Pension ruling may save Mpls. taxpayers $10M

Minneapolis taxpayers stand to save millions of dollars because of a judge's ruling Friday in a case involving century-old pension funds for city police and firefighters.

Hennepin County District Judge Janet Poston ordered the now-closed pension funds to reduce their claim on the city's 2010 property tax levy. The ruling is expected to save millions for property taxpayers next year, and tens of millions of dollars in future years.

Mayor R.T. Rybak hailed the decision as "a great day for Minneapolis taxpayers. Judge Poston has ruled plain and simple that these two pension funds have been overcharging the city for their pension contributions."

The ruling comes in a lawsuit brought by city officials against the Minneapolis Fire Relief Association, founded in 1886, and the Minneapolis Police Relief Association, founded in 1890. Both closed to new employees hired after mid-1980; younger employees belong to a statewide pension fund.

City officials said that a victory in the case would reduce the increase in next year's property tax from the 11.3 percent proposed to 7.3 percent. That's expected to be a savings of $10 million to $11 million.

"The ruling will provide immediate relief for our 2010 pension levy and I pledge that these savings will be passed directly on to taxpayers with reduced property tax bills," Rybak said. The ruling vindicates our work and demonstrates that it is long past time for the Legislature to side with Minneapolis taxpayers and merge these funds into the state system."

Brian Rice, a lawyer representing the funds, was traveling and said he wasn't in a position to comment on the ruling. He said that the pension fund boards would be briefed on the ruling next week.

The city argued that the pension funds were improperly adding some fringe benefits to the salary base for calculating pensions. Police and firefighter pensions are based on the current salary and some benefits for a top-grade officer or firefighter, regardless of what rank the retiree held.

Poston denied the city's attempt to recoup its overpayments from pensioners, saying they weren't parties to the lawsuit.

She found that past overcharges to the city amounted to $49.6 million for police pensions and $19.1 million for firefighters, dating to 2003. She found that future overpayments would have amounted to $62.4 million for police pensions and $24.4 million for fire pensions.

The ruling came after lengthy settlement attempts by the city and the funds, and an earlier city lawsuit over the issue. Poston ruled in time to meet the city's deadline for 2010 taxation decisions.

"Clearly, it's a major win for the taxpayer," said Paul Ostrow, the council's budget chair. The pension funds argued that the city acquiesced in the method of figuring pensions and portrayed it as trying to impoverish pensioners and their widows or widowers.

Those contributions were slated to skyrocket next year under current calculations to offset losses in the investment market and new calculations about the life span of police personnel.

Only 40 active workers left

According to pension fund documents, the average police pension was $47,467 in 2008, with survivors drawing an average of $26,818 annually. The average retired firefighter drew a pension of $43,553; firefighter survivors drew an average of $24,150.

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.

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 salaries. But in 2004 the state auditor's office said that the two funds were improperly calculating the salary on which pensions are figured and not following the settlement agreement with the city.