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Posted November 18, 2009 EST

Cities' Firefighters And Police Have $636M Unfunded
United States (West Virginia) - A bill to relieve cities of some of the burden of their combined $636 million unfunded police and firefighter pension liabilities began making its way through the Legislature on Tuesday. Legislators see it as a much-needed rescue effort.

"It's been a long time coming," Delegate Sharon Spencer, D-Kanawha, told The Dominion Post. She is chair of the House Pensions and Retirement Committee.

Some local officials are happy to see the effort, but don't know how much real help it will provide.

"We applaud the Legislature and the governor for at least giving the cities another option," Morgantown City Manager Dan Boroff said. Whether it resolves anything or not, it's "taking steps in the right direction."

The Legislation, in the form of House Bill 407 and Senate Bill 4007 and dubbed "The Huntington Plan," is part of Gov. Manchin's call for a special legislative session corresponding with November interims.

The bill:

Creates the West Virginia Police Officers and Firefighters Retirement System (OFRS) effective Jan. 1. The system will cease to exist Jan. 1, 2014, if fewer than 100 people sign on.

Allows municipalities now participating in a retirement fund to close that fund to new hires and put the new hires in the new system.

Puts the OFRS under the oversight of the Consolidated Public Retirement Board, with a new board member to represent the system and various actuarial methods in place to ensure the system remains financially solid.

Allows cities that join the new system to set up a 40-year amortization schedule to pay off their existing funds, with a nine-member board established to help cities manage those funds.

Spencer said it is important to note that the bill takes no money from the teacher retirement system. The funding comes from a 1 percent premium tax on fire and casualty insurance policies and a 4 percent premium tax on surplus lines insurance (specialty insurance coverage purchased from a company not licensed by the state but permitted to do business in the state).

That tax income is divided three ways: 65 percent to the municipal pension and protection fund, 25 percent to volunteer fire departments and 10 percent to the state teacher retirement system. The bill, as originally proposed, would have diverted the teachers' 10 percent to the municipal fund, now called the Municipal Pensions Security Fund.

That would have created a financial hole for the teachers' fund, Spencer said, so she and the House insisted the money remain with the teachers, and the Senate agreed. The bill also creates no new spending and doesn't increase taxes.

"A lot of work in the last few months" went into the bill, said Delegate Dave Pethtel, D-Wetzel, vice chairman of the House Pensions committee. "It was definitely needed in at least two municipalities."

He was referring to Huntington and Charleston.

The liability and what caused it

Figures from the West Virginia Municipal League -- based on valuations of 47 of the state's 53 fire and police pension plans -- show the plans have a combined $827.8 million liability, which is the amount of money needed to fund current and future pensions. They have combined assets of $191.5 million, leaving an unfunded liability of $636.3 million.

Huntington is in the worst shape of all the municipalities. More than 20 percent of this year's $42 million city budget will go to pensions. That percentage will keep growing.

The problem arose because municipalities were allowed to use an "alternative minimum" method of funding their pension plans: Use their 1990 contribution as a base, and add 7 percent to that each year. For example, a city putting in $100,000 in 1990 would pay $107,000 in 1991, $114,490 in 1992, and so on.

But the state also added a cost-ofliving allowance to the retirees' benefits. The funding didn't keep up with the retirees' demand, eating up more of the cities' budgets.

"Somebody didn't do the math," Boroff previously told The Dominion Post.

According to the Municipal League's most recent figures, from Fiscal Year 2008, Morgantown at the time had a pension liability of $51,538,418. The unfunded portion was $27,264,580. Its funding ratio was 50 percent for police and 44 percent for fire, second best after Beckley among Class I (the largest) municipalities.

Huntington's police and fire plans, by comparison were funded at 11 percent and 4 percent, respectively. Charleston's figures were 16 percent and 8 percent. Fairmont was funded at 22 percent and 11 percent and Clarksburg at 13 percent and 17 percent.

Boroff told The Dominion Post on Tuesday, "The city does have a keen interest in this piece of legislation." It allows cities to decide if they'll opt in, and "more important, it's a new tool" to fund pensions.

But it has to be carefully researched, he said, with a lot of numbers crunched to see if it will work for each city. A lot of variables have to be studied.

Fairmont City Manager Jay Rogers is equally cautious about the bill.

"Our system's in trouble just like everybody else's," he said. But "is it [OFRS] a better system?"

They won't know until they try it.

Rogers said he and the members of the city's police and fire pension boards have had regular discussions and have followed the bill's progress.

They are concerned about the costs. Will the revenues from the taxes be adequate? Sending the 10 percent back to the teachers' retirement system just takes away one more means of finding of money.

"At least this will provide an option," Rogers said. "At least it provides an alternative and provides some relief."

The House and Senate pension committees approved the bills Tuesday -- the House panel added an amendment to clarify some wording about distributing funds -- and the respective finance committees will take up the bills early today.

Pending success, both full chambers have set times to convene Wednesday to take up passage of the bills.

Written by The Dominion Post

Courtesy of YellowBrix - YellowBrix

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