What Happened?
A new strategy presented by officials in Fort Lauderdale aims to satisfy the demands of the local police union while cutting down on $161 million in pension obligations.
The Goal
Cities such as Fort Lauderdale are facing more than pressure from public employee unions to meet their pension obligations. The police contract being proposed calls for a 1 percent raise retroactively and a 2 percent raise for law enforcement officials this year. In 2015, police will receive a raise accounting for inflation. New employees will be limited to one merit increase annually, while existing employees will continue to have their merit increases included.
In addition, other reforms are in place impacting both new hires and existing public employees. Law enforcement officers will be charged $55 or $65 biweekly when they wish to take a city car home, which will reduce costs by $310,000 alone in the first year. The contracts also call for the city to test officers for drug use, and smoking is prohibited for new hires - which should reduce medical costs in the future.
These changes are significant cuts to the current raise system, helping to generate savings to taxpayers. By adjusting the pension system, Fort Lauderdale taxpayers will see future pension liabilities drop by $161 million over the next 30 years. The main contributor to the cost-cutting will be reduction in pension benefits for new hires.
Pennsylvania, Illinois Updates
Farther north, a similar pension issue is engaging members of the Pennsylvania state legislature. Pension reform has been on the minds of lawmakers in Pennsylvania for several years, and this spring it is expected to be a top priority.
Pennsylvania’s budgetary gap has continued to grow over the past few years, as local governments and school districts continue to feel the squeeze. Lawmakers project the budgetary gap will fall between $800 million and $1.4 billion statewide this year, and pension reform will likely be one of several solutions proposed.
One strategy that has been enacted in other cities and states across the country is transitioning pension systems toward a defined contribution or 401(k)-style plan. Similar to the options offered by private employers, these plans call for employees to contribute more toward their retirements, which enables the same benefits to be enjoyed but at less of a financial burden to cities’ and states’ budgets. Other municipalities are looking at lowering cost-of-living adjustments, or reworking formulas used to define benefits, to relieve some of the obligations.
In Illinois, the pension debates have reached the courtroom after two labor special interest groups filed two lawsuits to eliminate pension reforms originally enacted to save taxpayer money. Last December, changes to the state pension plan were implemented including:
- Raising retirement ages
- Cutting automatic cost of living adjustments
- Creating 401(k)-style pension plans
The labor interest parties claim the changes violate the state constitution which protects the benefits of public employees. Illinois pension system leads the nation at around $300 billion in unfunded liabilities.
Smart Cost Cutting
Gov1 has followed pension reform efforts nationwide including a cash balance plan in Kentucky.