Pension debt: the $23 million question

The Longboat Key Town Commission will officially take charge of the town’s pensions and all the debt that comes with them Oct. 1, when the town consolidates its three pension plans into a single plan.

But, the debate about how to pay off the more than $23 million in unfunded pension liability continues — and two current pension board members disagree about how the town should do it.

Police pension board member Michael Seamon told commissioners July 7 that there’s a way reduce that pension debt with a consolidated board because the economy has yielded better rates of return for all three plans over the past two years.

Seamon said the assumption rates of returns for the plans are conservative. For example, the police pension plan anticipates a 7.5% rate of return, but yielded a 13.2% rate of return in 2013.

“If we move plan rates up just three-quarters of a percent, we can reduce the unfunded liability immediately by $1 million,” Seamon said.

Raising the rates of the other two pension plans similarly before the plans are consolidated, Seamon said, can reduce the pension debt another $2 million.

“And, when we consolidate and adjust the new plan three quarters, we can get it (the debt) under $20 million and get it down even more,” Seamon said.

Firefighter pension Vice Chairman and Investment Advisory Committee member Armando Linde, though, told the Longboat Observer July 16 he disagrees with Seamon’s assessment and strategy.

“Municipalities have been using an inflated, overstated discount rate for years so unfunded liabilities look smaller and contributions are smaller so they can use money for other things,” Linde said. “Tallahassee is demanding municipalities lower rates to reflect better market conditions.”

Before the commission decided to consolidate the three pension boards, those three boards prepared to lower their assumption rates, not raise them. The fire pension board was prepared to lower its rate from 8% to 7.5% and further reduce the rate to 7% in the coming years. The police pension has a 7.5% rate of return, and the general employee plan lowered its anticipated rate of return to 7% already.

But when the plans consolidate Oct. 1, it will be up to a new board and a new set of trustees to set the new anticipated rate of return for the frozen pension funds.

“It’s ludicrous to say the town should increase the rate to 7.75% to show fictitiously lower rates,” Linde said.

Even though rates are higher right now, Linde said, the five-year averages of the plans the state monitors show rates of return that include 5.9% for the fire plan, 5.5% for the general employees plan and 7.6% for the police plan (see sidebar).

Keeping the rate closer to 7%, Linde said, raises the amount of debt the town has to pay back, possibly as high as $32 million. Freezing the plans, though, and consolidating the boards, Linde said, brings that debt back down closer to $26 million.

“The 7% rate is more realistic, and we’ll pay it down over time,” Linde said.

Both Seamon and Linde are interested in becoming members of the consolidated pension board.

Town Manager Dave Bullock, meanwhile, informed commissioners July 7 about what will happen when the plans and boards merge at the beginning of the new fiscal year.

“There will be one retirement plan, one board of trustees, one fund and one rate of return,” Bullock said.

And for the first time since the pension plans were implemented more than 30 years ago, the commission, acting on behalf of the town’s taxpayers, will be able to take control of the new pension plan.

“All of the authority was previously granted to the pension boards,” Bullock said. “Decisions going forward, though, move to the commission. This is a policy shift.”

The new nine-member board will be made up of a representative each from the current police, fire and general employee pension plans. Five Key residents and the town manager make up the rest of the board.

Later this summer, the three pension boards will elect new members to the new pension board. The employee selections from those three boards must be current or formerly vested members in the frozen pension plans.

Once the commission makes Key resident selections, a chairman will be selected in September before the new board becomes effective Oct. 1.

Pension Member Bios
Michael Seamon
Occupation: Certified public accountant
Role: Police pension board member
Bio: Michael Seamon is a certified public accountant, certified public pension trustee, chartered financial consultant and a chartered life underwriter. A resume submitted to the town states he has “broad background on corporate consulting … and engagements often included planning and analysis of retirement plan and incentive-based alternatives.”

Armando Linde
Former occupation: Retired economist
Role: Firefighters’ pension vice chairman; Investment Advisory Committee member
Bio: Armando Linde performed financial work for governments in more than 60 countries for 33 years as deputy secretary of the International Monetary Fund. He led missions to help countries in need of financial assistance and economic management structures.

Pension Plan Consolidation Benefits
• Creates one retirement board with broad authority to administer the plan and invest the combined assets of the plan.
• Creates more investment opportunities
• Lowers fees
• Reduces plan expenses
• Reduces staff time

Click here to view Rates of returns for three pension plans

Contact Kurt Schultheis at [email protected]