Guest opinion: Reforms put city pension funds on solid financial footing
The City of Cape Coral received some very good news from our pension actuaries, Foster & Foster, Inc. Thanks to our recent pension reforms and responsible investment strategies by the pension boards, the City’s pension funds are financially sound and moving in the right direction.
The current funded status of all three City pension funds – Police (86 percent), Fire (76 percent) and General (75 percent) – exceed the national average of 71 percent for public pensions. Even better news is that our City’s Police and General Employees pensions should be near 100 percent funded status by 2020, and the Fire pension above 90 percent.
The changes to pension benefits agreed to by City employees and adopted by City Council are the main contributors to the improved funded status. These benefit changes impact current employees as well as future employees. According to Foster & Foster, our pension reforms produced a $4.9 million reduction in the City’s annual contribution this year and will generate a total cost savings of $185.9 million over 25 years.
Professional actuaries like Foster & Foster must follow strict, professional practices in their analysis and reporting. This fact is reflected in their 2010 actuarial report to the City, which advised that the funding ratio for our pensions was less than 60 percent, and changes needed to be considered. As a result, one of City Council’s primary objectives when I arrived in 2012 was to achieve pension reform and reduce the Unfunded Actuarial Accrued Liability (aka UAAL) for City pensions. Based on their latest report, Foster & Foster confirmed we have been successful in addressing pension legacy costs.
There may be a misconception that taxpayers foot the entire bill for the cost of City employee pensions. This is not the case. City pensions require shared contributions. City employees contribute about 10 percent of their pay toward their pensions, with some actually contributing 11.5 percent following pension reform.
Clearly, the City’s pension funds are in much better financial shape and are well-positioned for the future. But let’s address another retiree legacy cost called Other Post-Employment Benefits, often referred to as “OPEB.” OPEB includes other retirement benefits such as life insurance, disability insurance, etc. The main financial driver on OPEB costs is retiree health insurance.
As was once common with municipalities across the country, the City of Cape Coral initially provided a lifetime retiree health care benefit. In 2003, City Council raised concerns about the legacy cost related to this benefit. The City and the unions agreed to discontinue offering lifetime retiree health care benefits for employees hired after October 1, 2003. The benefit was replaced with a modest monthly stipend for retirees based on years of service. The City also reduced costs by adding a requirement for retirees to enroll in Medicare Parts A and B as soon as they are eligible. This requirement shifted the City’s group insurance from primary insurance provider to the less-costly role of supplemental provider.
As you can see, the City of Cape Coral has been cognizant for quite some time that unchecked legacy costs for public employees can create a significant financial impact on a community. We have not allowed this to happen in Cape Coral. The recent changes to pension benefits and the not-so-recent changes to the retiree health care benefit demonstrate that we can keep our promises to our dedicated City employees without saddling our citizens with unsustainable legacy costs.
Thank you for your time. I wish you and your family a happy Thanksgiving.
John Szerlag is the
Cape Coral City Manager