Take a look here at city Comptroller Glenn Klocko's presentation to the new committee about the financial, legal and actuarial issues involved in the proposed use of excess pension money for a new trust fund for post-employment benefits. It's a lot information, not all of which will make sense without the background, but I think it should help explain why this issue is so important.
What's at stake, when you come down to it, is whether excess city pension will cover the tab for retirees' health insurance or if taxpayers will shell out more to pay for it. The only other option is to reduce the benefits, which could happen, but I'm not sure why anyone would prefer that to tapping the pension excess.
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Copyright 2008. All rights reserved.Contact Steve Collins at scollins@bristolpress.com
44 comments:
So what is everyone arguing about?
Transfer funds, save the city money, the unions get some benefit with vesting and locking in prices and they don't have to reduce their benefits.
What is the issue?
Simple .....
The greedy unions want to be paid cash for doing what's right .
It is more complicated than that. This is the way I understand, from reading Mr. Klocko's report and the Pension Protection Act of 2006.
The type of account is called an IRS 401h account. For starters, there are three separate pension funds, one for police, one for fire one for general city. There would have to be three separate funds. They would be subordinate funds to the main pensions. That means they would be under the control of the main funds' trustees. It also means that if at any time the main pension fund got into trouble, the subordinate account would have to return funds to the main pension.
Next, since the subordinate accounts don't actually exist, they would have to be created. That means the terms of the trusts, which are in the individual collective bargaining agreements, would have to be changed. Since pension AND benefits are mandatory subjects of collective bargaining, this could only be done at the bargaining table.
There are several ways to fund this type of account. The first way is how 401h accounts were originally funded when they were described by the IRS 1n 1964.
Say for example the city contributed 8% of wages to the pension fund. They could designate 25% of that figure or 2% to the 401h. The money would build up over time and be used to pay for retiree health care. This type of funding was not used years ago because it was cheaper back in the 60's to offer benefits instead of higher wages and there was no need to prefund. The city could not use this method because they no longer contribute to the pensions.
The next way is called an IRS 420 qualified transfer. That is a year to year transfer used to pay current year expenses, (the 1.8 million dollar figure). Then there is an IRS 420 qualified future transfer , which allows up to ten years of estimated health care expenses. These methods require the employer to vest benefits for 4 or five years, I'm not sure which. Qualified future transfers are for promise to pay type pensions that are not described in labor agreements, which brings us to the type of transfer that would apply in the city's case. It is described in The Pension Protection Act of 2006 as an IRS 420 collectively bargained transfer. It allows the same ten years of future costs to be transferred but the vesting is for life or the terms of the collective bargaining agreement, which in the city's case is ten years. You won't find the collectively bargained transfer in Mr. Klocko's presentation but it is in The Pension Protection Act of 2006, title 8 part d.The thing I am not clear on is whether only actual costs (1.8 millionx10) or 1.8 million + 8 million (amortized costs)x10 could be transferred. Maybe Mr. Cockayne can clear this up for us.
The issue is negotiation. The "unions" may get some benefit from doing this, but we want more. This is our money! Why shouldn't we negotiate. If we are going to transfer money from our pension to pay for our benefits, that the city is contractually obligated to pay for anyway, why shouldn't we get something in return. It is called compromise! Extend our benefits, reduce our co-pays, and increase our monthly pension, then we'll talk. This is our money!
Screw you it's not just your money!
Over 70% of it is taxpayer contributions $63,700,000 is taxpayer money. $26,872,041 is combinned police fire city unionites contributions. See slide 60 of the comptrollers presentation.
I HOPE ALL THE TAX PAYERS SEE JUST HOW MUCH WE HAVE PAID>>>AND THAT DOES NOT INCLUDE THE MEDICAL>>>>NEGOTIATION...yeah...get rid of the both plans...lets start there.
"The issue is negotiation. The "unions" may get some benefit from doing this, but we want more. This is our money! Why shouldn't we negotiate."
This may come into play at some point. The way I look at it , this committee is at the information gathering stage. For the committee to be talking about proposals or negotiations at a time when two of the three bargaining units are in active negotiations may be a problem.
"Over 70% of it is taxpayer contributions $63,700,000 is taxpayer money."
This is incorrect and irrelevant. It "was" the taxpayers' money. Once the money is in the trust, it is in control of the trustees who must protect the funds for the benefit of the pensioners.
That pension is our money. Quit making it about the big bad boogie unions! We are taxpayers too and have built this city! We worked for what we have and now you want to bleed us by raiding our pensions. What's next? If it was your money and your pension you would be angry too. People in this town have no respect for working class people.
Kloko will cherry pick the information he wants to give you.
"This is our money!"
