Public pensions deserve scrutiny

The board of a closed Minneapolis police pension fund that's been holding city taxpayers hostage for years continues to distance itself from reality.

Leaders of the fund appear oblivious to the public pension reform movement that's sweeping the country as more states, counties and cities face crushing financial burdens driven by unfavorable demographics, weak investment returns and bad decisions made decades ago.

On June 2 the police fund board voted unanimously to reject the proposed merger of the fund with a statewide pension plan. Another closed city fund representing firefighters would be included in the merger.

If you haven't been following this mess, you're probably guessing the vote was in response to deep benefit cuts. Wrong.

The merger would have increased the salary on which police pensions are calculated by more than 41 percent to $64,000 by 2015. (It should be noted that survivors receive smaller payments, by about 50 percent.)

The two pension funds -- the Minneapolis Police Relief Association (MPRA) and Minneapolis Firefighters Relief Association (MFRA) -- were closed to new members about 30 years ago, and they represent just eight active members and about 800 retirees and dependents in MPRA and 23 active members and about 528 retirees and dependents in MFRA.

Because of shortsighted decisions made over the decades at City Hall, the funds have a disproportionate impact on Minneapolis taxpayers today. Neither is fully funded, although MFRA is healthier, and without changes the combined city obligation to the two funds between 2010 and 2020 could exceed $161.8 million.

The proposed merger would have reduced the city's annual payments for the two funds and cut next year's levy by a total of almost $21 million, providing much-needed relief for city taxpayers. The city would be able to cut its pension liability because the funds would assume higher investment returns and lower pension increases under the state plan.

The city would also gain an additional 11 years to fully fund the deficits the two funds now have on their books. And the funds would be controlled by the respected state fund -- not by conflicted members.

Over the years, the boards of the two funds have come up with a number of creative ways to deliver more money to members instead of focusing on the long-term stability of the funds.

Our favorites: One costly provision forced the city to make up benefit differences when the market was down, but rewarded members with a 13th check when returns were good; another allowed for extra bonus payments based on overtime worked by current employees.

If, for example, an interstate bridge collapses, happy days are here again for fund members, while taxpayers pick up the engorged pension tab. And there's no need for conflicted administrators to worry about inadequate funding when the city is on the hook to make up the difference.

Poston's overpayment order appeared to finally shock pension fund leaders into serious negotiations on the merger, and it appeared that a deal was set before the legislative session ended in futility with no action on the pension issue.

Further complicating matters, a May 31 state Court of Appeals ruling overturned Poston's decision that the funds had improperly included certain items of compensation in calculating benefit levels, saying that was a question for a longer trial.

However, the appeals court also affirmed Poston's ruling that the funds overcharged the city in four areas of compensation. Both sides declared victory after the decision, and the emboldened police fund board voted to hold out for a better deal from the city.

The problem with that strategy is that the city had already sweetened its merger offer several times, in part because it needs the support of union-friendly DFL legislators.

For example, while the legislation still appeared to have a chance to pass before the end of the session the city reluctantly agreed to a late bid by the firefighters to give them pension parity with police -- a move that would cost the city $8 million in today's dollars.

One would think GOP legislators, who often speak out in favor of pension reform, would be lining up to support the merger as a long-term benefit to taxpayers, but it's clear that anti-city sentiment runs as deep in Republican ranks as union influence does in the DFL.

The city should stand firm, and leaders of the two pension funds should wake up and agree to a merger in time to get the proposal on the agenda for a special legislative session.

Fund members may never again see an offer as good as the one they rejected earlier this month.

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