis.

The city adopted several new policies this year for new hires on or after January 2014. Under the modifications, which are projected to save the city $93 million over 20 years, the plan design remains defined benefit but at a lower normal cost than the pre-existing plan.

The USCM report concluded with a summary of future reporting on public employee pension plan finances for state and local governments from the Governmental Accounting Standards Board and Moody’s Investors Service. The new financial reporting standards from GASB, statement 67, went into effect on June 15 for most governments that provide their employees with pension benefits.

In an April report, Moody’s described their new approach to adjusting pension assets and liabilities as reported by states and local governments for its credit analysis. Moody’s estimates that based on its new adjustments, total state pension liability in fiscal year 2011 would be $1.91 trillion, a significant increase over $1.45 trillion that had been previously reported.

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