Report flunks firefighter pension plan

The nonpartisan statewide policy institute based out of Florida State University released its report card for Florida municipal pension plans, and the town wasn’t surprised by its grades.

Longboat Key’s firefighter plan received an “F,” and both its general employees and police officer plans received “Ds.”

But there is good news:

The grades are actually an improvement from previous years: The LeRoy Collins Institute flunked all three of the town’s plans for the last three consecutive years.

And the latest report is based on measures of each plan from 2012, before the town froze all three plans.

“It wasn’t a big surprise but it was good to see that we’ve improved a little, and hopefully as we move through, they’ll grade a little better,” said Anne Ross, assistant town manager.

Longboat Key’s firefighter plan was the only plan in Sarasota and Manatee counties to receive a failing grade in this year’s report.

The report used five measures to assess the financial condition of local government pension plans:

• The ratio of pension fund assets divided by accrued liabilities (maximum 2.5 points);

• The size of the unfunded liability in relation to the total cost of payroll for participating employees (maximum 1 point);

• The cost of the annual required contribution from sponsoring governments as a percent of covered payroll (maximum 1 point);

• Assumed rate of returns (half a point for plans with the Florida Retirement System benchmark rate of return assumption 7.75% or less; zero points for plans with an assumed rate of more than 7.75%);

• Employee contribution levels (half a point for plans that require employees to contribute 5% or more of their salaries; zero points for plans that require a contribution of less than 5%).

Like most municipalities, the town saw its grades drop during the economic downturn.

“Prior to the market downturn in 2007, about half of Florida local government pension plans received A or B grades and only about 5% received F grades. The number of A and B grade plans has steadily declined since 2007. Now, only about 30% of plans receive the highest two grades and 11% receive the lowest grade,” the report states.

The report includes pension grade trends from 2005 to 2012. It ranked the town for each of those years, except for 2007. The town’s firefighter plan received an “F” in each of those years; the general employees’ plan received “Cs” during the first two years, while the police officers’ plan received “Ds.” By 2009, all three plans received failing grades.

The town froze its firefighter and general employees’ plans Sept. 30, 2013, meaning that employees will no longer accrue additional benefits after that date. The police pension plan was frozen Feb. 1. However, the plans will continue to exist until the final payments are made to beneficiaries.

The town’s annual pension contribution for fiscal year 2015 is $2,964,985, up $366,981 over last year, representing 19.7% of the town’s total budget.

The frozen plans will consolidate Oct. 1 into a single plan for which a new, nine-member board will make policy recommendations. However, the Longboat Key Town Commission will make final decisions.

In the short-term, the town plans to pay off its pension liabilities of approximately $23 million through budgeting.

“I think the town’s plan is to annually review the market and where we are,” Ross said. “It’s something we’re going to be monitoring with the pension boards.”

Armando Linde, who is retired from the International Monetary Fund and serves on the town’s Investment Advisory Committee, studied the town’s pension debt earlier this year. He believes the town’s plan to pay down its debt through budgeting is right — for now.

“Four, five, six, seven years down the road, as interest rates rise across the country, it might make sense to securitize,” Linde said.

In addition to market risk, pension plans also face longevity risk said Linde, noting that over the past 50 years, the average age of the population increased by 2.5% per decade, meaning that there are more benefits to pay.

“I’ve always said when interest rates come back, the town should get an annuity and transfer that risk to insurance companies,” he said.

Report cards
Bradenton
Firefighters D
Police officers D

Longboat Key
Firefighters F
General employees D
Police officers D

North Port
Firefighters B
Police officers C

Palmetto
General employees C
Police officers B

Sarasota
Firefighters D
General employees C
Police officers C

Venice
Firefighters D
Police officers D

Source: LeRoy Collins Institute