The city and the police pension board are negotiating fixes to make the plan financially sound, agreeing to work with actuaries and assess possible changes.
In a recent meeting, City Manager Brian Maxwell said the city had hired an actuary to conduct an independent evaluation of the pension plan.
A pension board actuary has done an assessment and drafted about six scenarios for how the board’s ideas could get the plan to solvency, which the city agreed to review.
The Texas Pension Review Board in a recent report said the city had been underfunding the police pension for 17 years and police officers were contributing more than they could expect to benefit.
But the pension review board had not placed the blame solely on the city, Maxwell said. Both sides needed to come up with a solution — and likely a compromise, he said.
“In my conversations with the pension review board, they’re looking for a group effort on this,” Maxwell said. “We need to do this in a way that’s not financially harmful for the pension members or the city.”
The board is willing to hear out different scenarios, but would refuse any change in which officers would pay more than they received in return, or any plan offering less than what officers were entitled to, said Geoff Gainer, a member of the Galveston Police Department and chairman of the local police pension board.
“There’s a huge playing field to negotiate, but I don’t think the fund can accept less in value than is guaranteed in the statute,” Gainer said. “No one should be asked to pay more than the benefit is worth.”
Maxwell said he agreed officers should not pay more than they get in return.
There had been a previous point of contention over who was responsible for paying the interest on the unfunded liabilities, Gainer said. The city administration had disputed the board’s claim that city taxpayers were responsible for paying the interest on the unfunded liabilities, Gainer said.
But in the meeting last week, Deputy City Manager Dan Buckley noted the city would be responsible for the interest on the unfunded liabilities.
“That’s a breath of fresh air,” Gainer said.
Galveston’s police pension plan faces $29 million in unfunded liabilities, with an estimated payoff period of 48.7 years. That period is one of the highest in Texas, according to the state’s actuarial report.
The plan was almost entirely funded in 2000, but in 2017, the plan was only 42.1 percent funded, according to the report.
TWENTY AND OUT
In the meeting, Maxwell touched on changes to the plan he wants the board and city to consider, including re-examining the retirement age and investment tenure, he said.
The changes would not come with any monetary increases to how much police officers pay into the plan, Maxwell said. But the city wanted to look at tweaking the policy allowing police officers with 20 years of service to retire at 50 with full salary, Maxwell said.
In other police pension plans, the “20 and out” benefit is standard, but most plans have stipulations under which officers might get a partial benefit at 20 years of service and a full benefit with more years, Maxwell said.
“Twenty and out is not bad, the problem is 20 and out with full benefit,” Maxwell said.
Most city taxpayers do not have the same benefit, he said.
“We’re asking the citizenry to pay a big chunk and the majority of the citizenry does not get to retire at the age you get to retire with full benefit and I think we have to be cognizant of that,” Maxwell said.
But Gainer said the market for police officers was different because of the physical and emotional demands of the job. The Galveston Police Department also had not encouraged people to stay longer by offering some of the incentives other departments offer, such as higher pay and promotions, Gainer said.
Maxwell said he wanted to look at other incentives for the department to encourage people to stay on longer and wasn’t considering having police officers working until 65 or 70. The city wanted to look at a tiered system for benefits and assess different scenarios for retirement ages before making a decision, Maxwell said.
The police pension board has asked the city to increase contributions to the plan in the short term. Maxwell and Buckley have said that might not be feasible for taxpayers who would foot the cost.
The board’s calculations show the city would need to increase contributions to about 23.4 percent from 12.83 percent this year to meet the unfunded liability, Gainer said. The percentage increase translates to a cost of more than $1 million this year, officials said.
But the city’s contribution percentage would drop over time as the unfunded liability goes down, eventually allowing the contribution to drop below the 12.83 percent the city is contributing now, Gainer said. Other scenarios offered could lessen the amount paid upfront to make it a less bitter pill to swallow, he said.
The city would look at the contributions, but taxpayers should have a say in any significant increase to contributions, Maxwell said.
The city had statutory rules for the pension plan requiring it to pay certain fees, Gainer said. And while the board didn’t want city taxpayers to pay more than they needed to, he took offense at the frequent mention of it, Gainer said.
“I think you’re trying to guilt trip police officers,” Gainer said. “You’re telling me that while the city hasn’t paid the right amount of its mortgage, now that it has to you want me to feel bad because it’s going to come at the expense of taxpayers.”
Maxwell said that wasn’t his intent, but ultimately any increases from the city to the fund would come at the expense of other items in the city budget.
THE POWER OF THE BOARD
For the city, one of the primary concerns is over the amount of power the local police pension board has in the plan, Buckley said. The majority of the board’s members are police-affiliated.
The state’s Pension Review Board also viewed it as an issue, he said. Any major votes on the board increasing contributions should carry a supermajority vote, he said.
“Nonelected boards should not be able to increase the unfunded liability through benefit increases and put it on the taxpayers,” Buckley said.
But Gainer had reservations about the supermajority vote and taking away power from police officers, who have the biggest vested interest in the pension plan, Gainer said.
The power of the board gave it a better ability to protect the plan and kept the department from having to negotiate with the city through collective bargaining, which shouldn’t be how pension plans are decided, Gainer said.
“The pension board is a lot more powerful than it was before,” Gainer said, adding that the board had in recent years learned more about the authority given to it through state statute.
“It’s not a committee of the city, we have our own statute.”
Galveston is one of only a few in Texas that sponsors its own police pension plan, Buckley said. Most police departments are in the state pension plan, but in the 1980s city leaders decided to have their own, he said.
The police pension plan is a defined benefit plan. Police employees contribute 12 percent of their pay to the plan, and the city contributes amounts equal to 12.83 percent of each employee’s pay to underwrite the plan.
The city’s actuary will present its evaluation in a later meeting, Maxwell said.