Although we agree government retirement plans need to be reformed, that article did not fully and accurately describe the financial situation here in the City of Fort Lauderdale. The Fort Lauderdale General Employees Retirement System and the Police and Firefighters' Retirement System are not underfunded.
"Underfunded" means an employer is not making the required annual contribution to fund a plan's present and future promised benefits. This critical situation occurred in Illinois, New Jersey and California, when these states either failed to make their full required annual contributions, made no contributions to their plans for several years, or increased their plans benefits without funding these benefits.
In contrast, Fort Lauderdale has always made the annual required payment to its General Employees and Police and Firefighters' retirement systems. It is unfair and misleading to lump Fort Lauderdale together with cities and counties that are failing to make their proper contributions and putting their plans at risk.
Fort Lauderdale's pension plans are also not "unfunded." If the plans were truly "unfunded," there would be no money in them and the city would be required to pay all current pension benefits each year. Instead, both retirement plans are 70 percent "prefunded," which means that the plans have enough assets available today to pay for 70 percent of all current and future promised benefits for all members, with up to 30 years of contributions and investment earnings to raise the additional assets.
The portion of the plans that is not "prefunded" is referred to as an "unfunded actuarial accrued liability" or UAAL. Like a home mortgage, this amount is amortized over an extended period of time, typically 20 to 30 years, to make it more affordable.
According to the retirement plan's actuary, "there is nothing intrinsically wrong with having an unfunded liability, and the fact that one exists does not mean a plan is underfunded." As long as the plan meets the funding needs of the system over the long term, the UAAL will not negatively impact the long term funding progress of the retirement system.
Following recent negotiations, our police and firefighters who participate in the retirement system contribute eight and a half percent of their annual salaries to the plan, which equates to approximately $4.9 million. Likewise, our general city employees who participate in the retirement system contribute six percent of their annual salaries to the plan which equals approximately $4.3 million. The employee contributions, the city's annual payment, and the plans' investment earnings collectively work to cover the normal cost components of the retirement plans, reduce the UAAL, and keep the plans stable and financially viable
It is important to remember the health of a public pension plan is not determined by the UAAL. As the stock market and other investment vehicles rebound, the increased value of the retirement plans' assets will positively affect the total assets and reduce the UAAL. As a result, no drastic or emergency steps need to be taken by Fort Lauderdale to reduce or pay off the UAAL. It is being paid down each year in the same way millions of Americans pay down their mortgages.
In closing, the City of Fort Lauderdale recognizes the need for pension reform. As such, we have made, and will continue to make, meaningful changes to our retirement systems in order to ensure their long-term sustainability and to reduce the financial burden on our taxpayers.
All we can say about Mayor Seiler is that he really knows his stuff. Thank you, Mayor, for getting it right, and helping to dispel the scare tactics that are flying around everywhere else.