Town proposes pension freeze

Town Manager David Bullock presented a plan during May 4 contract negotiations with the Longboat Key International Association of Firefighters Union that would freeze all benefits in the current plans and open new defined-contribution 401(a) accounts for all fire employees.

He made the same proposal to general employees May 7.

Bullock declined to comment on plans for the police-pension fund because any proposal must be made as part of a collective-bargaining process. However, he confirmed that he plans to meet informally with police union leaders over the next few days.

The plans presented to both firefighters and general employees would allow vested employees to keep the benefits they’ve accrued and wouldn’t affect retirees or employees who retire before the freeze date.

Both firefighters and general employees would contribute a mandatory 3% of their salaries to the plan — an amount lower than the 10% now required of firefighters and the 6% required of general employees toward their pensions.

The town would contribute 10% of the employee’s salary and would match dollar-for-dollar the next 3% of the employee’s pay, for a maximum of 13%.

Employees would control the investments in the account and become vested after five years of continuous service, meaning they would control the entire amount in the account, including town contributions. Employees who leave before five years would receive his or her contributions plus interest accrued and could take the funds with them to another employer or cash out and pay required penalties.

Making the case
In PowerPoint presentations to firefighters and general employees, Bullock made the case for why he believes the current system is unsustainable. Before beginning his presentation to firefighters, he said he has probably devoted more time to pensions than any other issue facing the town.

Like most municipalities, Longboat Key has seen its revenue drop over the past five years.

Taxable property values have dropped from $6.6 billion in 2008 to $4.6 billion. The recession also reduced sales-tax revenues, and interest and investment earnings in the town’s portfolio have fallen. Additionally, periods of lower fuel costs and favorable weather have translated to less income from electricity and franchise fees.

Excluding pension costs, the town’s general fund annual operating budget has fallen by $1,839,411 since 2007. But, at the same time, the town’s pension costs have soared, from just more than $1 million in 2007 to more than $2.6 million in 2012. The town’s annual pension contribution will be 60.27% of firefighter payroll and 38.55% of general employee payroll in the next fiscal year.

“The town’s annual contribution is increasing at a rate we’re not going to be able to increase and that’s even with a tax increase,” Bullock told firefighters.

On the hook
Bullock told the Longboat Observer that his goal is to implement the plan by the end of the calendar year.
Any police and firefighter pension changes must be made through collective bargaining. If the town and either union would be unable to agree to changes, one side would declare an impasse, and a Public Employee Relation Commission (PERC) officer would review both proposals and make a recommendation.

During Friday’s contract negotiations, Longboat Key Fire Rescue District Vice President Keith Tanner agreed to bring the proposal before firefighters.

Firefighters in attendance, however, told the town of their concerns as employees considered “high risk” by the state. They told the town that their retirement age is lower because their bodies wear out quickly due to the rigorous nature of their work.

“You probably don’t want a 65-year-old firefighter climbing up to save you,” firefighter/paramedic Jeff Bullock said.

Firefighter/paramedic Jason Berzowski said that he, like many younger firefighters, plans to stay with the town for 20 more years. He said the proposal could mean that he and others would have to stay longer, putting himself at risk and creating a liability for the town.

Bullock said that, ideally, the freeze date would occur by the end of the calendar year. Although a union doesn’t represent general employees, he hopes to move them forward at the same pace as bargaining employees.

Although pension overhaul will impact employees, it will also affect taxpayers, who assume the plans’ investment risk and are on the hook for losses.

“It has to be paid,” Bullock said. “The question is really how and over what period of time?”

Bullock said that solving the pension process would cause “short-term pain” for taxpayers and make a tax hike inevitable.

“There’s not a door out of the pension thing that’s going to leave our finances intact,” he said.

As the unfunded liability has grown, some residents have suggested a bond issue to eliminate the liability. But according to Bullock, that wouldn’t be the best scenario given current low investment returns.

The unfunded liability for all three pension plans could soon reach $28 million. But, if the market improves, that amount could be reduced.

“If you close it, you have to make all of it up,” he said. “But if you freeze it, you can make smart decisions. You’re not dead, but you’re in that state of frozen where it’s not incurring any new liabilities and it allows us to make payments and to monitor investments and bond markets. It also removes the sense of urgency … the way to make this decision is deliberatively and thoughtfully.”

Click here to view town pension costs.

Click here to view the firefighter pension update.

Click here to view the general pension update.