Longboat’s pension headache needs a smart remedy

STEVE REID
Editor & Publisher
sreid@lbknews.com

It could be argued that all of civilization is a construct against nature. And in a way pensions are a contrivance to go against nature by forcing a savings and accrual so instead of living large, a worker can float through retirement toward his grave on a reasonable raft of income.

And in the eyes of most Americans, the raft of pension income for public servants has grown to a financial titanic. And we know where that metaphor ends.

As we all should know, the Town is currently negotiating with the Fire Department to get rid of its defined benefit plans and to adopt a defined contribution model.

In many ways the defined benefit programs on Longboat Key are under assault because of the unfunded obligations and the strain on payroll and taxes.

But how we got here is open to interpretation and simplisms from every side.

In short, the dark night of public pensions on our island comes down to poor market returns on investments, major enhancements to benefits and conscious and deliberate actions by the Town Manager and past Town Commissions and those managing the funds to allow senior employees and department heads to opt-out, to allow early retirements and to make budgets look less onerous by assuming 8% returns on investment.

So while the beneficiary got enhancements, the Town continually benefitted from using actuaries to twist and turn the pay-in, which allowed the liability to grow. In short, guilt runs through all parties.

What to do?

The simple response, and the one the Town is proffering, is to convert Longboat Key employees to a defined contribution model. And that has business leaders and most residents applauding.

I believe this is a case of getting what you wish for. We, as a Town, can through the Commission impose this measure. But the end result will not be what has been advertised.

In fact, the Town’s annual pension obligation, which is now staggering, will more than double under any of the scenarios offered with the 401A proposal.

That is because while the current liabilities must be paid off, the 401A plan must also be funded. In essence, the current residents will see a more than a doubling of pension costs for the next 10 to 15 years. And then the good news is the cost will fall off to between 10% and 13% of payroll. That is the good news; unfortunately many of us will only get to feel good about it after our coffins shut.

But here are the real consequences: Longboat Key will lose the quality of fire and police coverage it now enjoys. The best employees will not work under this model. A few have left and many are looking to leave with a wait-and-see attitude. Longboat has always made one thing clear: we want the best medical EMS service available or executable as a goal.

This effort directly undermines that effort. No performance contract will mask that the Town will sink from an A-list for employees to a D-list. And telling hires that working on Longboat is paradise works if you are a realtor talking to a buyer, but let’s be real. Our public servants cannot afford to live in the paradise they protect — and that is fine. But this solution is not a real solution. It’s riding some populist wave and not thinking the matter through.

Remember: your cost will double for 10 to 15 years and be far higher than the defined contribution model could or would be if employees make concessions.

The firefighters and police will have to make contractual concessions to keep a defined benefit plan. And that immediately decreases the liability. That liability is nothing more than the equivalent of an amortized amount on an adjustable rate mortgage. If the market zooms again, guess what? The liability starts to disappear.

This is not 9-11. We do not have to charge into unknown countries, destroy what exists, only to realize we have destroyed what ultimately protects us. Let’s think this through.