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Posted on: February 5, 2019

City proposes solution for police pension plan

MESSAGE CITY GALVESTON2

The City of Galveston has proposed the following very generous offer to the Police Pension board as a means of resolution to the issues facing their plan.

As stated before, the city has limited oversight, and no management or control of the police pension plan.  Of utmost importance to the city is the well-being of our officers, providing them just compensation and doing what we can to safeguard their retirement.    To that end the City continues to work with the Police Pension Board to ensure a stable, viable plan. The city has offered to raise its contribution to 18 percent.  This is an increase from the current contribution rate of 14.83 percent.  This contribution rate would represent an increase of more than 21 percent from the City’s current rate of 14.83 percent and 50 percent more than the contracted contribution of 12 percent as outlined in the collective bargaining agreement.

While this increase may cause some impact to other City programs, it would greatly further the City’s goal of restoring the Police Pension Fund to sound financial footing.   However, as the City has consistently stated, a sound Police Pension Fund cannot be achieved by funding alone.

The city has also proposed that the board of directors be entirely reconstructed.  The new board would mirror that proposed by Representative Dan Flynn, Former Chair of the State Pension committee and an expert in pension reform.  The reconstituted board would have 8 members.  Two current officers, two others that are not police officers and who are not associated with the plan but are chosen by the Galveston Municipal Police Association, two registered voters in the City of Galveston appointed by City Council, one appointed by the City Manager and one appointed by the Mayor.  All members, regardless of who makes the appointment are required to have financial, accounting, business, investment, budgeting, real estate or actuarial experience to establish eligibility for their positions.

The City proposed that the current rate as contributed by the officers be frozen at 12 percent (their current rate of contribution) for the first five years.  This is in contrast to other proposals from the Pension Board seeking to lower their contributions immediately.  The City’s contribution would also be frozen at 18 percent for the first five years.

Retirement age for new hires would be 55 years of age.  All current officers would remain at 50 years of age for their earliest age to draw full benefit. 

Once plan stability is achieved (at five years by design) the officers may begin reducing their pension contribution by 25bps each year until a two to one ratio is met.  Once that ratio is achieved the city may begin reducing its contribution as well.

This will become a closed ADC plan.  After the first five years, any needed increased in the plan will be split accordingly between the two parties (2-1) to maintain the match.

This brings the city’s total retirement contribution for police officers to 24.83 percent of an officer’s salary, including Social Security in which all of our officers also participate.

The biggest key to this plan proposal is that this now removes any unchecked liability and the unfettered access to tax dollars, and restores true public input into the expenditure of local tax dollars with a balanced board with the sole interest of the financial well-being of the plan.  Additionally, the city has requested the plan reduce its expected rate of return from its current level of 7.5 percent to a more realistic 6.75 percent.  This change represents a far more conservative estimate and also one that is achievable.

The long-term goal of these changes for the city is to provide a sound financial base for the plan going forward to ensure plan assets are never again threatened by excessive liabilities.  The final long-term goal remains moving this plan, and the other City Pension plans, to the Texas Municipal Retirement System (TMRS) as soon as they achieve the necessary financial benchmarks as established by TMRS and/or the State Legislature.  



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