While city and police negotiators have made progress toward a deal that might improve an ailing pension system, they’re at odds over a proposed lump-sum benefit that advocates argue might help retain more officers.
The alternative retirement incentive program would allow an officer to defer retirement for five years and deliver that five years of pension pay in a lump sum when the officer retires.
Officers say the pension plan benefits by continuing to earn interest on the retained money, but the city is skeptical the numbers support that contention. Five year’s worth of pension pay delivered all at once might encourage officers to stay on the force for a few extra years, pension board Chairman Geoff Gainer said.
“The officer benefits by having a nice nest egg,” Gainer said.
While the city doesn’t see eye-to-eye on this proposal, city officials and police this week started moving toward the possibility of an agreement that would fund the long-ailing police pension.
Wednesday city officials said they would be willing to raise the city’s contribution rate to the police pension from 14.83 percent to 18 percent, which would increase the city’s annual contribution to the plan to $2.15 million, up from $1.77 million, city spokeswoman Marissa Barnett said.
City and police representatives also discussed a deal that would add one city-appointed member to the board, creating an eight-member body. The city has long maintained it won’t put more money into the plan unless the board structure changed, citing concerns a police-dominated board could sway decisions in favor of the plan members.
The proposed incentive benefit wouldn’t affect the deal, Gainer said.
A police pension board actuary ran calculations that determined the proposed benefit plan is cost neutral if police continue to retire at the current average age of 52, Gainer said.
If people stay longer, the more the plan will benefit, Gainer said.
But the city remains unsure about the proposed benefits.
“We’ve not received actuarial numbers to determine the cost of this proposed change,” Barnett said.
In November, the city balked over similarities the proposed incentives had with a DROP, or deferred retirement option plan, programs which have long been cited for harming pensions by guaranteeing accrued interest on retained pension pay.
“As proposed, it does not have all the components of a traditional DROP plan,” Barnett said. “However, it will function similarly to a DROP.”
Officials from the Texas Pension Review Board have called alternative retirement a type of program commonly known as DROP programs. Some DROP programs allow participants to pick a date in the past at which to start calculating their benefits, a feature that’s gotten plans into trouble with unplanned payouts. But the Galveston police proposal only allows participants to pick a current or future date.
If the proposal creates additional plan liability or more cost to the city, officials won’t support the proposal, Barnett said.
Mike Loftin, director of finance for the city and a pension board member, on Tuesday said he doubted the incentive was financially feasible.
“I’m trying to figure out where this program is cost-neutral,” Loftin said. “My gut tells me that this is not cost-neutral and there is something in the numbers that shows that.”
Police and Gainer argued the proposed incentive shouldn’t be compared with DROP plans.
“I want there to be a lot of input, but I want this to happen,” Gainer said. “There are officers here that are looking for a reason to stay.”
The pension board wouldn’t need city approval to implement the incentives and police officers hold four of the seven seats on the board; city appointees hold three seats.
A 2018 review by the state Pension Review Board showed the Galveston police pension had $32.1 million in unfunded liability. The amortization rate, how long it would take the plan to pay out every enrolled officer, has gone down from 55.1 years in 2014 to 35.3 years last year. This was partly due to the city’s contributed rate increase from 12.83 to 14.83 percent in 2017, state review board officials said.
The city and police have been negotiating for months, hoping to avoid state lawmakers’ threats to take over the plan during the current legislative session. Both sides have agreed they’d prefer to solve the issue locally, but the legislature would need to approve any deal reached in Galveston, Gainer said.