Des Moines Register October 6, 2009
Iowa PERS board directs actuary to evaluate higher contributions from employers and employees
Actuary to weigh bigger contributions to IPERS
Iowa government employers and public employees would increase their contributions to the state's largest public employees' pension fund under proposals submitted for study Monday.
The Benefits Advisory Committee of the Iowa Public Employees' Retirement System asked an actuarial firm to evaluate the contribution increases to help fix a long-term shortfall in the pension fund.
However, several committee members expressed concerns, warning hefty contribution increases by government employers would be hard to manage. "These are not easy budget times at all," said Mark Tomb, a representative of the Iowa League of Cities. Others warned of layoffs of public employees or cuts in public employee benefits.
The Iowa Public Employees' Retirement System has 312,000 members. They are current or former employees or retirees of state government, cities and counties, public school districts and other government agencies.
Public employers and public employees currently contribute 10.95 percent of an employee's wages to IPERS for its primary public pension program.
Under one study scenario, the contribution would increase to 13.45 percent on July 1, 2011, and could be adjusted up or down by 1 point annually in subsequent years with no cap. Another proposal envisions an increase to 12.45 percent on July 1, 2011, with annual increases up to 1 point with a cap of 15 percent.
Both study proposals would require government employers to maintain their current 60 percent share of pension contributions.
Danny Homan, president of Council 61 of the American Federation of State, County and Municipal Employees and a member of the advisory panel, spoke in favor of the contribution increase. He said retirement is one of the biggest worries of union members, "and if they have to contribute a little bit more, so be it."
There are no plans to eliminate the "Rule of 88," which is a combination of years of service and age. Under that rule, as an example, someone as young as 55 can retire at full benefits after 33 years of government employment. There are also no plans to tinker with rules that permit full retirement at age 62 after 20 years of service. Union representatives said their members opposed eliminating such rules.
"I don't think we give up things that we have fought so hard for," said Brad Hudson, a lobbyist for the Iowa State Education Association, a teachers group, who serves on the IPERS advisory panel.
The study proposals will be submitted to Milliman Inc., an international actuarial firm that has been an adviser to IPERS for decades.
Some of other issues that will be studied include requiring a seven-year period for vesting instead of the current four years; basing pension benefits upon the five highest years of salary instead of the highest three years; revising early retirement factor penalties; and changing the pension formula multiplier.
The IPERS fund has assets worth about $19.3 billion, down from $22.4 billion on June 30, 2008, amid declines in global financial markets over the past year. But even before the steep downturn began a year ago, the pension fund already faced a long-term actuarial shortfall of about $2.7 billion.
Phil Roeder, deputy chief of staff for Gov. Chet Culver, said Monday that IPERS members deserve a well-thought-out pension plan that addresses long-range funding issues with no cuts in benefits. "It is important to remind Iowans that no changes will take place to IPERS without careful legislative consideration and significant public input and debate," Roeder said.
Democratic legislative leaders recently pledged to work to shore up the IPERS fund during their session, which convenes in January.
The Iowa pension system is designed to replace a maximum of 65 percent of pre-retirement wages if someone works 35 years. Most people who retire with IPERS benefits have worked about 22 years and are replacing about 44 percent of their pre-retirement wages, officials said.
The monthly check for all retirees in fiscal 2008 averaged $996.The average for new retirees was $1,489.
Oct 02, 2009 Cedar Rapids Gazette
Iowa cities face sharp increases in pension contributions for firefighters and police officers
Dramatic increases in city contributions will offset losses
Cedar Rapids, Iowa City, Marion and 46 other Iowa cities that participate in the Municipal Fire and Police Retirement System of Iowa will have to contribute significantly more money each year for their employees — likely twice as much within a few years.
The increased contributions are necessary to replenish the system’s portfolio of investments, which saw a 21.6 percent drop in value for the fiscal year that ended June 30, said Dennis Jacobs, executive director of the pension system. Jacobs put the current value of the portfolio at about $1.5 billion.
The 49 cities in the program currently contribute an amount equal to 17 percent of the annual cost of wages of police officers and firefighters, In fiscal year 2011, which begins July 1, 2010, that percentage will increase to 19.9 percent, Jacobs said.
Actually, that’s a bit of good news. Earlier this year, Jacobs had said that next year’s contribution might jump to 22 percent.
On Friday, Jacobs said cities likely will see that annual percentage climb beyond 30 percent and perhaps as high as 40 percent in the next four or five years as the pension system works to recover from losses. “I think that’s accurate and fair and a real concern to cities and also to our board of trustees,” Jacobs said of the increase in contributions the system will need.
The system averages its gains and losses over five years. So only one-fifth of the 21.6 percent loss will be recouped by contribution increases in fiscal 2011. That’s why contribution rates are projected to increase for a few years, Jacobs said.
The current contribution level of 17 percent is the statutory minimum that cities can pay. A year ago, the contribution level was 18.75 percent, and it peaked in 2004 at 28.21 percent in response to the 2001 recession, Jacobs said.
Cedar Rapids City Manager Jim Prosser and Finance Director Casey Drew warned the City Council at a fiscal strategy session Thursday of the additional expense for fire and police pensions. Drew estimated the city would pay $1.2 million more in fiscal 2011, if the rate jumped to 22 percent as originally expected. The increase will still be more than half that amount, with the contribution increase to 19.9 percent.
Jacobs said Cedar Rapids already has asked the board of trustees to urge the Iowa Legislature to contribute more. The state’s contribution to the system is relatively small and shrinking. It was 3.79 percent, or between $6 million and $7 million a year, but now is 1.2 percent, or about $2.5 million a year, Jacobs said.
A legislative committee will meet in November to review the financial status of the fire and police pensions, as well as the significantly larger Iowa Public Employees Retirement System. IPERS is facing similar financial pressures.
Jacobs said the fire and police pension system has about 3,800 active police and firefighters paying into it, while it supports 3,900 retirees or their survivors. Police officers and firefighters contribute 9.4 percent of their salaries into the pension system, a rate established by state law.
Firefighters and police are not covered by Social Security.
Kevin O’Malley, Iowa City finance director, said the city is aware of the contribution increases, but he hasn’t calculated the cost because the City Council may hire nine additional firefighters and six additional police officers.
