Monday, September 22, 2008

All the Mayor's Horses

What will it take to fully fund the police/fire pension plan and should we consider the recommendations of the Pension Board?

I'm troubled by much of what I see being written about the police and fire fighters' pension plan. Rather, I should say, not only am I troubled about much of what I see written, I'm also very troubled about what I do not see being written.

The City of Springfield has a pension board. According to Assistant Fire Chief and Pension Board Trustee David Hall, all members of the Pension Board are Trustees. So, what is a trustee?

1 a: one to whom something is entrusted

2 a: a natural or legal person to whom property is legally committed to be administered for the benefit of a beneficiary (as a person or a charitable organization)

Here's what Hall said about Trustees of the Pension Board:

"All members of the board are considered trustees of the plan, which means that we have a special obligation to the plan, where my only concern can be about the plan.

I think, at times, that’s where some people may misunderstand, because I may be a fire chief for the department and, obviously, I have concerns for our staffing, but when I’m sitting in a pension board meeting the only thing I can look at is, is the fund being taken care of? Are we going to be able to pay the benefits that we are obligated to, because I’m acting as the representative of the individual in the plan, so, even though one role of my life is the assistant fire chief, I might not like the idea of the city having to cut its budget but, at the same time, as a trustee, my only concern is that they have to fund the system. It’s just one of those things."

I have to wonder if the new city manager and the City Council value the resource they have in the pension board and in pension board trustee David Hall. As usual, due to word constraints, when I wrote, "Pensions Remain Top Council Priority," for CFP's September 10 issue, I wasn't able to pass along everything Hall told me, here is some further information Hall passed along that I was unable to include:

"I’ve read every single minute from the pension board since it was established in 1946, every single one of them, because I really needed that full view of what happened. I’ve read all the actuarial reports, even those from back in the 40s and 50s and tried to get every document that I can get, that I can view.

I read and I’ve spent hours and hours because it’s information that we really need to know and be able to pass on to new trustees as they come on, as part of their education about cases that we’ve won or lost and so, that tells us what we can and can’t do on future ones.

It’s been extremely beneficial to me. It’s been a great learning experience and my big thing is, I hope I can communicate it well to the community so they understand it because, I feel comfortable, once they’re informed they’ll make a good decision. I think it (their decision) will agree with my assessment but either way, at least they’re making an informed decision. Our goal: for them to be educated and make a decision."

Hall's complete presentation can be viewed, here.

What I find troubling is that, instead of seeing discussion about the recommendations the pension board came up with to fix the problem and to keep the pension plan from getting in the same trouble later on, what I see are people who have spent far less time studying the issue coming up with other ideas. See: this, this, this, and this. While I note Burris is meeting with representatives of the Springfield Police Officers Association and Firefighters Local 152 and, according to the last New-Leader link, Burris found the discussions "encouraging," I'm still not seeing anything to suggest that the pension board's recommendations are being seriously considered.

What were the pension board's recommendations? Again, see the September 10 issue of CFP:

"At the top of the list of recommendations Hall made for dealing with the pension plan was a sales tax of at least 1/2 to 1 percent, depending on how long the community wants to pay the tax. At 1/2 percent it could take eight to 16 years. At 1 percent it would take just over three years to fund the plan to 90 percent. The board supports the tax being “sunsetted” when the plan is 90 percent funded.

Further recommendations were: a commitment from the city to contribute at least 28.88 percent as long as the tax is in place; after the tax ends, the city make the actuarial required contribution for all future years; a portion of all future cell phone settlements should be directed into the plan; reductions in the general fund should be revised to a level that does not impact services; and the city, Hall said, needs to review the disability process by making reasonable accommodations to retain injured employees."

