Pension plan boards make necessary adjustments

The town’s three pension boards are supposed to set policy and make decisions without worrying about how it might affect the town’s budget.

Last week, Retirement System boards of trustees for police and fire pension plans made decisions to reduce the estimated rate of return for the plans that will increase costs in the immediate future for the town.

But eventually, the adjustments will reduce the town’s budget after the town pays down larger chunks of $27 million in unfunded pension liabilities in the next couple of years.

At the Longboat Key Town Commission’s Feb. 18 workshop, Town Manager Dave Bullock explained the town’s three pension boards are working to reduce the estimated rate of return for the frozen plans to a more reasonable 7% rate of return at the request of Tallahassee pension officials.

“We all understand and believe that the rate of return for the frozen plans needs to be lower than it was for the active plans,” Bullock said at the workshop. “But the lower you make your rate of return, the higher the amount we have to pay back.”

The General Employees Retirement System board of trustees already reduced that plan’s rate of return from 7.75% to 7%.

On Feb. 26, boards for the police and fire pensions also made plans to reduce the rates of return for those plans.

The police board’s 7.5% rate will come down gradually, and the firefighter board is reducing the plan’s rate from 8% to 7.5% with plans to reduce that rate to 7.25% in two years and 7% in four years. The firefighter plan also plans to pay off its unfunded liability in 20 years instead of 15.

Currently, the town estimates an annual required contribution for those pension plans of $2,760,020.

But, if all three frozen plans reduce their rates of return to 7% eventually, the town’s taxpayers will face a $500,0563 pension cost increase that brings the town’s required cost to $3.26 million for the year.
Bullock is planning a strategy to pay off the debt.

Impact of budgetary change in annual required contributions (ARCs) for Pension Plans with Assumption Rates at 7%
Pension Plan          Current ARC               Increase Future                     ARC
Police                       $633,590                     $31,322                                  $664,912
Fire                           $1,526,725                  $364,431                                $1,891,156
General                   $599,705                      $104,810                                $704,515
TOTAL                     $2,760,020                   $500,056                                $3,260,583

* Rate hike creates a potential 0.11 millage increase and a 5.3% tax increase.
(Source: town of Longboat Key)

Contact Kurt Schultheis at [email protected]