No, it isn't. It's the city's money that we have socked away to pay your pension after you retire. The fact that you contributed some of it is irrelevant. It is no more "your money" than is money sitting in the city's checking account right now that will be used to cover your paycheck next week.
"We worked for what we have and now you want to bleed us by raiding our pensions."
This is inflammatory, ignorant, and unhelpful. No one is talking about "raiding" the pension fund. We're talking about REPROGRAMMING some of the EXCESS money and putting it in an account UNDER UNION OVERSIGHT to pay YOUR RETIREE HEALTH BENEFITS.
"I HOPE ALL THE TAX PAYERS SEE JUST HOW MUCH WE HAVE PAID"
It is hard to understand why the city dumped so much money into the trust funds. I really don't believe the numbers are completely accurate.I think what happened is when the trustees changed the way they made investments years ago they may have carried over the whole balance and called it city contributions, when in fact it was city and employee contributions. The years they did contribute more than they were required to by contract I assume was because of guidance from actuaries. If it was just an attempt to dump extra tax revenue somewhere instead of lowering taxes, shame on them. As a taxpayer I would be very upset to find that was true. Other factors may have come in to play also. For example, actuaries assume that people will retire after a certain number of years. In the case of police and fire, many of them stay way past their date of retirement eligibility. Every year extra they stay is money that stays in the fund. They don't get extra for longevity so the money builds up. Another reason the fund grew was because about 20 years ago it was discovered that the city was actually withholding too much from police and fireman's pay. They were only supposed to withhold a percentage of the base pay and were instead using the gross pay which included overtime and holiday pay. Since retirement calculations were calculated on base pay, the city had to reimburse employees. If the settlement was in cash the payouts would have been enormous so it was negotiated that the employees were paid in time to retirement instead of cash. What happened was the vast majority of employees still stayed past their retirement date, so the funds grew still more. Bottom line is, once the funds are in the trusts they have to stay there for the benefit of the pensioners.
"No, it isn't. It's the city's money that we have socked away to pay your pension after you retire."
Read the part of the charter that refers to pensions . Also read the contract. You could not be more wrong on this.
"No, it isn't. It's the city's money that we have socked away to pay your pension after you retire. "
Techically, if the money belongs to anyone, it is the trust fund. The trustees are sworn to protect that money according to the terms of the trust. They are bonded because if they use the money improperly, they can be held liable.
Quit your crying. Obama will take it all and spread it around anyway. We all want some.
fact is that the monies belong to the fund to pay for retirement benefits negotiated between the city and the respective employees bargaining units.
There is not an ownership issue as such, which continues to add to the complexity of the issue. It is akin to Social Security, I said "akin" (not exactly the same) which is a combination of employer and employee contributions.
Everyone shopuld stand back a second and wait until the pertinent information is dispersed amonst everyone.
If your point is that employees are required to contribute 5% of their salary into the pension fund: no kidding. My point is that at that point it is no longer their money. Per the Charter that money is under the control of the retirement board. Semantics perhaps, but you're the ones who are splitting hairs over "whose" money it is. IRS laws control how the city can use it, and those laws make the city compensate you (immediate vesting; benefits locked for 5 years; etc.) if the city uses it for OPEB. So stop being alarmists and start working with the administration to come up with a solution that's fair and responsible.
Odumb:
Bravo, I finally agree with...somewhat. Actually the "city's money" is the money of the taxpayers.
The current make up of that cowardly committee are all beneficiarys of the trust funds, (they are all UNION HACKS) In terms of trust law, the beneficiarys should have nothing to do with the management of their funds....the TRUSTEES have that responsibility...so all the UNION HACKS that are on the committee as appointed by Ward are potentially sitting there illegally...this suggests ignorance on behalf of WARDIE BOY and proof that he is attempting to line his pockets with unionite voters. Bad move Artie Boy,,,gonna come back and bit you in the kester!
"Per the Charter that money is under the control of the retirement board."
Exactly right. As you said, once employees' money goes in it is in control of the retirement board trustees. The same is true of the money the city puts in. It is not in control of the council or the comptroller, but the trustees. The language of the trust is in the charter and the labor agreements and as of now there is no language in the trust to allow for health care payments. The labor agreements will have to be changed to include 401h accounts. This must be done at the bargaining table. It is not semantics,it is federal law.
"(immediate vesting; benefits locked for 5 years; etc.)"
I don't know who gave you this information but it is incorrect. The type of transfer that would be used, assuming an agreement was reached is described in The Pension Protection Act of 2006 as an IRS 420 "collectively bargained transfer." (even the IRS recognizes the validity of labor agreements) The vesting would be for life or the terms of the collective bargaining agreement, which in the city's case is ten years. I think you should go back and ask your source why he never mentioned this. You can also look at the Pension Protection Act (not the pension raiding act)of 2006 title 8 part d. you can find it on the internet.
