If Sebring ultimately reduces the number of fire department employees covered by the municipal pension, it will be following a number of cities in Florida that have made changes to deal with skyrocketing benefit costs.
National and state studies published during the last several years say that increasingly cities are finding that the revenue isn’t there to fund generous pension plans offered in the past, with increasing taxes, using reserve money or reducing services being the only ways to deal with the problem.
Sebring City Manager Scott Noethlich said the main problems are that investments do not generate enough revenue to cover increasing pension costs and that it’s difficult, if not impossible, to project how much revenue will be needed.
The city wants to limit participation in the pension plan to employees who are vested and have worked 10 years in the department, with other employees being moved to 401K plans. The union has rejected that and originally contended that all current employees should remain on the pension system.
Ultimately, the City Council will decide the issue.
But the city notes in documents that the cost of the pension plan was $116,789, or 5.4 percent of the city’s property tax revenue in 2002 and that skyrocketed to $599,980 or 18.9 percent of property tax revenue.
City officials also noted that 70 percent of the payroll cost for a firefighter went toward the pension in 2010.
Ross Edmonds, head of the firefighters’ union, said the city may save money over a period of time, but end up having increasing difficulty in hiring good firefighters. They may end up having to increase salaries to do that, he said.
Edmonds said a major factor in the problem is the downturn in the economy and less investment growth.
He said that in the short term the city will pay more because with no new employees being added, revenues to invest will decrease.
But Sebring is far from alone in facing that potential dilemma. The Leroy Collins Institute and Florida Tax Watch issued a study in 2011 indicating that Sebring is among many Florida cities that have either modified pension plans or moved to other plans because of increasing costs.
The report notes that “many Florida municipalities have realized that there is a problem and are attempting to find steps in eliminating the problem prior to it becoming irreversible or adversely affecting the economic well-being of the municipality and its citizens,” the report said.
Noethlich said the pension problem is that there’s no way to know the success of pension fund investments and how long employees will live. With plans having cost-of-living benefits, some pensioners end up receiving more than the salary they earned while on the job, he said.
The problem is apparently less acute with police departments because firefighters stay longer on the average with one department, Noethlich said.
The Collins study notes that since pension plans often base benefits on the higher salaries the employees make toward the end of their careers, that skews the cost upward. In one city, an employee whose salary was $60,000 earned more than $100,000 in pension benefits because their salaries during their final years were bumped up because of such factors as unused vacation time.
In response to the problems, some cities, such as Lakeland, Miami and Palm Beach Gardens, Hollywood and New Smyrna Beach raised retirement ages, the study said. Other towns adopted differing formulas determining benefits, new types of retirement plans and required higher contributions from employees.
Brian Koji, a labor attorney for the city, said he deals with other cities that are planning to move from pensions to other benefit plans where the benefits are known.