February 27, 2009

GASB 45 pension grab up for vote on Tuesday

A proposal to snatch excess pension money and use it to fund the health care of retired city workers is heading for a key vote Tuesday.

The GASB 45 Committee that’s reviewing the plan that could save taxpayers as much as $2 million annually intends to make a recommendation Tuesday to city councilors who have the last word on whether to take the controversial step.

Though most insiders expect the committee to recommend the city do nothing, supporters are pushing the idea as one of the few ways the city could reduce its expenses or increase revenue without hurting taxpayers.

Ronald Mulvihill, a benefits specialist for the American Federation of State, County and Municipal Workers who based in Washington, said the move wouldn’t be as simple as its backers said.

“You have many hoops to jump through,” Mulvihill told the committee.

He said the law is complicated and that unless the city works out an agreement with the relevant unions ahead of time, the issue is sure to land in court.

Mulvihill said he has no idea who would prevail in a court battle because the provisions of the statutes governing the issue are so unclear.

But, he said, the city comptroller’s office “had it right” when it laid out the issue for the panel’s consideration. [Here is the comptroller's presentation.]

Federal law allows the city to shift money within its pension trust fund into a new account for retiree health benefits as long as the pensions remain at least 120 percent overfunded. If it falls below that, the city would have to move the money back into the pension fund, officials said.

It would remain under the control of pension fund trustees so the change, if it’s ever made, would likely not change the way the funds are invested.

The city has about $400 million in its three pension funds – for general city employees, firefighters and police officers – and about $100 million above what actuaries say it will need. But only the police and fire funds are currently flush enough to consider tapping.

Bristol Police Local 754 issued a statement last week that offered to work with the city “to get through these tough times” in the economy, but opposing “draining pension funds.”

“While it is true the city needs to address the GASB 45 reporting requirements, it is not true that this must be done immediately and it is obvious to us that taking radical measures in a turbulent economic climate is short sighted and dangerous,” the statement said.

Other city unions are skeptical as well.

Generally, the unions worry that in snatching excess cash to pay for health care benefits, the city could put its pension fund in jeopardy and perhaps set up a scenario down the road where it might renege somehow on the contractual payouts it is on the hook for.

But Republican mayoral candidate Ken Johnson said that officials have to focus on this issue because it offers a chance to secure “millions and millions in tax savings staring us in the eye.”

Mulvihill said the city should be happy that is has made “fantastic investments” over the years and put its pension fund into an elite handful of municipalities in the whole country that could even consider using surplus money for something other than paying pensions.

Even so, he said, tapping into the cash would be akin to taking out a reverse mortgage. He said it would ultimately catch up with taxpayers.

The GASB 45 Committee is named after an obscure accounting standard that requires cities and towns to figure out their future post-retirement obligations to employees and provide some inkling of how they intend to pay the money when the time comes.

Bristol needs about $72 million to cover its future post-retirement obligations to employees, not counting pensions. It currently pays out about $3.6 million for the health care of retirees, who receive municipal health care for a decade after they retire.

What’s next?

The GASB 45 Committee meets at 5 p.m., Tuesday at City Hall. City councilors may act on its recommendation as soon as Tuesday, March 10.


Copyright 2009. All rights reserved.
Contact Steve Collins at scollins@bristolpress.com


Anonymous said...

Show me anywhere in Klocko's presentation where it presents the complete language of the Pension Protection Act of 2006 and the relevant IRS documents that are required to satisfy the law. Just because Mullvivill is from Washington doesn't mean he knows everything. What Klocko left out is almost everything.

Steve Collins said...

Mulvihill was there when they drafted GASB 45. He's a labor economist and benefits specialist in AFSCME's research and collective bargaining services section.
I'm going to way out on a limb and say his words mean more than someone who goes by Anonymous.

Anonymous said...

"But, he said, the city comptroller’s office “had it right” when it laid out the issue for the panel’s consideration."

