The city has a $44 million pension problem on its hands, one that’s left elected officials angered and the Police and Fire Pension Fund on the defensive yet again.
It’s a problem that apparently has been years coming, which has city leaders scrambling for answers along with accusations of lies to city officials.
And the fund says the city treasurer knew about the possible increase almost a year ago.
Mayor Lenny Curry in recent weeks learned of the potential increase the city could be on the hook for in the coming year.
A $44 million increase to the public safety retirement plan would make the city’s obligation close to $203 million for fiscal 2017-18. Curry this week said it would force a realignment of priorities to cover that amount.
City Council President Lori Boyer is just as frustrated with the specter of such a bill, considering she questioned the reason for the increase in mid-2014.
“It certainly takes the wind out of our sails in terms of upward trends,” said Boyer. “Any gains in revenue would be eaten.”
What it boils down to is a tweak in numbers used by the Police and Fire Pension Fund’s long-time actuary, Jarmon Welch.
An actuarial report Welch provided in late October makes clear the city might be on the hook for the additional $44 million.
He indicates it comes from a variety of factors, including the swapping of mortality tables that fall under state retirement system guidelines.
The biggest increase, about $25 million, comes from a relatively large decrease in the expected payroll growth percentage. The less city payroll grows, the more the city has to contribute to make up for deficits.
Welch in prior years had used an expected growth of 3.25 percent. For the draft report it was lowered from 2.5 percent to 0.067 percent, which caused the expected spike.
He maintains in past years he’s been able to secure a waiver from the state to use the higher assumption, which meant lower payments.
It’s the waiver and use of the higher numbers from past years that has officials riled.
Curry and his administration want answers about the waiver, which Welch says was made verbally by the state’s Department of Management Services.
The department, which provides technical assistance to ensure local plans comply with state law, in a statement said it does not have the authority to waive statutory provisions for local governments.
Instead, it looks at the litany of assumptions that go into a plan as a whole on an annual basis and considers whether or not they are acceptable.
Welch’s plans have been accepted. However, the department as recently as 2014 raised the question about Welch’s use of expected payroll growth.
A March 2014 letter indicated the 3.25 percent growth exceeded the 10-year average of annual growth of 2.77 percent and asked for an explanation.
The response? An increasing population of 2.5 percent, plus 0.75 percent productivity is reasonable. A month later, the state accepted the plan.
Welch’s contract with the fund expires at the end of the year and Curry and his staff believe he could be simply shoring up figures after years of using improper values.
Curry also wants answers as to who knew about the waiver and why it was asked for in the first place, which misrepresents what the city actually owes.
Boyer said she raised the payroll growth issue in mid-2014 during the first wave of pension reform when a 4 percent annual growth was being pitched.
Yet, with no raises for employees and little hiring in the workforce, she said she thought it was “totally unrealistic” and asked for models that reflected lower growth.
Boyer said she received vague answers from the prior mayoral administration and fund leaders, but wasn’t told the state department had raised the same issues months earlier.
It is one of her major points of frustration as the figure has come back to cause the anticipated payment increase.
“If I had known the state had raised the same question, you can bet I would have demanded some adjustments,” said Boyer.
Welch said his analysis for the plans have been upheld by the state for years.
He offered two suggestions that could possibly help the situation. The Curry administration could work with the state on staggered payments or the pension reform the mayor has promoted could be finalized in collective bargaining, which would warrant another review.
Welch calls Curry’s outcry “politics” and said the mayor is partially to blame for the issue. He said Curry’s pension reform plan approved by legislators last year led state actuaries not to grant the waiver provided in the past.
While the increase came as a shock to the Curry administration, the possibility was raised in January during a Police and Fire Pension Fund board workshop.
It was there when Welch, according to transcripts, talked about the waiver and possibility it wouldn’t be granted again.
That discussion also brought up the possibility of a $42 million increase in the city contribution should the payroll assumption rate fall.
City Treasurer Joey Grieve was at the workshop and acknowledged the waiver and possible boost, but the administration feels Grieve was lied to about the waiver — and they maintain there is no waiver.
“And also … we assume payroll is going 3.25 percent a year in setting that pattern … and the state could come back and say, actually say that you have to use 0 and you would have to put in $42 million more right now,” Welch said, according to the transcript.
Grieve responded with a “yes,” with Welch then saying he “talked them (the state) out of it last year.”
“I’m glad you talked to the state actuary and got that waiver from them,” Grieve responded.
Seeing the transcript on Thursday didn’t change Curry’s mind on the issue.
The mayor believes the city and taxpayers are an “injured party” in the latest dust-up. Curry said he would seek any remedies possible once General Counsel Jason Gabriel receives answers he pushed for this week.
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