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Pension costs put crimp in Iowa cities’ budgets



This news story was published on March 17, 2012.
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Gregg Hennigan, CR Gazette –

Risings costs have city officials calling for changes to a pension system for firefighters and police officers, but public safety representatives say the system is sound and should be left alone.

“All of them have a concern,” Alan Kemp, executive director of the Iowa League of Cities, said of the 49 cities where the Municipal Fire and Police Retirement System of Iowa is in place.

Cedar Rapids, for example, is budgeting $6 million for the expense in the fiscal year that starts July 1, a nearly 20 percent increase from five years before. Iowa City estimates its cost at $2.5 million, up almost 29 percent in five years. The league estimates that the combined contributions of the 49 cities will go from $48.4 million this year to $80.4 million in fiscal 2015, a 66 percent increase.

Despite the increase, police officers and firefighters say the system actually can be a better deal for cities than the other retirement plan for public employees, Iowa Public Employees’ Retirement System, or IPERS.

Unfortunately, they’re blaming their budget problems on the backs of firefighters (and police officers), and that’s just not right,” said Rick Scofield, president of the union organization Iowa Professional Fire Fighters and a retired captain with the Cedar Rapids Fire Department.

The Municipal Fire and Police Retirement System of Iowa took effect in 1992 after being created by the Iowa Legislature. At the time, cities had their own pension systems, and some were struggling.

The 49 participating cities are, with a few exceptions, the most populous in Iowa. The retirement system has about 8,000 members and assets of about $1.84 billion.

By Iowa statute, employees pay an amount equal to 9.4 percent of their earnable compensation into the system.

The minimum rate for cities is 17 percent of police and firefighter salaries but can vary year to year. It is set annually by the retirement system board based on an actuarial report. The board has four members representing cites, four from police and fire personnel and one private citizen.

Third increase

For all but one year since 2003, the rate has been above 17 percent. Next fiscal year will mark the third straight increase, and that is projected to continue the following two years.

The increases are rooted in the recession. As investments took a hit, more money was needed to pay off the liabilities the system had accrued, and the losses from the recession’s low point in 2008 are still with the system, said Terry Slattery, the retirement system’s executive director.

Many city officials object to the uneven rate increases: theirs is going up, while the employees’ remains 9.4 percent. They point to IPERS, in which employers pay 60 percent of contributions and employees pay 40 percent. When IPERS rates are adjusted, they change for each side.

Cities primarily turn to tax dollars to cover the increase.

The city of Maquoketa is raising its tax levy 3.2 percent next year to help pay for its estimated $141,000 contribution to the pension system, City Manager Brian Wagner said. The increase would be higher but the town still has some money left in a fund from when it ended its own pension system. That money will run out in two years, he said.

Maquoketa is one of the smallest cities in the MFPRSI and would like to get out, Wagner said. But that would take an act of the Legislature.

Change proposed

The Iowa League of Cities has proposed that all new employees in the system be part of a 60-40 split similar to IPERS.

“I think what we’re looking for is more of a consistent ebb and flow of increases and decreases,” said Casey Drew, finance director for Cedar Rapids. “And if that means a better percent of (employee) contribution allocations helps us do that, that’s great.”

There’s little interest, however, among state lawmakers in changing the system, the league’s Kemp said. The state is actually pulling out its stake. It used to contribute 3.79 percent, this year that’s down to $750,000, and next year it won’t pay anything, Slattery said.

Capt. Dave Mohlis of the Waterloo Police Department and president of the Iowa State Police Association doesn’t believe it would be wise to change the 20-year-old system because of the recent economic downturn.

“I just don’t agree to a kind of knee-jerk reaction,” he said. “This system is sound and it should stay as it is.”

He and Scofield argued the pension system in some years was a better deal for cities than IPERS. Unlike in IPERS, pension system members do not get Social Security benefits, so cities save on that cost. Cities also do not pay workers’ compensation insurance, and overtime wages are not considered earnable compensation.

Kevin O’Malley, finance director for Iowa City, said cities may not pay workers’ compensation insurance, but they do have to pay the direct medical costs if an officer or firefighter is injured.

“We’re not off the hook,” he said.

New method

The system recently changed its actuarial method, which reduced the cities’ rate for next fiscal year from what was first projected. Slattery believes it will cause fewer fluctuations going forward.

He said he couldn’t say whether the retirement plan is fair, but he said the cities’ contribution rates are set based on what an actuary says is needed.

“I think that the benefit level is a good program for our members, who provide a career of service to the public that definitely has a danger factor to it,” he said.

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