This is factually incorrect on several levels.
Muvihill obviously didn't read the presentation. Klocko's description of 420 transfers is incomplete, misleading and inaccurate. There are four ways to transfer funds, not two. The whole "Norwalk story" is inaccurate, Norwalk did not go to binding arbitration over retiree health care. The information that breaks down the percentage of contributions to the pension fund is completely irrelevant. Nowhere does he mention that pension language is in the collective bargaining agreements and doesn't include 401 accounts. He doesn't state how he proposes to create these accounts. This is just off the top of my head. I will look over the whole presentation and post all the errors omssisions and deceptions. Mr. Mullvivill, you have a lot of homework to do. you do the Police Union a disservice to advise them to dismiss the improvement of retiree health care out of hand.

Anonymous said...

"I'm going to way out on a limb"

When Nixon said "I am not a crook" you probably believed him because he was president. Probably why you work for the Press instead of The Washington Post.

The limb is about to break...

Concerned Conservative said...

What exactly is a "labor economist"? Is that someone who distorts economics in order to promote the agenda of "labor"?

All in all I applaud Art Ward's efforts in forming this committee in the first place. For a politician that is so heavily favored by public unions, Ward has seemingly been even handed.

Steve Collins said...

I don't think Mulvihill dismissed union concerns out of hand. In fact, he pretty clearly said the city should negotiate.
On the other hand, it does strike me that taxpayers would be exceedingly unhappy if the generous benefits already offered by the city were expanded. That would be a pretty tough sell when so many people are losing jobs and almost everyone looks at city benefits with envy.

Anonymous said...

"Mulvihill was there when they drafted GASB 45."

I seriously doubt the General Accounting Service Board allowed Mullvihill to sit in on their meetings. Be that as it may,
the fact that you think knowledge of GASB rules has anything to do with IRS law pertaining to 420 transfers shows how pitifully little understanding you have of this issue.

Steve Collins said...

8:24 -- You think there are people who trust "Anonymous" more than Mulvihill? I suspect most people dismiss anonymous comments without much thought. I wasn't really going out on a limb on that one. I was just stating the obvious.
If you want to talk Nixon, by the way, I'm your man. I've had a lifelong fascination with the guy. Lord only knows why.

Anonymous said...

"I don't think Mulvihill dismissed union concerns out of hand."

Where do you think the Police Union press release that you posted came from?

Steve Collins said...

Look, anonymous poster, you think you're an expert on all of this stuff. Maybe you are. How the hell would I know?
I'm not about to claim any special knowledge on this at all. Reporters are not experts on every subject. We just do the best we can to be fair in reporting what we find out in the limited time that we have.
All I know about IRS regulations is that it's best to follow them if you possibly can unless you're really, really clever. I'm not.

Steve Collins said...

8:32 -- Interesting.
I didn't really think about it.

Anonymous said...

Look up IRS documents 13069 and 13070. Or the Pension protection Act of 2006 title 8 part D.They come up easily on Google.
Call Mullvihill and ask him what he thinks about these documents. I have facts and documents to back up my statements. You have hearsay.

Anonymous said...

I didn't really think about it."


Steve Collins said...

Here's part 8(D) --

Subtitle D: Health and Medical Benefits

(Sec. 841) Permits an employer maintaining a defined benefit plan to transfer excess pension assets to cover current retirees future health liabilities.

(Sec. 842) Removes the exclusion that prevents multiemployer pension plans from transferring excess pension assets to health benefits accounts for retirees.

(Sec. 843) Allows qualified asset accounts to include a reserve for medical benefits provided through bona fide association health plans.

(Sec. 844) Excludes from gross income any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract if the investment in the contract is reduced (but not below zero). Requires an individual excluding such charges from gross income to file a return with the Secretary of the Treasury.

(Sec. 845) Excludes from gross income direct distributions from governmental retirement plans to pay for health and long-term care insurance premiums for retired public safety officers.

I read it severa times and I still don't see what you think I should note. I admit, though, that I'm exhausted and my brain even more mush than usual.
The other items are forms that may or may not accurately reflect the law.

Steve Collins said...

8:41 -- You recognize, of course, that if this was the most pressing issue on my plate, I wouldn't be working on three days after the fact, right? I was doing pretty well to get the police statement online at all that day.

Anonymous said...

"Here's part 8(D) --"
You are truly hopeless. That is the wrong document. I posted the correct document here at least twice before. If you do a search on this blog you could find it. To paraphrase - a transfer of funds to a 401 h account can only occur if the language in the pension plan includes a 401h. 401h accounts don't exist in any Bristol municipal employee's pension. In order to change collectively bargained pension language you have to... well... collectively bargain. IRS documents 13069 and 13070 support this view.

