Funding feud over city pensions goes to court

A lawsuit that could save the city of Minneapolis millions of dollars annually on police and firefighter pensions goes to trial Monday.

The city will try to persuade Hennepin County District Judge Janet Poston that two closed pension funds for cops and firefighters are overcharging the city. The city alleges that the funds are improperly including some fringe benefits that shouldn't be included in the salary base for calculating pensions.

"They didn't object for 10 years," said Brian Rice, general counsel for both funds. "They approved all these numbers." Managers of the funds maintain that they have been calculating benefits consistently for years.

In pretrial rulings, Poston found merit in substantial aspects of the city's arguments, and the two sides have engaged in extensive settlement discussions.

If the city wins, the decision could cut the property tax levy for pensions next year by $11 million, according to city finance officials.

But Rice accused Minneapolis of trying to cut what he said already are among the lowest police and firefighter pensions in the state.

The case involves the Minneapolis Fire Relief Association, founded in 1886, and the Minneapolis Police Relief Association, founded in 1890.

Younger employees of both forces now belong to a statewide plan.

There are only 27 active firefighters and 13 police officers still paying into the fund, which along with city contributions and investment earnings supports 563 firefighter pensioners and 834 police pensioners as of Dec. 31.

That imbalance between active and retired members has helped increase city contributions, especially with state law requiring that the police pension be fully funded for anticipated obligations by 2020.

The financial drain on the city also is increasing sharply next year, because of investment losses caused by market declines and because of a Legislature-approved change in assumptions about the longevity of retired police officers. Those costs are the biggest reasons that Mayor R.T. Rybak has proposed an 11.3 percent property tax increase for next year.

The dispute about how to calculate pensions for the closed funds is long-running. The city sued in 1995, and reached a settlement with the pension funds about how to calculate salary for purposes of figuring pensions. But the state auditor's office flagged the two funds in 2004. It said that they were improperly calculating the salary on which pensions are figured, not following the settlement agreement with the city or legal requirements.

That amounted to a "unilateral and illegal setting of their pension benefits," the city said in its complaint. The pension funds asked Poston to dismiss the lawsuit on several grounds, but she denied that request in 2007 and her decision was affirmed last year on appeal.

The City Council huddled in private Wednesday with its attorneys to discuss the case, but took no formal action. Walter Schirmer, executive director of the firefighter pension fund, told the Board of Estimate and Taxation last month that the two funds had proposed a lawsuit settlement.

He said that the proposal would cut the increase in funding needed for the two plans next year, from nearly $18 million to $4.3 million. That would cut the city's levy increase next year almost in half, he claimed.

But Schirmer didn't elaborate about other elements of the proposal and didn't return calls from the Star Tribune seeking comment.