Top Ten City Pension Myths
MYTH: City Pensions are based on Overtime Pay and Annual Leave Cash Payments to employees.
FACT: Unlike many other retirement systems, the City’s Pension Plans have never accepted this form of compensation as pensionable earnings.
MYTH: City retirees receive free Health Insurance in retirement for themselves and their families.
FACT: Absolutely false. City retirees may elect to join the City’s Group Health Insurance Plan in retirement; however, they must pay 100% of the cost annually negotiated between the City and the insurance provider for each covered participant. Many City retirees also do not have Medicare benefits because the City opted out of this program for City employees to avoid the payment of the 1.45% employer matching contribution required of all other Jacksonville businesses.
MYTH: City Pensions are overly generous.
FACT: A Times Union survey concluded that City pensions were in fact lower than all of the other comparable plans surveyed. This survey did not even take into account the fact that City retirees do not have the financial security and fundamental safety net provided by Social Security due to the fact that the City opted out of Social Security for City employees in order to avoid the payment of the 6.2% employer match required of all other Jacksonville businesses.
MYTH: Local Government salaries and benefits (such as health insurance and pensions) are far greater than private sector compensation.
FACT: A comprehensive study by the National Institute on Retirement Security in April, 2010 found that local government employees receive 7.4% less in total compensation (salaries and benefits) than their private sector counterparts. In this apples-to-apples comparison, the data concluded that local government employees earn less in terms of salary and benefits than they would if they took their skills to the private sector. Thus, now is not the time to advocate large scale rollbacks in local government compensation.
MYTH: City employees do not contribute anything toward the cost of their pension plans.
FACT: City employees contribute 8% of their pay into their pension plans. However, certain local elected officials such as the Mayor are not required to make any contributions into their pension plan.
MYTH: Pension Trustees are able to grant pension benefits for their members.
FACT: Pension Trustees have no ability to grant pension benefits, they merely administer the program of benefits that are enacted by the City Council and signed into law by the Mayor.
MYTH: The recent rise in the cost of City pensions is due to benefit enhancements.
FACT: The recent increase in City pension cost have much more to do with the massive impact from the global economic crisis and the City’s poor pension funding policies as opposed benefit enhancements. The City’s use of FY2003 as the starting point in measuring cost increases is misleading because in that year the City paid very little due to the fact that it declared a pension contribution holiday for itself.
MYTH: The City’s various Pension Plans are between 49% and 77% funded which place the financial security of the plans in jeopardy.
FACT: If every City employee were to retire today and demand to be paid in full, the City’s plans would have pre-funded only about 2/3 of what is needed. However, such lump sum payments are not required and a long term funding program is underway to attain an actuarial pre-funding goal of 100% over the next 20 years. This program will ensure that sufficient funds are escrowed to pay benefits when current workers retire many years in the future. The City’s plans were nearly 100% funded in the late 1990’s, just prior to the stock market crashes of 2000 and 2008. The funded status is an important long term indicator which ebbs and flows along with the conditions in the financial markets, but it is not necessary for a pension plan to be 100% actuarially pre-funded all the time. The funded status will materially improve once the stock market recovers from its currently depressed valuations.
MYTH: The City’s proudly reports that it has never missed making a required pension contribution to its plans.
FACT: This is technically true; however, while administering its pension funding policy, the City routinely declared full and partial pension contribution holidays for itself in order to engineer unsustainable millage rate reductions which were previously calculated to have had a $275 million adverse financial impact to the City’s pension plans. This pension funding policy also follows the practice of only paying the minimum amount necessary to comply with State laws. The JCCI has studied City finances in 1977, 1992 and 2009. During these studies, the JCCI has consistently concluded that the City has under-funded its pension plans. The 2009 JCCI study also found that the City has a chronic record of “Funding on the Cheap” when it comes to addressing its general funding responsibilities.
MYTH: The City’s Pension Plans cannot come back from the many millions in stock market losses which helped to create the unfunded pension liability of over $1 billion that was reported last September 30th.
FACT: A short term look at investment returns can be misleading. Every investor, large and small, has suffered from the historic investment losses registered during the last decade, whose losses were only eclipsed by those experienced during The Great Depression. The financial markets behave in cycles and we are currently in a recovery mode. Since the market’s low point on March 9, 2009, the City’s Pension Plans have gained 32% or $575 million during the subsequent 17 months. Over long periods of measurement, the City’s Pension Plans have exceeded its actuarial goal of 8.5% in investment returns. A recent national study found that since 1985, a period that included three economic recessions and multiple years of negative investment returns, public pension plans have safely exceeded their assumed rate of return assumptions. This fact was underscored by a report that was recently released by the Florida Retirement System which determined that its average annual investment return over the 30 year period ended June 30, 2010 was 9.56%.