Here is a question on form 13069 that the city MUST file with the IRS.

b. Does the plan contain a medical benefits account within the meaning of section
401(h)? If "Yes," complete the remainder of this worksheet. If "No," secure amendments
to include the section 401(h) account provisions or request an explanation from the

Here is a question from 13070- again these are forms that the city MUST submit to the IRS-

"For a section 420 transfer of excess assets to retiree health accounts, the plan must be amended to include provisions for a medical benefits account within the meaning of section 401(h). IRC section

You really have to stretch the limits of reality to argue against this point. I am anonymous, but these are statements backed up with relevant documents to back them up. I am not making this stuff up.

Anonymous said...

"The other items are forms that may or may not accurately reflect the law."

Documents downloaded directly from IRS.GOV surely are legal documents.

Steve Collins said...

9:24 -- IRS forms are obviously legal documents. But any government form might not accurately reflect the law, which changes all the time based on court decisions, statutory changes, regulatory revisions, etc.

Steve Collins said...

9:21 -- I'm not a lawyer, but I can assure you that even those passages can be read several different ways. And, rest assured, there are other relevant statutes that would merely fuzz it up further.
For instance, assuming you do have to bargain collectively, is there a necessity that you reach a deal or merely that you bargain? I can bargain with my banker for a credit card that pays me the interest. I won't get it, but I've negotiated.
In any case, you don't need to convince me. I have no vote in this thing. But I do think you stretch credibility to post anonymously. If you have something to say, put your name on it.

Anonymous said...

"9:24 -- IRS forms are obviously legal documents. But any government form might not accurately reflect the law, which changes all the time based on court decisions, statutory changes, regulatory revisions, etc."


Anonymous said...

"But I do think you stretch credibility to post anonymously"

I document my statements, you use speculation, conjecture and hypothetical. When you do document you use the wrong document. Who is more credible?

Steve Collins said...

10:01 -- I just Googled the document you mentioned. I'm not about to research the law on GASB 45. Lawyers get $400 an hour for that. I get $17 and change. And my boss wouldn't like it if I spent my time eyeballing IRS code language.

Odin said...

The union argument against using excess pension funds to pay for OPEB comes down to hair-splitting and self-serving interpretation of incredibly complicated tax law. AFSCME's own expert admitted last week that Klocko has explained the issues correctly.

The City's $400/hr tax lawyer says the City can do it without having to negoatiate. The Union's guard house lawyers say the City does have to negotiate. Hmmm, which "lawyer" should the City Council believe?

Anonymous said...

I am not going to argue the fact that the city may have the LEGAL right to move the money over from the pension funds into a medical benifits separate fund, however, I am concerned by one thing. If, at any time the police, fire, etc pension funds drop below 120%, the money has to ALL go back into the pension fund. If this is true, the city is not setting up a solid, guarenteed fund for future use. It is a fund with a "contingency". Would anyone set up a college fund for their children in the same manner? probably not. It is misleading to sell this issue to the taxpayers when at any given time, if the fund dips below 120%, all the money shifts back. What will we have at that point, nothing. My view is leave the money where it is, earning interest. The city has not contributed to the police and fire pension funds for years. The city saves millions of dollars every year by not contributing to the pension funds because they are so well invested and over funded. I'm not sure we should mess with success. Just my opinion.

Anonymous said...

9:48 -- That makes sense except that the city has to put money in for the health care UNLESS the funding comes from the pension excess. If we don't use the excess, we have to pay. If we do use the excess, we might never have to pay anything more. That doesn't strike me as a tough choice.
One way we have the potential for vast savings. The other way, we're in the same boat we would be in if don't do anything. Why not go for the one that could help us?

chris wilson said...

so the issue can be boiled down to pay me now or pay me later! seems we contractually owe the money we are just discussing how are we going to account and pay for the liability.

Anonymous said...

What everyone is missing, including Steve, is that GASB 45 is merely a REPORTING requirement. In other words, the City has had these OPEB obligations for a long time, has known about them, has negotiated them and has planned for them. There is NO new expense here.

Steve Collins said...