And if the trustees (the three Retirement Boards) decide to move excess (anything over 125%) pension funds into a separate account to pay for OPEB they can do this unilaterally, with the tradeoff that the employees will immediately get certain additional benefits. The unions don't have a say in this, it kicks in automatically by federal law.
Klocko says that there is a major difference between the trustees moving this money into a separate account, and transferring it into an entirely new fund. I'll admit the nuances of that distinction escape me so I welcome clarification from anyone.
"And if the trustees (the three Retirement Boards) decide to move excess (anything over 125%) pension funds into a separate account to pay for OPEB they can do this unilaterally, with the tradeoff that the employees will immediately get certain additional benefits. The unions don't have a say in this, it kicks in automatically by federal law."
This is not true. The 401 h accounts don't exist. They have to be in the language of the trusts before any money can be moved. The language of the trusts is in the labor agreements It cannot be unilaterally changed.
"Klocko says that there is a major difference between the trustees moving this money into a separate account, and transferring it into an entirely new fund. I'll admit the nuances of that distinction escape me so I welcome clarification from anyone."
At least we have clarified where you are getting your information.
Irrevocable trusts are for a specific purpose, in this case to provide pensions. Pension trusts accumulate principal and interest tax free. If you violate the terms of the trust, in this case use the money to lower taxes instead of providing pensions, you violate the terms of the trust and all the money, principal and interest becomes fully taxable. 401h accounts are subordinate accounts within the trust, they stay in control of the trustees. As of now there is no language in the trust fund to allow for a 401h. IRS requires this to be done before any transfer can be made. The trust fund language is in all the collective bargaining agreements. These agreements cannot be unilaterally changed.
People in this town have no respect for working class people.
November 7, 2008 1:42 PM
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We DO respect working class people . We merely take issue with unionized free-loaders .
Is Kloko the final word?
"The current make up of that cowardly committee are all beneficiarys of the trust funds, (they are all UNION HACKS) In terms of trust law, the beneficiarys should have nothing to do with the management of their funds....the TRUSTEES have that responsibility...so all the UNION HACKS that are on the committee as appointed by Ward are potentially sitting there illegally..."
This is supposed to be an informational group. As such the union reps have a right to hear all the information as well as contribute. Further, pension and benefits are mandatory subjects of collective bargaining. The language of the trusts is in the labor agreements. It is perfectly legal for them to be there.
The trustees of the funds however, which include the mayor, the treasurer, and Mr. Klocko are on this panel. All have stated publicly that their intent to do this thing is to save TAXPAYER money. Indeed, that has been Mr.Cockayne's mantra from the beginning.
Yet as trustees they are sworn to protect the funds for the benefit of the PENSIONERS. If there is any impropriety in the makeup of this group, I would look there.
I hope that the issue is looked at relative to a 20-25 year window, not just "savings" for the coming election.
Mayor Ward is not on the committee any longer b/c he knows what is right. He doesn't want to be attached to taking our money b/c he is a good man and stands up for the working people of this town.
Again I ask any of you, if the city was trying to raid your pension, wouldn't you fight for it? It is our pension and the unions should decide what happens to the money, not the greedy politicians. Next thing you know they will be raiding the pension to rebuild the new mall. We contributed the money and under contract the city matched it, but it is our pension and our money!
Ward is a good man?? I don't think so. He should start doing whats right and start acting in the best insterest of the taxpayers, not whats best for his wives pension....
The committee's first concern should be: should the City Council/ Pension Board use the pension fund money for another purpose besides pensions.
For years some city "leaders" have yearned to tap into the Fund., but the interpretation has been, until recently, that this was not allowed under the City Charter/ByLaws.
If the City allows this incursion into the Pension Fund, what other uses will the financial wizards dream up?
"It is our pension and the unions should decide what happens to the money, not the greedy politicians."
That is unfair. If there is more money in the pension funds than is needed to write checks for retirees, then the "greedy politicians" have an obligation to the taxpayers to look into the legality/feasibility of using some of it to pay for health benefits for the same retirees. If they don't use this excess money, and they end up raising our taxes to fund these health benefits, then they would be overtaxing us. We already have too much money in the "rainy day" fund, and there are other pots of money hidden in different departments around the city. They need to be efficient with our money.
"not whats best for his wives pension"
I wasn't aware that the mayor was a polygamist? (just kidding)...and you've got be kidding if you actually believe that the mayor can do anything about "what's best for his wife's pension"...it's out of his hands.
is it time for a new actual study?
