Pension problems continue

The Longboat Key Town Commission knows it has a major problem with its three pension plans.
But it’s not sure how to fix a growing unfunded-liability problem that has town taxpayers on the hook for $21 million in unfunded liabilities — and counting.

At a special pension workshop held Monday, Nov. 16, the Town Commission heard from its actuary, pension attorney and a financial management director who spoke about the problems the town faces with its three pension plans.

During the presentations, the commission heard negative reports about its pension plans and received no clear direction on how to solve the problem without spending money.

Town pension attorney James Linn, of Lewis, Longman & Walker, told the commission that total annual costs for the town’s police, firefighter and general-employee pension plans cost $2.2 million per year, which is roughly 30% of the town’s payroll costs and 15% of the general fund’s operating budget.

“Total costs have increased 216% over the past six years in these plans,” said Linn, who explained that most public pension plans have lost between 10% and 15% in the last fiscal year that ended Sept. 30, 2008.

By comparison, the town’s police plan lost 11.4%, the fire plan lost 10.2%, and the general-employee plan lost 13.9% in the last fiscal year alone.

“The costs of these plans will continue to increase over the next five years,” Linn said.

The town can reduce benefits to its employees, increase employee contributions, terminate the plans or freeze them, according to Linn.

Said Linn: “But there is no silver bullet that’s going to fix your problem.”

The town also has the option of joining the Florida Retirement System (FRS) or setting up a defined contribution plan.

But Linn pointed out that although joining the FRS would “get the town out of the pension business” and reduce costs over time, the town would have no control over the new system and what the Legislature mandates the town to invest each month.

“Plus, the town still must pay off its current liability problem,” Linn said.

Reducing benefits for all employees, Linn said, is the only way to significantly create an immediate cost savings that will reduce unfunded liabilities.

Foster & Foster Actuary Brad Heinrichs, however, urged the town to think about its options before making a decision about its three pension plans.

“Understand that if you make a decision to reduce benefits, that will give you the quickest savings from an actuarial standpoint, while generating the most animosity amongst the membership,” Heinrichs said.

Although Commissioner Gene Jaleski proposed using pension bonds as a way of paying off the unfunded liability debt, the pension experts warned it was a gamble.

“You already have the liability,” Linn said. “It shouldn’t be done without significant review, because there’s only been one 30-year period going back to 1926 where bonds outperformed stocks. We just experienced that.”

Heinrichs recommended the commission come up with a list of objectives that are important for them to accomplish, and, then, the consultants could tell them how to accomplish the goals.

After four hours of discussion, the commission decided to ask Heinrichs to perform a five-year projection of costs for each of the three plans under different investment-return scenarios.

Heinrichs will bring the study back to the commission for review at its Thursday, Dec. 17 regular workshop.
“Everywhere we look, we are bleeding money,” said Vice Mayor Robert Siekmann said. “And we are instilling a lot of fear into more than 100 employees that work for this town.”

Contact Kurt Schultheis at [email protected]