Observations and musings on Jacksonville Politics

Pension Administrator fights back

John Keane, Executive Director and Administrator for the Police and Fire Pension Fund (PFPF) recently sent a lengthy letter to City Council President Ronnie Fussell and all council members. The letter addresses all the recent criticisms of the pension by both city officials and the media. It also goes into great detail regarding the history of the PFPF, as well as many of the actions by the City that have not been given close scrutiny before. The December 23rd letter can be found on the Police and Fire Pension Fund’s News and Press Releases webpage.  Due to the length of the letter – 36 pages – we’ve posted the conclusions section below, which summarizes the key points and makes recommendations for the future.

Part VII – Conclusion


Summary of Key Points:


We recognize that this paper is very lengthy and covers a number of subjects that are technical and foreign to many readers. In view of these factors, we would like to step back for a moment and reflect upon some of the more important matters that have been discussed. Key aspects that are documented and covered in this paper may be summarized by the following points:


1. Past studies and information disseminated on the subject of City pensions have often carried a distorted and misleading slant.


2. PFPF benefit enhancements over the past 10 years have not been excessive, and where they have been extended, they have largely been accompanied by the commitment of assets under the control of members.


3. The general benefit structure of the PFPF is comparable if not less than other public safety plans throughout the State of Florida.


4. The City has repeatedly pursued programs of temporary budget relief from the payment of pension contributions through the use of reserve account assessments and the acceptance of lump sum cash in exchange for initial budget relief.


5. For an extended period of time, the City made pension contributions to the GEPP at rates far in excess of that provided to the PFPF.


6. The City had no cushion to fall back on when the stock market started to decline in 2000 because it had wrung out all of the pipeline gains from the prior market advance in order to secure lower pension contribution obligations.


7. The unsustainable millage reduction program was made partially possible through the temporary use of pension reserves and other one-time budgetary sources.


8. The weak stock market that has generally persisted since April, 2000, has been the major reason for the growing UAAL and City contribution rates (once a market recovery emerges, budget pressures will subside).


9. Demographic factors, including longer life spans, and a low rate of inflation have been a contributing factor in the increasing cost of the City’s Retirement System.


10. Various City policies have collectively placed burdens upon the financial health of the PFPF. These policies include the following:

a. Relinquishment of Court Fine revenues to the State of Florida.

b. Hiring of Community Service Officers in lieu of Police Officers.

c. Use of overtime to combat crime instead of hiring new Police Officers.

d. Requirement to keep Fire positions open in order to meet lapse factors.

e. City’s mandate to develop new computer processing systems for pensions.


11. The City has enjoyed substantial budgetary savings from the practice of extending a 0% City pension contribution for DROP participants.


12. The City enjoys substantial budgetary savings from the fact that members of the PFPF are not enrolled in the Social Security System thereby allowing the City to avoid the 6.2% matching rate required for other City employees enrolled in Social Security.


13. Those critical of the 8.4% rate of interest extended to DROP participants must consider the fact that DROP participants pay a 2% annual fee for their participation in the program and that over longer investment periods, the PFPF has delivered returns in excess of 8.4%. In addition, if there was no DROP, the City would pay out higher pension levels to current DROP participants which would be funded at the higher actuarial rate of 8.5%.


14. The City has a commitment to maintain the current pension structure pursuant to the execution of a Settlement 

Agreement that extends to the year 2030, thereby posing an obstacle to those interested in introducing programs of pension benefit reductions.


15. The PFPF has delivered a very successful record of investment performance when compared to national peer groups despite the severe investment restrictions that they have been operating under for many years.


16. It is essential for the State to release the PFPF from the limited investment options under which it currently must operate.


17. Additional real estate partnerships should be considered by the City along with Pension Obligation Bonds and other programs that would help to liquidate the UAAL.


18. Significant budget relief will be realized by the City when the current UAAL is liquidated in 21.5 years.


19. The sustainability of Jacksonville’s pension plans are enhanced due to the general lack of OPEB liabilities, the relatively short UAAL amortization period for the PFPF and the City’s 90% funding standard required prior to

the consideration of future pension enhancements.


20. The PFPF has been a very successful operating unit of the City. It is recognized as a leader in the public pension plan community and enjoys the support of a talented Board of Pension Trustees to guide the mission and develop management policies.


How Did We Get Here?:


Citizens and City policy-makers are currently asking the understandable question of how the PFPF came to amass a $534 million UAAL and require a City contribution rate of 32.11%. We trust that the information contained in this paper

answers these questions. We hope that you draw the conclusion that the current posture does not appear to be linked to an excessive benefit structure, recent benefit enhancements, nor poor investment returns vs. those available in the

market place. In contrast to these factors, we hope that you will agree with us that the current posture is primarily linked to demographic factors and an historical pattern of poor funding policies (encouraged by the City’s millage reduction initiatives), coupled with an historically poor investment climate since the year 2000. Generous pension benefits are not the culprit, but rather poor funding policies, demographics and the economy.


What Can We Expect in the Near Future?:


1. The actuaries for the City’s pension plans are currently preparing an Actuarial Valuation as of September 30, 2008 which will acknowledge the market losses experienced during FY2008. The findings of these reports will cause an increase in the City’s contribution requirements for FY2009-10 for all of the City’s pension programs.


2. The City’s Chief Financial Officer is currently advocating a reduction in the actuarial assumption for pension earnings. If this program is implemented, the City’s contribution rate would necessarily increase by a substantial amount to compensate for reduced investment earnings expectations. In response to a request from the City Finance Committee,

the PFPF Actuary was asked to calculate the impact of reducing the current 8.50% actuarial rate of return assumption. According to the Actuary’s preliminary calculations, the City would have to increase its contribution rate by 5.2% in response to a decrease in the earnings assumption from 8.50% to 8.00%. A more aggressive reduction from

8.50% to 7.75% would cause the City’s contribution rate to increase by 8.0%.


Where Do We Go From Here?:


1. There are no painless solutions. The consequences of past funding policies coupled with the City’s millage reduction program have contributed to a difficult budget challenge that must be addressed. The City must end the practice of seeking temporary means of avoiding the acknowledgement of the full contribution requirements for its pension programs.


2. Consider the use of Pension Obligations Bonds and other financing techniques as a means of liquidating elements of the UAAL and in restructuring its obligations.


3. Continue to explore real estate partnerships with the PFPF which will contribute to further reductions in the UAAL and reduced City contributions (i.e. replicate programs such as the Laura Trio and Haverty’s).


4. Support PFPF efforts to broaden the range of permitted investments options which currently constrain the Fund.


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2 Responses - Comments are closed.

  1. […] Vote Pension Administrator fights back […]

  2. kenneth cole says:

    i under stand that the problem came from the city of jax not properly funding the pension plain with the allocated amount they spent on other ventures therefore my suggestion is wwhat i would have took advantage of instead of the teamster retirement that is in critacal condition is to let the citesens and companys to be able to particapate in your fund at aslightly lower rate this way they would not have to hire to many police and fire fighters to keep the plain solvent im sure that after this latest stock market crime people and companys would be interested in a safe retirement plain along with the social security they have to pay small buisness owners would be interested and if enough tax payers had a stake in it they would make sure funding was available let us in on the pie and you will get the support you need????????

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