A fair plan for fire, police pensions

Our view: Proposal would make city pensions sustainable, predictable

February 25, 2010

Baltimore's police and firefighters have tough jobs, and they are particularly dependent on their city pensions in retirement because they aren't eligible for Social Security. For those reasons, it is important that the city taxpayers maintain a pension system that honors their service and safeguards their financial future. But the current system is unsustainable. Without changes, Baltimore will have to boost its contribution to the system by about $65 million next year to keep up -- a virtual impossibility given the $120 million budget shortfall the city already faces. Even if Mayor Stephanie C. Rawlings-Blake could find the money to cover the tab this year, costs will continue to escalate unless the city enacts significant changes.

Fortunately, a set of recommendations released yesterday by the Greater Baltimore Committee points to a sustainable path for the pension fund. The GBC's ideas, drafted after consultation with union officials and others, wouldn't all provide a quick fix to the city's financial problems, but they would help prevent crises like the one Baltimore now faces. It is a balanced, thoughtful plan that deserves adoption.

The largest component of the proposal is to change the eligibility requirements for retirement with a full pension. As it is, police officers and firefighters can retire after 20 years on the job, regardless of their age. A police officer could theoretically retire with a full pension before the age of 40 and collect benefits for decades. The GBC report suggests adopting a "rule of 75" -- a requirement that a person's age plus years of service must equal at least 75. The committee estimates such a provision could ultimately save the city more than $40 million a year.

Another key idea is eliminating a unique feature of Baltimore's police and fire pensions: the variable retirement benefit. In years when the pension fund's investment performance exceeds 7.5 percent, retirees get permanent increases in their pensions. But they don't have to give anything back when the fund grows modestly or loses value, so the program has the long-term effect of destabilizing the pension fund. It's not a panacea for retirees, either, because in years when the market is bad, they get no increases. The GBC's idea is to replace the variable benefit with raises tied to Social Security cost of living increases, capped at 3 percent a year. Combined with a plan to combine the six separate funds for police and fire into one pool, the proposal could save Baltimore $31 million in the next fiscal year.

The GBC is suggesting increasing employee contributions into the fund, which the police and fire unions have already suggested. And the committee would eliminate a deferred retirement plan that was designed to encourage officers to stay beyond the 20-year minimum but which has had little effect.

The proposal would change the way benefits are calculated -- currently, they're based on the retiree's average salary from his last 18 months on the job, but the GBC found that pay tended to spike during that period and suggests averaging the last three or five years. Finally, the proposal would add more finance experts to the pension board.

No doubt police and firefighters won't be overjoyed to be asked to make such sacrifices, but the plan as it is currently structured is too generous to be sustainable. If the city enacts this plan, or significant parts of it, they would lose some benefits, but they would get security and predictability in exchange. Given the crisis that is looming for government pensions across the nation -- a recent report pegged the total unfunded liability in the public sector at $1 trillion -- that's a reasonable trade-off.

Readers respond

I'm not saying we should punish these hard working men and women, but the reality is that millions of Americans have been affected by the economic downturn, and many of us have lost our pensions and seen our retirement plans plummet. We have had to take second jobs, put off retirement, and cut personal budgets to accommodate our lifestyles. Public safety officials should have to make similar sacrifices.

Anon

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