9:17pm - so you don't think that if ward stayed on the GASB-45 committee, that people like you and cotton-breath cockayne wouldn't then say that he had a conflict of interest because his wife was a city employee?
Ward would be screwed either way by you jerks but at least he took the high road and therefore forced you idiots to look like mommy's little (BIG)idiots.
Grow up and address the situation with some thought rather than vengence....
"It is our pension and the unions should decide what happens to the money, not the greedy politicians."
Not entirely accurate. The pension fund is for your benefit, but the language of the trust must be negotiated. This is the big unresolved issue. The city has not really acknowledged this fact at committee. It is good that this committee has been formed to get all the information out, but the council could decide to pursue adding a 401h without it. There are also other ways to address the health care funding issue that have not been explored, but it is obvious from Mr. Klocko's presentation that 401h is the way the city wants to go. If a recommendation to pursue 401h comes out of these meetings, it will go to the council or joint board. Then the individual unions will have to agree to open up pension negotiations. The police have already settled. Firefighters are in arbitration and cannot introduce any new proposals as far as I know. General city’s proposals have also been defined. I believe they are close to settlement. It will be a long process. Time will tell.
"And if the trustees (the three Retirement Boards) decide to move excess (anything over 125%) pension funds into a separate account to pay for OPEB they can do this unilaterally, with the trade-off that the employees will immediately get certain additional benefits."
Whoever gave you this information is either misunderstanding the law or misleading you. The vesting is not about trade-off or compensation. It is about PROTECTION (Pension Protection Act of 2006.)
Without the vesting language in place there would be nothing to prevent the employer from transferring the money calculated at existing costs and then turning around and trying to reduce benefits. Again it is the Pension PROTECTION Act. This act was not done out of the goodness of the IRS hearts. Corporations (Lucent Technologies specifically) lobbied congress to get 401 language enhanced. They were very disappointed when the vesting language came out.
Looks like Klocko may be part of the problem.
Keep your grubby paws off our money!
Those funds were taken from our paychecks and were not meant to lower taxes for everyone else!
"The vesting is not about trade-off or compensation."
Of course it is. Don't be naive. There's nothing logical or scientific about 125% or ten years of fixed benefits...why not 130%? Why not seven years? These are arbitrary numbers that were hammered out in the back rooms of Congress, under pressure from the competing lobbyists (business and labor). Management (big business' lobbyists) wanted to be able to use these excess pension funds to pay for retirees health care, and labor (the unions' lobbyists) said "not without you give us something in return." That how laws get made.
"These are arbitrary numbers that were hammered out in the back rooms of Congress, under pressure from the competing lobbyists (business and labor)."
Why don't you read the law? It becomes perfectly clear why the vesting was put in if you make an effort to educate yourself on the issue instead of just stating your opinion or regurgitating the inaccuracies of others. The abuse I point out is exactly what was happening in corporate America before this act was passed. There are multiple lawsuits over this abuse going on as we speak. Your opinion is interesting but doesn't fit the legislation. Pension PROTECTION Act.
Okay, I did a search of all 393 pages of HR 4 ("Pension Protection Act of 2006")
http://www.dol.gov/ebsa/pdf/ppa2006.pdf
and I didn't find anything that explains the rationale behind the 125% magic number or the immediate vesting issue. Please tell me what pages they are on, or, just admit that laws are like sausages so we can get on with the discussion over whether or not Bristol should use excess pension funds to pay for our OPEB obligations.
"and I didn't find anything that explains the rationale behind the 125% magic number or the immediate vesting issue."
The first relevant fact is on page 226. Here is the text: ‘‘(i) IN GENERAL.—In determining excess pension
assets for purposes of this subsection, subsection (e)(2)
shall be applied by substituting ‘120 percent’ for ‘125
percent’. The revised law increased the amount of money available for transfer. More money , more protection. Here is the other relevent text.
‘‘(A) a qualified future transfer, or
‘‘(B) a collectively bargained transfer."
Actually read pages 226-229. It is title 8 part d. Basically it says that you can transfer more money with a "collectively bargained transfer" than a "qualified future transfer." That is because only a collectively bargained transfer lets the employer include "legacy costs" that is, the benefits earned by all employees (the amortized amount in Mr Klocko's presentation.) Again, more money at stake, more vesting. "Qualified future" vesting is 5 years. "Collectively bargained" vesting is either for life or the terms of the bargaining agreement (10 years.) This is where I believe Mr. Klocko's information is inaccurate because he never mentions a collectively bargained transfer. I never saw sausages mentioned in the law or Mr. Klocko's presentation.
Suggestion:
Use GASB money to buy the Press.
With the profit that will be made, the city can then continue to provide the benefits at no cost to the taxpayers.
Everyone will buy the paper to reduce their tax obligation.
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