The unfunded retirement account is a liability between $400 million and $700 million. When you add the health care component, the number rises to nearly $2 billion (Texas Budget Source). As far back as 2006, the CATO Institute has reported the unfunded retirement accounts across the United States exceed $1.4 trillion. Notice that Fort Worth is on this list from October 2006. So when current city council representatives tell you it started with the Wall Street collapse, you can say, “No it didn’t.”
I have been asked if I would support a defined contribution plan as opposed to a defined benefits plan. The answer is yes.
There are many cities throughout the United States dealing with the issue of Defined Benefit Plans versus Defined Contribution Plan, so there is much to be learned from those that have traveled down this road before us.
Here are some bullet points to help better understand the two plans.
- Defined benefit plans (“DB”) (as compared to defined contribution plans (“DC”)) are for the most part doomed to failure as benefits promised cannot easily be provided, especially given the revenue restraints that states and cities face
- The transition to a DC plan which is less volatile, more predictable and, if funded currently, far safer
- A long-term fix is needed to transition DB plans to DC plans and to substitute increases in benefits with:
o zero tolerance for underfunding as a budget matter or
o with increasing benefits that have no funding source
- Approximately 90% of public employee pension plans are defined benefit plans while less than 15% of private pension plans are defined benefit plans
Further, to avoid court costs, for all parties, failure to address the issue now will lead to potentially larger problems later. Issues that are of concern to employees, the city and the taxpayer are:
- Defined Contribution vs. Defined Benefit Plans
- New Employees vs. Vested Employees
- Lack of Dedicated Sources of Funding
- The reality Defined Benefit pension funds are too big to be paid
- Need for Significant Increase in Employer and/or Employee Contribution
The other issue that is of great importance to employees is a two-tier retirement system. That is people who start working at a later date (e.g. next year) would receive a different retirement plan than those that are currently vested today.
I am retired Navy. The military has three very different retirement plans. The last plan was introduced on August 1, 1986. There were naysayers that emphatically stated changing the military retirement plan would hurt military readiness. Over time, as we can see today, it has had little, if any impact. There is research by Rand and other organizations to support my statement. I believe that a two-tier system is not only attainable, but necessary for the retirement system to remain healthy, vibrant and well funded. We do not want a retirement system that new employees see as Social Security; wondering if they will have money when they reach retirement age.
I would like to add that the fund going bankrupt through Chapter 9 is NOT an option. It would be a black eye to the city and the pension recipients would get far less.
This is a situation where less is more. Both parties can spend tons of money on lawyers and court costs and show nothing for it at the end of the day. Or through negotiation, arbitration and compromise we can create a stable retirement fund that is less costly, yet still give the retirees the confidence that their pension will be there for them in the years ahead.
There can be no losers. This important issue requires a win-win-win. A win for employees, a win for the taxpayer and a win for the city.
This important issue requires thought leadership and strength in negotiations. For tough situations like this, I have been tested, proven and can deliver. Vote for Jon Perry, Fort Worth City Council.
Early Voting June 2nd – June 10th
Even if you did NOT vote in the city wide election, ALL registered voters are eligible to vote in the runoff election.
Election Day – Saturday, June 18th
Office: (817) 754-0001
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