By Steve Plunkett
Boca Raton will have to trim pension benefits for fire and police employees to get out from under an out-of-control financial burden, its outside pension consultant said.
If the city does nothing, the money it pays into the pensions will drop from 44 percent of payroll this year to 15 percent over the next 30 years, Jacksonville consultant Actuarial Concepts Inc. said.
But if Boca Raton adopts the consultant’s 11 recommendations, its police and fire contribution will drop to 2.9 percent of payroll in 2042, Actuarial Concepts said. “The recommended benefit structure is intended to be taken as a package to accomplish the stated objective [of affordability and sustainability] and is not intended as a ‘shopping list’ of changes,” Actuarial Concepts wrote.
Any changes in the pension plans would have to be negotiated with the unions. The fire and police pacts expire Sept. 30.
Among the recommended changes are eliminating the inclusion of up to 300 hours of overtime for police pensions and lengthening the period of averaging pensionable pay to five years from its current two years.
The consultant said maximum initial pensions should be limited to $100,000 rather than be unlimited. Also among the recommendations: lowering the guaranteed cost-of-living adjustments to 1.5 percent from the current 2 percent for police officers and 3 percent for firefighters.
The 310-page report analyzes how the reformed pension would compare to the current plan if the assumed investment return is 8 percent, 7.5 percent and 7 percent. In each scenario the reformed plan cuts the city’s contribution dramatically.
Under the least optimistic rate, the city would spend almost $16 million on pensions this year and $23.8 million in 2042. With the reforms in place, Boca Raton would pay $10.9 million in 2013 and $6.9 million in 30 years.
“Significant reforms are necessary to achieve and sustain lower levels of city contribution requirements within city targeted contribution objectives,” the consultant said.
The City Council made long-term sustainability a top priority at its annual goal-setting retreat in May. Council members told City Manager Leif Ahnell to hire an outside consultant to study the pension plans.
Judith Teller Kaye and Betty Grinnan, founders of Boca Citizens for Fiscal Responsibility, faulted Actuarial Concepts for using the 7 percent investment return in its calculations. That rate, they said in an email blast, is “far in excess of the system’s actual experience over the past 10 years of 4.1%.”
Moody’s Investments Services recommends that Florida pension systems assume an average rate of 5.67 percent, Kaye and Grinnan said.
But Actuarial Concepts pointed out that using a lower rate lessens the impact of future shortfalls but comes with an “opportunity cost.”
“City contributions would initially be greater than if the current assumptions were used,” the report said.
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