The Mayor's Blog
Changes Needed, Proposed for the FRS
To meet the rising costs of its public employee pension funds, the City has raised the sales tax; borrowed more than $150 million; eliminated 600 civilian jobs; diverted money from parks, low income housing, crime prevention and neighborhood improvements; put off needed repairs and renovations; and reduced its reserve account to a dangerously low level. Of most urgent concern is the state-controlled, but City-funded, Fireman’s Retirement System.
Let’s start with some points of agreement. Firefighters deserve to be well compensated. They should get a good pension when they retire. If they are hurt and can no longer work, we should take care of them. That is our duty.
And, let’s take agreement another step: We can do those things and still keep the cost affordable to taxpayers.
And, let’s get to what is going to be proposed this week: We can only do those things and still keep the cost affordable to taxpayers IF we make changes right now.
Some background: The cost of the state controlled Fireman’s Retirement System has skyrocketed over the last decade because of a nearly quarter billion dollars in actuarial losses and a very high rate of claimed disability. Whenever FRS loses money or its costs go up, the City taxpayers make up for it.
How much am I talking about? The cost of FRS has risen from $6 million per year to an expected $31 million next year. That will take it from 12 percent of the Fire Department budget to more than 30 percent.
Neither the taxpayers, nor the City, nor the Fire Department can continue to absorb these huge cost increases. If something isn’t done, the cost will go up by at least another $7-million next year. That will result in catastrophic cuts in the Fire Department and other City services.
Under the current system, the City cannot reduce the cost of FRS without approval from the Missouri General Assembly. Because firefighters are politically powerful, the General Assembly will not reduce the cost of the benefits without approval from firefighters.
The City met with firefighters many times over the last decade to try to convince them to support changes, without success.
Yet, doing nothing would result in the cost increases I mentioned and would severely damage public safety in the City.
So, we are going to do something. We are going to seek local control of the FRS.
Under state law, the City opted into the state controlled FRS in 1960. At that time, it reserved the right to opt out. That’s what we are proposing.
On Friday, the City will introduce two pieces of legislation at the Board of Aldermen.
Under the first bill, the City will withdraw from the State controlled FRS.
The second bill will create a locally-controlled FRS.
The local FRS Board of Trustees will be appointed in the same manner as the State FRS.
The new FRS Board will be responsible for protecting the assets and administering the fund. The legislation will include new regulations to ensure better protection of the fund.
Under the locally-controlled FRS, the level of benefits will be determined as they typically are with employers and employees in the rest of the country: through the collective bargaining process.
Over the last two months, the City has tried hard to negotiate the new benefit changes with Local 73 of the IAFF. The firefighters have taken the position that they do not recognize the City's authority to create a locally controlled FRS, and will not negotiate changes for active firefighters. That is unfortunate. But, it means we have reached an impasse. So, the second bill will change the benefits to reduce the cost increases.
* Benefits will not change for retirees, widows and orphans.
* There will be minuscule changes for firefighters nearing retirement.
* There will be minor changes for younger firefighters.
* There will be major changes for new hires.
All active firefighters will keep all benefits they have accrued in the State-controlled system.
On a going forward basis only, the amount active firefighters pay into their pension fund will go up from 8% to 9%. On a going forward basis only, those contributions will stay in the system.
On a going forward basis only, the minimum age to collect a full pension will be 55. Firefighters can start collecting a pension at a younger age, but it will be actuarially reduced. (The calculation gets a little complicated for current firefighters. But, let's say you work for 34 years in the old system, and one year in the new system. You want to retire before age 55. You will collect a full pension for your 34 years in the old system, and an actuarially reduced pension for the one year in the new system.)
As I noted above, the changes will have miniscule impact on veteran firefighters. Current firefighters who spend their entire career in the fire department would still get a pension typically between $50,000 and $55,000 per year, and depending on when they joined the department, will be able to retire much sooner than the rest of us. Currently active firefighters could still retire with hundreds of thousands of dollars in deferred pension payments in what are known as their DROP accounts, and older firefighters with tens of thousands of dollars in unused sick leave. They are all eligible for Medicare, and can also receive Social Security from secondary jobs.
The legislation will also make changes to the way disability pensions are decided. A disability pension is supposed to help people who can no longer work. If they can work, they should work. Our changes reflect that.
Under the changes, if a firefighter is too disabled to work at all, he or she will get a lifetime pension. That is fair. That is rightly our responsibility. If a firefighter is too hurt to be a firefighter but a doctor determines he can do other work, he or she will get a pension, but it will be smaller. We will also pay for college tuition to help injured firefighters find a second career.
You will hear a lot more about this here – and on the news. Some firefighters are not going to like it. Some elected officials, especially those with current ties to the firefighter’s union, may weigh their personal ambitions against their common sense.
If we don’t make any changes, the cost of FRS will go up by at least $7 million next year, maybe more. If FRS' investments continue to fall short, the cost will continue to go up even more after that. Kansas City is currently considering a plan to lay off more than 100 firefighters. That’s not a change I support here.
These changes, on the other hand, will ensure that the money is there for all retired, active, and future firefighters when they need it. It will avert deep cuts in the Fire Department. It will ensure firefighters are taken care of in retirement.
It is fair.