OUR VIEW: Pay hikes doomed the pensions

“We agree with what the actuary has done over the years. I will say that straight up. The changes made were reasonable, the actuary accounted for changes correctly and the assumptions made were common. Methodology and amortization periods were updated appropriately.”
— Jeannette Cooper
The Segal Group

OK, firefighters’ union reps, move on. Accept that your pension benefits need to be scaled back.

Indeed, it was as illuminating as a full moon last week when another consultant for the Longboat Key Firefighters Pension Board delivered the fatal blow. As noted in the quotation above, Segal Group actuary Jeannette Cooper unequivocally reported to the pension board that the pension system’s fast-rising unfunded liability (now around $13.9 million) had nothing to do with the decisions of the town actuary.

It has had a lot to do with the town administration giving the firefighters increases in pay and benefits. And, secondarily, with the lousy returns on the pension system’s investments. Cooper’s Powerpoint presentation said it all on page 2:

“The Unfunded Actuarial Accrued Liability (UAAL) increased from $646,689 to $13, 985,439 between 1999 and 2009. Benefit enhancements and adverse investment experience were the primary drivers of the growth.”

On the investment side, Cooper’s report showed the cumulative return on the pension system’s investments from 1999 to 2009 were 36.7%. The total assumed and expected return was supposed to be 133%. This accounted for 24% of the increase in unfunded liabilities.

The much bigger culprit was the increase in pay and benefits bestowed on firefighters. As the table below shows, they constituted 43% of the growth of the unfunded liabilities.

In the same vein, look at the large table above. Cooper shows a timeline of cause and effect. When the town increased firefighters’ pay and benefits, duh, guess what followed?

Let’s be even more explicit. Cooper spelled out precisely what occurred in terms of “benefit enhancements” between 1999 and 2009. It’s eye-opening:

1) The benefit multiplier was increased by 40%, from 2.5% of average final compensation to 3.5% of final average compensation.

2) Penalties for early retirement were reduced, so that a retiree’s monthly benefit if retiring 10 years prior to normal retirement age is 70% of the full amount, rather than 50%.

3) Retirement eligibility was broadened, so that full benefits are available at age 60, any age with 25 years of service or age 55 with 10 years of service.

Previously, the requirements were age 60, age 52 with 25 years or age 55 with 15 years.

An early retirement age of 50 with 10 years of service was added to the existing age 45 with 15 years.

4) An annual cost-of-living adjustment was added to the plan, so that retiree benefits are increased 3% annually, beginning five years after retirement.

5) A supplemental benefit, equal to $10 per month for each year of service is now payable from retirement to age 65.

6) A deferred retirement option plan was introduced, allowing firefighters to receive up to 36 months of their retirement benefit as a lump-sum at retirement.

Cooper said her analysis did not include determining the dollar impact of these changes. But she noted:
“It is our understanding that the enhancements were made to remain competitive with firefighters covered under the state’s retirement system. However, the increase to plan liabilities was substantial. The employee contribution rate was increased by 4% of compensation to offset a portion of the cost, but the town is responsible for the balance.”

That means taxpayers picked up 96% of the increased enhancements.

And here are two more stunning revelations: “For seven of the last 11 years, the plan had experience losses due to salary increases.” And this: “The experience review noted the last 10 retirees had an average 38% increase in their final pay due to an additional lump-sum payment of unused sick and vacation time pay.”

Reading reports about pension plans can be considered torture. But the messages that come out of the Segal/Cooper report is pretty clear. Contrary to a belief that there was mismanagement by investment advisers and actuaries, the Segal/Cooper report shows the biggest reason for the unfunded liabilities was the town administration and Town Commission acquiescing to the firefighters union demands.

This is exactly what sent General Motors into the bailout hands of the federal government — weak management.

This posture must end.

+ Reverse the population trend
For those who care about Longboat Key’s future, we hope last week’s census data rang your alarm bell and moved you enough to want to take action — to reverse the trend.

As reported in the Longboat Observer, the town’s population shrank 9.4% over the past decade, falling by 725 residents to 6,888 total population. That’s roughly 325 fewer families living on the Key. Occupied housing units fell from 47.3% to 44%.

These declines should be concerning to all Longboat Key residents, property owners and taxpayers. Most obvious, the decline in population will shift a higher burden of town taxation on to all of the Key’s taxpayers.
But the more important matter is what the declines say what we are as a community and where we are headed.

No doubt those 325 families who left the Key did so for a variety of reasons. But in the end, they made the choice to leave because the Key did not satisfy their needs. That’s disappointing. More disappointing, however, is that 325 families did not replace those who left.

Why isn’t there a waiting list?

One of the messages here is this: If indeed we want to keep Longboat Longboat — a highly attractive waterfront, resort, family, active-adult community — we must continue to show progress and constant forward momentum.

George Spoll, marshal the forces. We can think of many who would step forward. Count this newspaper among them.

Benefit enhancements...............................$3.7
Net investment experience..........................3.2
Salary increases greater than expected.......2.1
Turnover/other demographic experience......2.1
Funding and asset method changes.............1.4
Actuarial assumption changes......................0.8
Total.............................................................13.3
 

KUDOS to Kumar Mahadevan

A belated congratulations to Dr. Kumar Mahadevan, chief executive officer of Mote Marine Laboratory.
Mahadevan celebrated his 25th anniversary as CEO March 15.

You would be hard pressed to think of an individual in Greater Sarasota-Manatee whose name is as synonymous with his organization as is Mahadevan’s.

Mahadevan is not one to take much credit, but behind every successful organization is a leader who provides the integrity, vision, energy and commitment. And the best illustration of that is the amazing evolution and growth of Mote over the past 25 years.

We love how Mahadevan described the early Mote as “a glorified pet shop.” Today, it’s a $23 million-a-year, internationally respected research operation and tourist attraction that draws 350,000 visitors a year; has 245 staff members conducting important marine work and operating a fish farm; and 1,400 volunteers who help make Mote the important institution and asset that it is.

No man can achieve all of that alone. But one man has been the heart and soul behind it — Kumar “Mote” Mahadevan.