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Editorial: Minneapolis suffers from pension ills

Fire, police funds are a major drain on city's budget.

Last update: October 21, 2009 - 3:05 PM

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"We don't want to take anything away from current police and fire retirees and widows. But we have to protect our taxpayers, many of them widows and retirees, from exorbitant tax increases. The city cannot continue to hand over blank checks to the funds."

Betsy Hodges, Minneapolis City Council member

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In the complex, yearslong saga of the city of Minneapolis vs. two closed employee pension funds, these points are clear: The city cannot continue to pay into the funds under their current provisions; the police and fire retirement groups must negotiate in better faith to help bring the costs back down to earth; and fixing this growing financial burden on the city should not place an unreasonable burden on current retirees.

The stakes are huge for city taxpayers: Mayor R.T. Rybak's recent budget proposal indicates that 60 percent of next year's proposed city tax increase must go directly to the two funds, which cover just 1,400 pensioners.

Seeking relief, the city sued the Minneapolis Police Relief Association (MPRA) and the Minneapolis Firefighters Relief Association (MFRA), alleging that they had miscalculated contract provisions, resulting in overcharging the city.

Last month, a Hennepin County judge ruled that the funds did indeed overcharge in some areas of the contract. For example, one part of the agreement allows retirees to get additional payments based on up to 136 hours of annual overtime worked by current employees. But one fund included 136 hours, whether or not that amount of overtime was worked, and the court found that interpretation a violation of the contract. Another overly expensive provision requires the city to make up the benefit difference when investment returns are down, yet in good times pensioners reap all the benefits with a 13th monthly check.

The judge is considering remedies that could include either reducing or freezing current retiree pensions. Those remedies must be fair to retirees, with more of an emphasis on reducing the city's future obligations than recovering past overpayments from a dwindling number of retirees.

MFRA and MPRA were established in the late 1800s and were closed to new members in 1980. At that point, the state stepped in and helped develop a formula in which the pensions would be paid based on a combination of city contributions, member contributions, state aid and investment income. But the downturn in the stock market and other factors have substantially raised the city's obligation.

City officials estimate that the overpayment of benefits for 2003-2009 was $35 million for police and $17 million for firefighters. During that same period, the city says it contributed another $6 million to the funds -- for a total of $58 million -- based on the way the fund managers calculated the payments.

Representatives of the funds have said in the past that the city should make good on negotiated promises. And they say city officials have inflated the actual amount of the city's obligation. They argue that the city can control any annual increases because the benefit is tied to whatever is negotiated for current workers.

Still, the contract provisions for the two funds are unreasonable by today's pension standards and don't match the era's economic realities. The court has already said overpayments were made. And the judge is expected to rule on several other provisions and determine a remedy by the end of November.

But beyond the court decisions, these pension arrangements need reform. Though the Minnesota Legislature has previously taken a hands-off approach, it should make needed changes in 2010. Lawmakers helped create the funds; now they need to step in and facilitate folding them into the statewide plan.

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Opinion Exchange is produced by the Editorial Department, which is dedicated to hosting the discussion on a range of issues of interest to Star Tribune readers online and in print. In its new format, it's our hope that Opinion Exhange will create a more dynamic dialogue between Star Tribune readers and the Editorial Board. Many individual posts will be written and signed by members of the Editorial Board and will reflect their own opinions. Daily editorials will continue to represent the institutional voice of the newspaper and be researched and written by the Editorial Department, which is independent of the newsroom.

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