“A half-truth is the most cowardly of lies.”
In his Local View column (LJS, Aug. 2), David Engler, president of the Lincoln Firefighters’ Union, criticized 401(k) retirement plans (a type of defined “contribution” plan) and concerns I have voiced about the Police and Firefighters defined “benefit” Pension Plan.
Engler’s column quotes the biased National Institute on Retirement Security (NIRS) and contains half-truths.
NIRS' Andrew G. Biggs, formerly the principal deputy commissioner of the Social Security Administration, has noted the NIRS “membership consists principally of public employee unions, the pension plans in which they participate, and the actuarial and investment firms that serve them."
Engler’s editorial incorporated NIRS bias.
Facts or half-truths? Engler wrote, “By every independent measure the (Pension) fund is fiscally healthy.”
Fact: The Aug. 31, 2011, Actuarial Valuation Report stated: “If asset returns are not significantly higher than 7.50 percent (the assumed annual investment return) over the next few years ... the employer contribution rate can be expected to increase significantly.” In 1999, the city’s contribution was $908,234; it is now $6.7 million and increasing.
Engler: “As recently as 2008, the Lincoln Police and Fire Pension was 100 percent funded. ... Today it is 81 percent funded, and the reduction is due to the devastating recession. As the market recovers, so will the pension fund.”
Fact: The “market” value of the Pension fell from $181 million in 2007 to $135 million in 2010.
Engler’s “81 percent funded” figure uses “actuarial language”. There are three values of importance (8-31-2011 figures): (1) the Actuarial Accrued Value ($205 million), (2) Funding Value ($165 million) and (3) Market Value of assets ($148 million). Engler’s “81 percent” refers to the Funding Value ($40 million deficit), not the Market Value ($57 million deficit). Funding Value is an “actuarial” creation -- not the same as the “market value” of the assets. The Pension Plan was 72 percent funded using “Market Value.”
Without Mayor Chris Beutler’s 2009 modifications of two key Pension Plan “actuarial assumptions,” the “81 percent of Funding Value” would be closer to “72 percent of Market Value.”
Since 1999, I have suggested the 7.5 percent earnings assumption is too high --during those 13 years, the investment return exceeded 7.5 percent only three times. Current U.S. Treasury Bond rates for 30 years are 2.6 percent. If Engler is so sure the “market will recover,” will he and his fellow pension participants guarantee the investment return instead of Lincoln taxpayers?
Engler: The amount of taxpayer dollars that go into the firefighter and police fund is limited, with nearly 80 percent ... coming from our own paychecks and investment earnings.
Fact: The plan participants contribute an average of 6.69 percent of their compensation. The remaining costs of the Pension Plan are paid from Lincoln taxpayers’ real estate taxes, less investment earnings. The city’s contribution for 2011 was 18.02 percent of compensation, nearly three times as much as plan participants, and a one-year increase from 15.62 percent in 2010. Engler’s 80 percent figure has no relevance to employee contributions.
Engler: “(F)irefighters and police officers don’t receive Social Security, and our pensions are our only source of retirement income."
Fact: Lincoln’s firefighters and police officers do not contribute the 6.2 percent to Social Security that other workers do. But the 6.69 percent they contribute to the Pension Plan provides, in Engler’s words, a “modest” 64 percent of regular pay at retirement.
How many Lincolnites would gladly decline contributing 6.2 percent to Social Security and instead contribute 6.69 percent to the Police/Firefighters Pension Plan and receive “64 percent of their highest year’s pay” for life? At a retirement age as young as 48-50?
Engler is disingenuous saying the Pension Plan is their “only source of retirement income.” How many firefighters have second or third jobs because they work Kelly days providing considerable free time -- and draw Social Security or retirement from those other jobs? How many firefighters have second careers after retirement that provide additional retirement benefits and Social Security?
The City of Lincoln has three alternatives to improve the police and firefighters retirement benefits: (1) require more contributions by the Pension participants, (2) reduce Pension benefit levels, and/or (3) convert to a defined contribution plan.
Council Member Jon A. Camp formerly owned an actuarial consulting firm.