11:19 is exactly right But it is an obligation to report on real future expenses. The city could choose to do nothing to get ready to pay them someday, which is what most places are probably doing, or it can sock away money now to prevent a catastrophic tax hike later. Which is the smart move?
If the city's leaders back in the late 1970s hadn't begun socking away cash for future pension obligations, city taxpayers would be shelling out $6 million a year extra right now -- and more in years to come.
This is exactly the same scenario and ignoring it would be crazy. So the choice for the city is really this:
1. Is is it going to keep offering medical insurance for retirees?; and if it is:
2. How will it find the money to pay for it?
The argument now is about how to find the money, with some pushing for the use of excess pension cash. I haven't really heard anyone mention another way to get the money except from property taxes.

Anonymous said...

When the police union negotiated with the city in good faith some years back, because the police pension fund was so overfunded, the Union gave the city permission to stop contributing the approximately 1.4 million dollars a year it was contractually obligated to contribute into this pension fund. I'll say it again...1.4 million dollars a year...that the city has not had to contribute annually to this fund. Had this 1.4million dollars in annual savings been factored in way back then as a city hall accounting practice, and was put into a separate retirement medical benifits fund back then, we would not even be having this discussion. Where did this annual union giveback savings go? Where was it spent? I do not have anything personal against anyone in the comptrolers office, but where was the over sight, advice and guidance with the taxpayers money back then? I guess now we are all supposed to believe that their accounting and bookkeeping ideas are great, timely and cutting edge. Be careful..."the advice one receives today may cause the downfall of tomorrow".

Anonymous said...

Steve, I hope you understand that it isn't because the city "socked" money away starting back in the 70's, but it is because the then leaders had the sense to listen to Tom O'Brian and hire a money manager rather than just putting it in the bank.
That, coupled with the good market over the years has created the amount of dollars available.

While this doesn't change the current situation, it does give credit where credit is due.

Anonymous said...

The Union should really be careful and consider working with the City to get us through these tough times. The foot that you step on today, may be connected to the ass you have to kiss tomorrow!!

Anonymous said...

"but it is because the then leaders had the sense to listen to Tom O'Brian and hire a money manager rather than just putting it in the bank."
That empty suit O'brien had nothing to do with improving the pension fund. That idea came directly from the urging of union leadersip.

Concerned Conservative said...

February 28, 2009 11:19 AM:

I concur. GASB 45 is merely a more tranparent way in which to report. In short "GASB Statement 45, is an accounting and financial reporting provision requiring government employers to measure and report the liabilities associated with other (than pension) postemployment benefits (or OPEB)." http://en.wikipedia.org/wiki/GASB_45.
What's the big deal. Just do it!

Chris Wilson's opinion here (as he being a member of the Republican Party) baffles me. Perhaps Chris feels he should abide by the tyranny of the majority? I never voted for any of these give-aways. I purposely voted AGAINST THEM. Shame on you. The city of Bristol would be better off if you chose not to run for BOE this year.

Anonymous said...

Maybe Chris has some smarts in this area: he certainly is known not to be political.

chris wilson said...

Quite FRankly CC I never realized this issue was a litmus test for my republicanism. I take each issue and develop what I believe to be the best response based upon my knowledge of the issue. Just because I am a republican doesn't mean I must subscribe to some party line on an issue. More often than not I think a certain way and thus my republican leanings however it would be impossible for one to be completely consistent on all issues with the party. Especially local issues.

If I am accused of not wanting to cut money out of the BOE budget you are correct. I will accept the criticism that I am for more spending on education. As an advocate for educational issues I want to eliminate that which doesn't work and improve what does work. If that takes additional resources I am for it.

So if one wants to criticize me for that stance then so be it.

My point on GASB45 is that we probably are going to have to increase our funding for Retireees health insurance regardless! I think the financial leaders of this community will have to reconcile with that issue. Taking $ from the pension does not solve the problem. It will probably have to be a multi source solution.

Anonymous said...

Think Johnson will be there to get on TV?

Orange shirt, or Orange tie?

Anonymous said...

Predictions are the mzrket will go down further.
How would that affect what is being considered?

Anonymous said...

How will the recent drop(s) in the market affect this decision?

What if it goes to 6,000, or 5,000?