Miami Herald Editorial: How to fix pension mess

Imagine being able to retire long before you turn 50. Among your benefits: a pension plan that gives you almost as much as your current salary each year, cost-of-living adjustments that go far beyond the national average, fewer years to qualify to be fully vested in the pension, overtime pay included in the salary calculations for your pension benefits. Perhaps an extra monthly check once a year — a lucky 13 payment.

Sound surreal?

Not if you are a police officer or firefighter working for a city in Florida.

Businesses convert While most businesses were turning to 401(k) plans for their workers in the 1980s and 1990s and away from defined benefit plans, local governments counting on union support promised generous pension perks for those plans that guarantee a set amount for life. Adding to the pension costs have been exponential salary increases for these future pensioners.

From Miami to Jacksonville, the pension systems with guaranteed returns are straining resources. Miami’s pension plans — which will need almost $100 million next year to keep to its obligations — have skyrocketed 400 percent in recent years, forcing the city to tap emergency funds to balance the budget. Jacksonville will contribute $110 million to its pension plan next year — $70 million more than six years ago.

Some cities, such as Fort Lauderdale, have been moving toward 401(k) plans for their workers, which is a smart move. A defined benefit plan requires the employer to make up any gap to ensure an employee receives the guaranteed retirement amount — which is why so many cities are scrambling to find the money during this recession when property tax revenue has plummeted.

Overly generous pension benefits have exploded since 1999 when the Legislature passed a law that has saddled cities with increasing pension costs, as explored in The Miami Herald’s Sunday editorial.

The results, as detailed by the Florida League of Cities, are ever-higher taxpayer-backed contributions to the plans — as much as 30 to 50 percent of a first responder’s salary.

Florida state workers’ system is in better shape. It pays about 20 percent of a state employee’s salary toward the retirement system. Counties, which by law can piggyback on the state system, are not as exposed as cities throughout Florida that are having to dip into ever-dwindling revenues to plug holes in pension plans.

Cities do have the option to join the state system, but their debt obligations can make that difficult.

State and local governments should be moving out of pension systems and into a 401(k) or some other plan that would keep the public’s contribution at a steady rate, helping to match employee contributions.

Unaffordable luxury Looming pension costs for municipal workers throughout South Florida — particularly fire and police pensions that grant extra benefits — are a luxury taxpayers can no longer afford. And loopholes in some contracts — allowing promotions in the year before retirement to become the amount to factor for pension benefits — abuse the public trust.

The Legislature must revisit that skewed 1999 unfunded mandate that put more pension burdens on cities. And cities need to renegotiate contracts to be fair to their workers and taxpayers as they move away from defined-benefit plans to more employee-driven 401(k) contributions.

A research firm hired by Miami Beach to look at how to deal with looming pension costs came up with some steps worth taking:

• Implement a uniform system for awarding pay increases. Some workers get annual “step” increases or mandated salary hikes rather than merit-based raises.

The merit-based system should be adopted for all government workers.

• Peg cost-of-living increases, now often negotiated with unions, to the national consumer price index instead. The average CPI for the Greater Miami-Fort Lauderdale area the past 10 years was 10 percentage points lower than Miami Beach’s cost-of-living adjustments, for example.

Residents need and should value municipal workers, especially our firefighters and police officers. But they pay taxes, too, and surely understand that cities must find a way to balance fair pension plans with other obligations.