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Welcome to the Hotel California Pension plan

STEVE REID
Editor & Publisher
sreid@lbknews.com

The Town can check into the state retirement system, but it can never leave and that may ultimately be a good thing.

This Commission of seven — of which many columnists and I are often critical of — did something very brave and admirable for the community and our employees over the past week. They managed to negotiate what can only be called a defined benefit plan that will feel like a defined contribution plan for Longboat Key taxpayers.

The proposal puts firefighters into the FloridaRetirement System, which is a defined benefit plan with more than 100 municipalities and tens of thousands of members. The proposal does something that no other community I know of does and could make Longboat Key a pioneer if it is found acceptable by the state. The Town will pay up to 13% of employee payroll as a maximum capped cost. If the cost goes up, the employees will cover the cost.

And that is the feel-like defined contribution component. In essence, the firefighters have contractually agreed to bear all costs above the Town’s maximum 13% contribution. So the risk is on the employees, yet they will have a benefit that is predictable and quantifiable and there is no chance of a future firefighter retiring with nothing and becoming a social problem.

The Town deserves real credit in that they did not push Longboat out of the competitive pension market with a 401A plan.

Each side wanted more. Each side wanted the other to assume the risk. In this case, the grueling process yielded a result that if legally doable, just may set a precedent around the state.

Another benefit going forward is the Town will be out of the active pension business. No more actuaries; no more investment advisors skimming percentages even during the bad years. The FRS system is large and well funded. The town has its costs capped going forward and the firefighters are far more motivated than they were last week when the town was looking to pass a defined contribution plan.

In fact, the willingness of the firefighters to concede and negotiate and act professionally as their retirement plan hung on the balance showed the loyalty and respect they have for this community. Their benefits are being radically altered and their cost for retirement is going up. The fact that they are eager to move foreword tells me we have the kind of firefighters this town wants to see and the Commission was very wise to accommodate them. Job well done.

 

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3 Responses for “Welcome to the Hotel California Pension plan”

  1. Tough Love says:

    The system described (a DB Plan but capping the employers contributions at 13% of pay) can only support a DB Plan about 25-50% as generous as the DB Plans typically granted firefighters. So in essence, (unless the defined BENEFITS are indeed quite modest), mathematically it’s destined to blow up in the future.

    I say that because as the Plan’s cost will inevitably rise well in excess of the 13% cap, the Unions will begin to pressure the city to raise that cap …. hopefully that cap is iron-clad, and they won’t. Additionally, since all moneys (funds from the city, from actives, and past contributions of those now retired) are commingled, if there is (as surely there will be at some point) underfunded Plan liabilities, unless those already retired are expected to contribute to that shortfall (i.e., their share in excess of the 13% cap) then the current actives not only have to pay the excess costs above the cap for their own underfunded benefits but for the underfunded benefits of those already retired as well. Again, they will find this quite unacceptable, and pressure the city the pick up the retiree’s share … which hopefully they will also refuse.

    This structure (a DB Plan with an employer contribution cap) is like fiddling with the laws of nature ….. not a good idea.

  2. Nito Incog says:

    I think we should go with Mr. Tough Love’s suggestion of not doing the DB plan and then, watch his face when services rendered are provided by the crappiest employees from the bottom of the barrel, for that is what you will surely be getting. Look across the bridge, both sides. They have DB plans and there’s no chance of those vaporizing, ever. And lets not even talk about the pay situation. If you want LBK to have the worst employees and the worst service, then provide the worst pension and benefits! It is literally, that simple. If not, and you want better, sorry but you’re going to have to share that expense — as these people have done! No where else in the State has a union moved so far to the middle to accommodate the taxpayers! It’s either this, or a DC plan and guess what; the agency will be decimated with losses of great employees as they are forced to extricate themselves from LBK. You cannot have your cake and eat it too. It’s either good people with decent benefits or the opposite. So, you decide.

  3. Lee says:

    Let’s look at this from a different perspective. My recommendation, get rid of LBK police and fire. Why municipalities in this day and age continue to “reinvent the wheel” and duplicate services (always at a considerable increase in cost) is beyond reason. The Florida Constitution requires each of Florida’s 67 counties to maintain and staff a sheriff’s office. What is the LBK police and fire department doing for you that the county sheriff and fire can’t ???

    PS. No one is going to lose their jobs. The present LBK personnel would be merged with the county as is almost always the case.

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