If Charleston City Council votes to close its current pensionplans for police and firefighters this evening as the mayor hasrequested, it will start a slow climb out of a deep hole. But even aslow climb will come at a hefty cost. The plans are to be closed tonew hires. Current employees and retires still would draw benefitsfrom the old plans. City officials have devised a strategy to paydown the huge liabilities of those plans. In the first year alone,it calls for the city to come up with an extra $1.5 million to plowinto pensions. Only a little more than half that amount, $850,000,has been identified so far, and the citys fiscal year begins July 1.That will be the savings garnered by eliminating 12 vacantfirefighter positions and cutting in half the citys contribution tothe Kanawha-Charleston Health Department for a savings of $100,000.City Manager David Molgaard said, The challenge this coming year isto figure out where the rest of the money will come from. MayorDanny Jones agreed. But it has to be done, Jones said. Well come upwith a way one way or another. Like many cities around the state,Charleston has struggled to fund its fireman and police pensionfunds. Jones has called the unfunded liability one of the biggestchallenges he has faced. Charlestons firefighter fund is only 5percent funded, and its police officer fund, 10 percent. Theunfunded liabilities or gaps between expected assets and promisedbenefits total about $208 million for the two funds, Molgaard said.City Treasurer Vic Grigoraci thinks the mayor has come up with thebest alternative for dealing with the pension problem that he can,given the Legislatures reluctance to take meaningful action.However, Grigoraci thinks the problem is far from solved. All wevedone is push the uncertainty of it down the road a little bit, hesaid. Eventually, a new revenue source must be identified, he said.Meanwhile, the city will alter the way it pays benefits under theold plans. The pension trust funds are fed by three revenue sources employer contributions, employee contributions and the citys shareof revenue from a statewide tax on insurance premiums. The trustfunds also have investment earnings. The city would continueplugging 18 percent of the insurance tax revenue and 20 percent ofthe employee contributions into those trust funds. But it would stoppaying benefits from them. So the funds would begin functioningsolely as savings accounts fed slowly over time and drawinginvestment earnings. The rest of the money from those two revenuesources plus all of the employer contributions would go directlytoward pension payments to current retirees and to employees hiredunder the old plans when they retire. Although the cityscontributions to the existing plans must continue to rise, thisstrategy would allow the city to eliminate the unfunded liabilitiesover the next 35 years, Molgaard said. In the fiscal year thatstarts July 1, the citys contribution to the program is to increaseto $7.7 million, Estep said. The city had budgeted $6.2 million.Jones said the city will have to manage its finances well to come upwith the difference. More cuts will be needed, and Jones said hedoes not know what they will be. While the situation is difficult,it is better than the alternative, Estep said. The cityscontribution would balloon to about $27 million a year in 20 yearsif the pension plans were not closed, Estep said. Now theres a planfor paying down the unfunded liability, Estep said. Thats becausewere putting money into the old plans and not taking it back out, hesaid. The citys contributions to the old pension funds will decreaseas time goes on. For example, the city will have to come up with anadditional $1.4 million in fiscal year 2013, or $100,000 less thanin the coming year, Estep said. It continues to drop, Estep said.The city could have opted into a new pension plan created by theLegislature last year but found it unaffordable. The city would havehad to find an additional $9 million to opt into the plan withoutclosing the old pension plans, Estep said. We couldnt afford that,he said. Now, if the resolution is passed, new hires must go intonew, state-managed plans. The benefits wont be quite as generous asthose offered under the old plans. Current employees can count onpensions based on a formula that multiplies years of service firstby final average pay and then by 3 percent. Also, they can retire atage 50. The formula for new hires multiplies experience, pay and 2.6percent. They, too, will be able to retire at age 50. Its not aslucrative, but its still lucrative, Jones said. By comparison, asimilar formula with a 2 percent factor is used to determine thepensions of teachers and other public employees. Jones saidemployees in the new plan would contribute 9.5 percent of theirwages to their pension plans. Current employees contribute 8percent, Grigoraci said. A state board will regularly assess thefinancial condition of the new funds and adjust the cityscontribution rate as needed, Jones said. Actuaries have estimatedthe citys contribution in the first year would be about $25,000 forthe new police pension plan and about $26,000 for the firefighterplan, Estep said. The payment of benefits to the new hires would notstart until those employees began retiring in 20 to 25 years.
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