City officials have predicted that the locally managed pension for police officers and firefighters will be broke by 2025. For years, the amount the fund has paid out to retirees has exceeded the amount of money coming in, said Lt. Wayne Willis, the police representative on the pension’s board of trustees.
Now, Willis and others hope to bring the fund’s impending insolvency to the attention of city council members and other officials at a public work session next Thursday, April 21.
More importantly, Willis hopes the city council and the fund’s board of trustees can come up with a plan to fix the fund, thereby saving the retirements of the 180 working police officers and firefighters and the 165 people already drawing from the fund.
“My best hope is that the council sees the gravity of the situation and is willing to look at it objectively and work with us to come up with a plan,” Willis said.
A faulty setup
Anniston’s retirement plan was a good one for the retirees, at least at first.
Currently, a firefighter who retires after 30 years draws 90 percent of his annual working pay. Anniston police and firefighters don’t pay into Social Security, making the fund their sole source of retirement.
Under the plan, set out in state law, police officers and firefighters contribute from their paychecks 10 percent of the fund’s obligation to retirees, and the city contributes another 10 percent, Willis said. Another 7 percent of the obligation is covered by a city tax on public utilities. It’s expected that returns on the fund’s investments will cover the remaining 73 percent.
Because both benefits and contributions from both the city and employees are defined by law, neither the contributions nor the benefits fluctuate based on the economy.
And because the dismal economy has kept the retirement fund’s investments from growing like they used to, retirees have been getting paid from the fund’s principal. That means eventually the fund will reach zero, meaning it would eventually have to stop sending pension checks.
What the police call the fund’s inevitable setup problems weren’t readily apparent, officials within the department said, because for years, the returns from investing in the stock market made up the difference. That all changed when the financial crisis hit.
Anniston City Clerk Alan Atkinson, the fund secretary, has said the retirement system took its biggest hit in fiscal year 2008, losing nearly $5 million.
In September 2007, the fund had $27.3 million, Atkinson said. One year later, there was only $22.9 million, the city clerk’s records show.
Currently, Atkinson said, fund levels are right at $21 million.
And by 2025 the fund will be depleted if something isn’t done, or if the stock market doesn’t turn around dramatically, officials said.
“We need to get it solvent for the long-term future,” Anniston Mayor Gene Robinson said Wednesday.
Gadsden an example,
Prichard a warning
Anniston is far from the first U.S. city to have a group of or all of its city employees risk losing their retirement chances because of troubled pension plans. In Alabama, the cities of Prichard and Gadsden — to name just a couple — have faced similar problems.
But Prichard has earned the dubious recognition of being the first city in the country to simply stop sending retirement checks in the face of a broke pension — while a troubled Gadsden pension fund for police and firefighters was eventually fixed by law-enforcement and city officials who were able to avoid insolvency through compromise.
Gadsden Fire Chief Steve Carroll, who sat on the city’s pension board in the late 1990s and early 2000s, said the original, locally managed fund for Gadsden police officers and firefighters was just like Anniston’s current one.
“It didn’t have the money to remain solvent over a period of time; it was eventually — just like the Anniston plan — going to have more money going out than it had coming in,” Carroll said.
He said that through a series of compromises, the retirements for Gadsden’s police officers and firefighters were saved in 2001 by transferring the local fund to the Retirement System of Alabama, the state pension plan.
Some of those compromises meant the city had to pay more in liability insurance for the transfer of funds, while firefighters and police officers had to contribute more to the state fund than they did previously.
It wasn’t the ideal situation for anyone involved, but Carroll said it was a good solution.
“I don’t think you’ll find a firefighter or a police officer that’s not grateful that we went to the state pension plan,” Carroll said.
But in the south Alabama city of Prichard there was no successful compromise or plan to fix its broken retirement fund, which all city employees paid into, Prichard Councilman Troy Ephriam told The Anniston Star Wednesday.
“There was a small window … a limited amount of time to do what we needed to do,” Ephriam said. “And unfortunately we didn’t exhaust all possibilities.”
As a result, the fund went broke last year. Then, in the unprecedented move that landed the troubled city on the front page of the New York Times, the city stopped sending retirement checks to its retirees.
Those different outcomes for Prichard and Gadsden should serve as a guide to Anniston officials as they grapple with some of the same issues, Willis and Robinson said.
“It’s very important for everybody at the table to know they’re going to have to compromise and clear up that fund,” Robinson said. “Yes, I’m very much aware of Prichard’s situation, and I hope that does not happen here — my job in part is to make sure that doesn’t happen here.”
Willis pointed to Gadsden’s success 10 years ago when it was in the same position Anniston faces now.
“They were going broke, but … they fixed it,” Willis said.
The pension’s board of trustees said it understands the retirement fund can’t be fixed totally on the back of the city.
Police, firefighters and retirees are willing to take cuts in benefits and pay more into the fund if City Council members are willing to either contribute more or take on the increased insurance costs of transferring the local fund into the state pension plan, Willis said.
“We want to work through this together,” he said.
Robinson and at least two of the four council members have expressed an interest in meeting local police and firefighters somewhere in the middle.
Attempts to reach Councilmen David Dawson, John Spain and Herbert Palmore were unsuccessful Wednesday, but both Dawson and Spain previously told The Star they are interested in hammering out a solution.
Willis said Dawson and Spain both said they would attend the work session.
Councilman Benjamin Little, however, does not plan to go to the meeting, saying he felt a work session would be a waste of time. Instead, he said, the pension’s board of trustees should write a proposal about what they want to do and send it to the council or the state legislature for review.
Still, Willis stressed that the city has accountability for the fund because the city requires all police and firefighters to participate in it.
And those public safety officers don’t pay into Social Security — the mandatory fund is all they have, Willis said.
“That’s why we say the city is ultimately responsible; they make it mandatory for us, and they don’t give us any other options,” he said. “We really can’t make any moves forward until everybody that’s involved can come together at one time.”
Ephriam pointed to his experience as a councilman in Prichard and urged the Anniston City Council to work out a compromise with the pension’s board of trustees before the inevitable happens in 2025.
”You’ve got 12 years. If you can’t come up with a plan, something is wrong,” Ephriam said. “Either you don’t want to do anything or the government … isn’t working.”
Star staff writer Cameron Steele: 256-235-3562.