COLUMBIA — Four city-supported pension plans owe nearly $118 million more in benefits than they are bringing in from investment returns and the contributions of almost 1,200 city employees.
Projections indicate things will get worse, according to a final report by the Mayor’s Pension Review Task Force. It was presented to the City Council on Monday.
The $117.8 million gap itself is not the problem, despite being a more than a quarter of the city budget, since the payments aren’t due immediately.
The problem is that these liabilities, or money the city will have to pay retirees in the future, is growing faster than the amount of money the fund is generating.
Steve Yoakum, chairman of the task force, said the city faces a central question: Does it want to be in the pension business?
Columbia administers the joint police and firefighter retirement fund while the rest of the city’s employees belong to the state-run Missouri Local Government Employees Retirement System (LAGERS). With all of these funds, if the money taken from employees’ paychecks or earned through investments doesn’t cover the pension payments, the city must pay the difference.
And that difference is growing.
In fiscal 2011, the city paid $6.8 million to cover the police and fire pension fund and is budgeting another $7.4 million for the next fiscal year, which starts Oct. 1.
The task force’s final report warns that “it will require a substantial and growing financial commitment of city resources to adequately fund these plans without changes.”
For the police plan, its assets are growing 7.75 percent, but its liabilities are increasing by 8 percent. The firefighter plan is in a similar situation — assets are rising 7.8 percent while liabilities grow 8.6 percent. The plans are expected to grow at those rates every year until 2019.
To help reverse this trend, City Manager Mike Matthes proposed shifting new police and fire department hires to the state-run LAGERS pension fund, which covers other city employees.
Under the state-run plan, Columbia’s police officers and firefighters would earn less money when they retire, which means the city will have to contribute less to meet its obligations to them.
This would reduce the city’s annual contribution by nearly 24 percent for police and more than 34 percent for fire. Moving new hires to the state plan was one of the six options suggested by the task force, which was formed a year ago.
Matthes said the proposal, which has been reviewed by the financial consultant Gabriel, Roeder, Smith & Co., was on his desk when he arrived in Columbia in early May.
Mayor Bob McDavid called it a first step as he waits to see the entire solution Matthes will propose.
Third Ward Councilman Gary Kespohl said he could see the city going to a participatory model, such as a 401(k) plan, in which the employee contributes and the city matches it at some level.
Now, police officers contribute 3.5 percent of their paycheck to the pension fund while firefighters contribute more than 16 percent. Part of that difference is because the firefighters don’t participate in Social Security.
Kespohl said Matthes’ proposal will keep Columbia competitive in hiring quality police and firefighter candidates because many other states and municipalities are cutting their pension plans, as well.
If the new public safety hires are lumped in with the other city employees, Columbia will have to decide what to do with current employees in the older, more lucrative plan.
“It’s up to the employees and administration to work that out,” McDavid said.