Solving the pension problem

City officials, police and fire representatives put plans on the table for Springfield

Thursday, August 19, 2010

This is the second in a two-part series on the state of Naperville's public safety pension systems. Wednesday's story focused on the problems with police and fire pension funding levels. Today's story looks at solutions that have been presented by both sides.

The problem: Naperville's unfunded pension liability, the amount it owes to its current and future pensioners in the police and fire departments, now stands at $101.5 million, and depending on how the markets do, that figure could continue to grow.

According to a state law passed in 1993, the city -- that is, the taxpayers -- will have to pay that bill in full by 2033.

The result is that as budgets are passed each year, an increasing proportion will have to be put toward funding pensions rather than providing city services.

The fix, according to the Naperville city manager's office, would involve two major changes: The first is a change to the payment schedule and 2033 deadline by which everything would have to be fully funded. Pushing the deadline back another decade or so, or creating a 30-year rolling amortization, would give municipalities more time to pay their debts and allow cities the chance to make slightly higher but even payments each year.

Doing so would require a change in state law, but so far "refinancing the mortgage," as both the city and police and fire representatives have described it, is the one point of reform that both sides can seem to agree on.

The other major change, which is far more contentious, is changing what pensions will look like in the future.

In April, the Illinois General Assembly passed a reform of other statewide pension systems, including the Illinois Municipal Retirement Fund, the fund that governs pensions for all of Naperville's other employees. It included provisions like raising the retirement age to 67 from 55, lowering the salary cap upon which pensions are figured, changing the automatic 3 percent cost of living increase so pensions stay stagnant if cost of living does, and preventing double-dipping, the ability to collect a pension while working in another pensioned position.

By the state constitution, all of the changes go into effect for new hires only, which means any savings from these changes wouldn't arrive until those hired in the coming months begin to retire, but it's still part of the city's plan for stabilizing the pension system.

"If you limit the reform to just new employees, you won't reap the full benefits for 40 years down the road because you will have people currently in the system and you will have retirees in the system until everybody in the system now passes away," City Manager Doug Krieger said. "You do it for Naperville in 30 years."

So Naperville officials are still hoping Springfield will enact reforms similar to the IMRF changes for police and fire pension funds, with some modifications, like a lower retirement age to reflect the physical demands of the position. Under recent reforms, the new retirement age for state troopers, for example, is 60.

But this is where negotiations tend to reach an impasse.
"We're in the bottom 30 percent in benefits, Naperville versus the rest of the nation," said Don Bisch, president of the Naperville Police Pension Fund. "But we're in the top 25 percent in what we contribute. We pay the full 100 percent of our premium when we retire. Since we're not covered by Social Security, all we have is our pension."

Naperville's police officers and firefighters are vested in their pensions after 20 years of service and can begin receiving benefits at age 50. Pensions are based on the employee's salary on the last day of service, with a maximum benefit of 75 percent of final salary after 30 years of service. Annual increases of 3 percent are compounded.

Because final salaries and years of service can vary widely, there's no average figure either side of the debate is able to give out. While Krieger called the pensions "impressive," Bisch said they were "not extravagant."

Then there's the impassioned emotional argument to be made. "The police and fireman's job is a job completely different than anywhere else," said Rick Sanders, president of Naperville Professional Firefighters Local 4302. "We're willing to put our lives on the line."

And from that stems a practical point as well. Officers and fire fighters do have dangerous jobs.

"Do you want a 60-year-old fireman climbing up a ladder?" said Bisch. "You're more likely to get officers or firefighters getting injured."

So rather than modify benefits, representatives of the police and fire pension boards have offered up some suggestions for new revenue streams, such as user fees on city services, city stickers for cars or charging for downtown parking, or an increase to the sales tax.

But city staff see those ideas as temporary fixes, rather than solutions to the problem. "That's more of a budgeting question," said Krieger. "The answer to the problem isn't to throw more money at it from a revenue source."

To Springfield

Meanwhile, Fiscal Year 2010, which ended in May, was a good year for both police and fire pensions. During the market rebound, and because of what Krieger attributes to "a great job" on behalf of the pension boards in managing investments, both funds gained slightly more than $13 million each.

"They're moving in the right direction," said Krieger.

But while the gains from the market may be enough to make up for the previous year, Naperville is still likely to need $10 million in the next budget cycle, and even more in following years, to keep the system going on its current course, leaving both the city and those who protect it in precarious positions.

In the meantime, both sides will be watching, and courting, Springfield's legislators, beginning with a hearing of the Illinois House Police and Fire Pension Reform Subcommittee on Sept. 21.

"No one wants to see the system crash and burn," said Bisch. "We understand there needs to be change."