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Judge Gives New Orleans Another Month To Cover Pension Debts

New Orleans now has until October 3^rd to come up with a plan to cover the funding shortfalls facing the city’s firefighter pension fund after a judge today extended the city’s deadline.

A judge ruled last year that New Orleans had to pay back the firefighters’ pension fund for the annual payments the city had skipped between 2009 and 2013. That dollar amount could total up to $52 million. From The Times-Picayune:

The standoff between Mayor Mitch Landrieu and New Orleans firefighters showed small signs of a thaw Wednesday (Sept. 3) as Civil Court Judge Robin Giarrusso gave the city another month to produce a plan to cover its massive debts to the firefighters’ pension fund.

Tommy Meagher, secretary and treasurer of the pension fund’s governing board, said the firefighters are willing to refinance the city’s obligations in creative ways to help lower the monthly payments going forward.

“The pension board has gone above and beyond everything we can do,” he said.

Part of New Orleans plan will likely involve several accounting tactics, including pension smoothing. From The Times-Picayune:

He explained that the board had agreed to stretch the city’s future pension obligations over 30 years rather than 14.5 years — a tactic that he compared to refinancing a home mortgage. He also said the board is willing to extend “pension smoothing,” an accounting strategy that lets the fund’s actuary predict higher interest rates when calculating the fund’s future investment returns. Essentially, if the fund can show it will earn more on its investments down the road, the city can pay less to the fund each month.

The board was willing to extend its use of smoothing from three years to seven, Meagher said.

Andy Kopplin, Landrieu’s chief administrative officer, said he had been asking for such breaks since 2011 and expressed appreciation for the board’s willingness to bend.

“We commend the board for doing that,” he said.

When a judge originally ruled in 2013 that New Orleans had to recoup the payments it shorted the pension fund, the city tried to appeal the ruling to the Supreme Court. But the Supreme Court refused to hear the case.

44 Municipal Workers Face Charges After Montreal Pension Protest

Dozens of municipal workers in Montreal are facing criminal charges after participating in a protest that left the city hall in shambles.

The protest stems from a proposed law, Bill 3, which would force workers to pay more into the pension system to cover funding shortfalls. From the Canadian Press:

Montreal’s police chief says 44 people will face criminal charges in connection with a rowdy pension protest inside city hall earlier this month.

Marc Parent says the charges will include participating in an illegal gathering, mischief and assault.

Around 250 unionized municipal workers stormed into city hall on Aug. 18, where they tossed paper all over the main chamber and plastered the building with protest stickers.

The demonstrators also unfurled a sign calling the mayor a thief, while one councilor alleges he was struck while others said they were sprayed with water.

More details on the controversial Bill 3, from the Montreal Gazzette:

Here is what Bill 3 would do:

— Ensure that as of Jan. 1, 2014, all municipal employees would, retroactively, begin to contribute half the cost of their pensions, while municipalities pay the other half. (Some unions have negotiated better pension deals, where the employer pays 70 per cent and the employee pays 30 per cent, for example);

— Ensure that employees and municipalities share the cost evenly of any pension plan deficits accumulated before Jan. 1, 2014;

— Forbid pension plan costs from exceeding 18 per cent of payroll costs;

— Allow cities to freeze cost-of-living increases in pension payouts to municipal retirees;

— Allow the province to appoint an arbitrator who could impose a settlement if negotiations fail to result in an agreement within 18 months. The arbitrator would then have an additional six months to impose a settlement.

Chattanooga City Council Votes to Close Pension Contribution Loophole…For Most

Earlier this year, some Chattanooga city council members were surprised to learn that two of their colleagues, along with another city worker, were using a loophole to contribute to the city’s pension plan using pension checks they were already receiving from another plan they had from previous jobs.

If it sounds convoluted, that’s because it is. Regardless, the council voted Tuesday to ban the practice—for everyone but the two council members and the city worker. The Times Free-Press reports:

The Chattanooga City Council voted Tuesday to keep future retirees who are re-employed by the city from dipping into their current retirement while contributing to a new city pension.

But first council members gave an exemption to two of their colleagues and one other city employee.

The ordinance was drafted after the General Pension Board discovered Councilmen Moses Freeman and Yusuf Hakeem were drawing checks from their city pension, contributing to a new pension plan and making a salary that totaled close to $100,000. Another city employee in the Economic and Community Development Department, Countess Jenkins, was also drawing nearly $40,000 from her pension and paycheck.

After months of studying the discrepancy, the board voted that any future retirees re-employed by the city won’t be eligible to contribute to a new pension and draw their current pension.

But Hakeem, Freeman and Jenkins were allowed to keep drawing their pension and told to decide if they wanted to make the mandatory contributions of a new hired employee —2 percent of their salaries — toward a new pension plan. Or they could opt out of the plan and receive a refund for any contributions already paid.