Now, I don't have a problem with other people, the city manager, the News-Leader, the public at large, offering to come up with other recommendations or suggestions that might help to fix the serious gap we have between the amount of money in the pension plan and the amount it would take for the plan to be fully funded, but I'm troubled that no one is discussing the recommendations, at least in public, that were made by the very board entrusted to oversee, protect and keep viable the plan. I should also remind readers that those who sit on the pension board are approved by the City Council and there is a City Council member who sits as a non-voting member on the board.

Who are the current members of the board?

Current Pension Board Members

Voting Members

> Collin Quigley: city manager’s appointee
> Mary Mannix-Decker: city finance director
> Sheila Maerz: city human resource director
> Ken Homan: citizen representative
> Beau Barrett: citizen representative
> Steven Fenner: citizen representative
> Jim Edwards: police representative
> Jim McCulloch: police representative
> David Carter: fire representative
> David Hall: fire representative
> Ron Hoffman: retiree representative

Non-Voting members
> Cindy Rushefsky: City Council representative
> Dan Wichmer: city attorney
> Shelley Smith: board secretary

Source: Pension Board Trustee David Hall (See: Supplements to the Community Free Press)

Another thing that troubles me about the discussion surrounding the pension plan is the reluctance to fully explore how the plan got into its current state.

There seems to be fear about finger pointing to the extent that, in my view, it threatens complete understanding of the issue. Everyone knows that the first step to solving a problem is admitting you have one, it seems common sense to me that unless one has a complete understanding about how and why a problem has occurred one can't fully address it.

If we are so afraid of finding out what went wrong that we disallow ourselves the opportunity to fully understand how the problem occurred, then how can the City leaders have the vision to make sure safeguards are put into place to ensure those problems won't return at some future date, after the plan has been adequately funded again?

"....The plan is in trouble, in some part, because its limited pool of money, or assets, cannot make enough money to keep it solvent.

That has put every official and taxpayer in Springfield in worry mode, and started a potentially paralyzing round of finger-pointing." -Springfield News-Leader

Potentially paralyzing finger-pointing? Perhaps, for a time, but it's necessary to understand the problem, without understanding it, the city manager and all the Mayor's horses and all the Mayor's men can't put the pension plan back together again.

Fortunately, much can be understood about how the plan got into the state it is in today.

That vast wealth of study David Hall has done on behalf , and as a trustee, of the pension board, to ensure future pension board members can understand the past and have vision for the future is available, and he has been very willing and accommodating in sharing that information with the city manager's office, the City Council and the public at large. He shared it with CFP some time ago. In "Budget Discussions Meet Objective," the May 21 issue of CFP, Hall provided this information to readers:

Pension Plan Contribution Rate Increase Drivers

> Investment underperformance
> Payroll not increasing at the expected rate
> City not contributing required amount (Net Pension Obligation)
> Higher average salaries than expected at retirement

> Retirees living longer
> More disabilities than expected

> Changes to meet new accounting standards
> Changes in assumptions

Source: Police Officers’ and Fire Fighters’ Retirement System Trustee, David Hall

Assumption Changes Affecting Police/Fire Pension Plan Contribution Rate

> Lowering of expected return on investments
> Lowering of expected increase in payroll
> Inclusion of an offset for payouts
> Increase in number of steps in pay plan
> Change in mortality rates
> Increase of the expected disability rates
> Reduction in expected turnover rates

Source: Police Officers’ and Fire Fighters’ Retirement System Trustee, David Hall

There is no reason to fear finding out how the pension plan got into its current state. In fact, we MUST understand how the pension plan got into the underfunded state it is in if we are to ensure it will not return there again some day.

Finger pointing is a characterization, a characterization that begs us to ignore the causes of the problem, a characterization that begs us to rise above pettiness. Unfortunately, unless we get down into the dirt and find out all the root causes of the pension plan's underfunding and how it got to it's current state our community will never be able to come up with permanent and sustainable solutions.

I think it a much more scary prospect to ignore the truth than to face it. Of course, facing the truth and allowing blame to be pointed in the appropriate directions may cause some people to think in terms of accountability.

Is accountability a bad thing?

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