The council voted yesterday 7-0 to pass the ban, along with the exemption for the three city workers. The council members who were exploiting the loophole did not participate in the vote.

One of the councilmen in question, Moses Freeman, had this to say about the vote:

“That was not the time to say you couldn’t [draw from your pension]. The way you do it is what they did now, it’s for anyone in the future,” Freeman said. “It’s fair and it’s appropriate. It’s moral. It’s legal and it’s ethical.”

Photo by Brent Moore

Retirees Grapple With Tough Question: Should Pension Payments Be Taken Monthly Or As Lump Sum?

Many people facing retirement ask their financial advisor the same question: is it more advantageous to receive a pension in monthly payments or to take the entire pension as a lump sum to be put in an IRA?

There are big implications attached to either option. And the stakes are high; once you opt for a monthly payment there is no reversing course. As advisor Kevin McKinley writes:

Once the client submits the request to receive the monthly pension payments, there is no turning back. He or she can’t change the time and beneficiary calculation options down the road, and it’s virtually impossible to get an “advance” on future payments.

That could be a problem in several instances, including a need to cover a large emergency expense, the desire to help out a family member, or the emergence of a more attractive investment opportunity.

A big part of the decision to take monthly payments should be how confident you feel in your pension fund’s investment portfolio. A retiree, or his/her financial advisor, might be able to construct an investment portfolio that makes the retiree more comfortable taking the lump sum:

Since the portfolio has to be managed on behalf of thousands of recipients, plus other interested parties, it’s a safe bet that the pension plan’s managers will have to make decisions that may go against what individual clients would like done with their portion of the money.

You can probably tailor a portfolio that is better aligned with the client’s needs and risk tolerance. You certainly can design and manage one that is much more flexible and transparent than if it were left in the pension.

And then there are the tax implications that come with both options, as McKinley writes:

A pension payment is generally going to be fully taxable as ordinary income. But if the funds are instead rolled over into an IRA, the client has several opportunities to reduce his income tax bill each year.

He can take just enough to keep him under a particular federal income tax bracket. Or, he can roll over some (or all) of the account into a Roth IRA, paying the taxes now to hopefully reduce what he pays down the road.

Another option is to take nothing at all and avoid the taxes completely for the time being. The client will likely have to take required minimum distributions after reaching age 70½, but those won’t greatly exceed what a pension payment might otherwise be.

The article notes that, when it comes down to it, retirees need to ask themselves two questions: Are they confident their pension is going to exist as long as they’ll need it?

And, are they confident in their pension fund’s ability to invest and manage their money?

If a retiree lacks confidence in both of those questions, perhaps a lump sum would offer better peace of mind.

Here’s How Philadelphia’s New Labor Deal Will Affect Pensions

After years of negotiations, Philadelphia and its largest union have come to an agreement on a new labor contract that has implications for the city’s pension system and the workers that pay into it.

The union, AFSCME District Council 33, indicated that its members will overwhelmingly approve the deal.

A major provision of the deal gives employees a choice between several retirement plan options. Employees will also have to pay more into the pension system. From Business Insurance:

[The deal] will increase employee contributions to the pension fund and allow new employees the choice between a hybrid plan and the traditional pension plan, said Mark McDonald, a spokesman for Mayor Michael A. Nutter.

The contract agreement term is retroactive from July 1, 2009, through June 30, 2016. Terms of the contract must be ratified by members of DC 33.

Current participants in the $4.8 billion Philadelphia Municipal Retirement System, a defined benefit plan, will have their employee contribution increase by 1% of pay over the next two years — 0.5% effective Jan. 1, 2015, and an additional 0.5% effective Jan. 1, 2016.

All employees hired after the contract is ratified can either enter the defined benefit plan and pay 1% more than current participants or enter a hybrid plan. Current employees have 90 days following ratification to make an irrevocable election to move to the hybrid plan.

The rest of the deal, as reported by ABC:

The newly reached seven year tentative agreement is retroactive from July 2009 and expires in 2016.

The deal will include wage increases of 3.5 percent this year, 2.5 percent next year plus a lump sum of $2,800 for every member. However the wage increases are not retroactive.

Also in the deal – employee contributions to pensions will increase and the city will pay a one-time $20 million lump sum into their healthcare.

In the future, the city will be able to use temporary layoffs, if needed, during an economic crisis.

The deal marks a compromise for both sides. According to WPVI, the deal will prove expensive for the city—estimates put the cost at $127 million over five years—that will require some budgetary finagling.

One major concession for the union was that sick leave will no longer be eligible for overtime pay.

Photo by Peter Miller via Flickr CC License