The city’s contribution to its Police and Firefighters Pension Fund will increase slightly in the 2016 fiscal year.
An actuarial valuation report, which was approved by the pension board in March, shows the city will be responsible for $1.4 million more in contributions than it had to pay this fiscal year.
Finance Director Paul Wesch said the increase can be partially attributed to an annual 4 percent increase the city pays toward the fund each year, in order to reduce its unfunded liability, or the amount by which future payment obligations exceed the present value of the fund.
Additionally, Wesch said, the increase is due to lowering the fund’s anticipated return on investment to 7 percent from 8 percent, to fall more in line with national averages.
“Compared to the national average, we were too high,” Wesch said. “We had an optimistic view of our return on investment.”
Pension fund assets actually gained nearly 7.5 percent this year, but the contribution increase is due to a five-year investment average, which drops it to just over 2 percent for this year. A 7 percent annual investment return was required to keep the contribution stable, the report states.
The fund increased in value over last year according to an investment summary, from $136,768,931 as of Dec. 31, 2013, to $147,441,679 one year later.
The rate of return slowed dramatically during the same period. The rate of return at the end of 2014 was roughly 1 percent and held at 3.92 percent the previous 12 months. The rate of return at the end of 2013 was 5.79 percent, down from a whopping 19.54 percent the previous 12 months of the year.
Wesch said the fund is “getting healthier every year” following a reorganization almost two decades ago. At the time, he said, the fund would have only been able to pay about 20 percent of its obligations. Now, the fund is at 58 percent.
As a result of the unfunded liability, the city’s general fund will pay $13 million to $17 million into the future. The city’s contribution is set at $15.8 million for the next fiscal year.
“The unfunded liability comes from decades of not funding the pension,” Wesch said. “It hurts, but we have to do it.”
Jimmy Connick, a firefighter and pension board member, explained that the city started a pension plan without funding it.
“It just paid people when they couldn’t work anymore,” he said.
Connick said in 1985, the unfunded liability was “through the roof,” but the city started making payments on it in 1997.
Today, at nearly 60 percent funded, Connick said the pension is far from being in a “crisis.”
“I feel like this: As long as the city of Mobile is a city and it’s not bankrupt, if it’s not 100 percent funded, it’s not like it’s a crisis,” he said. “It used to be a crisis.”
Right now, the average pension payout is about $2,000 per month, Connick said. The payout is based on rank and years of service.
Despite the health of the fund, Connick, who is also the vice president of the local firefighters union, said he doesn’t feel it helps the city to recruit new firefighters.
“I don’t feel like a new hire considers it, until he has some years under his belt,” Connick, a 21-year veteran, said. “I don’t think it’s a big pull.”
Executive Director of Public Safety Richard Landolt agreed, writing in an email message that he didn’t believe the pension plan had an impact on recruiting. Landolt wrote the most recent Mobile Fire-Rescue Department recruiting class had 90 applicants for 30 spots.
Former Mobile Police Department (MPD) Assistant Police Chief Joseph Kennedy officially retired as a sworn officer last Friday. While he will be paid at least $4,500 a month through the pension fund, he will also be drawing a salary as a civilian chief of staff in the department.
Kennedy was a Deferred Retirement Option Plan (DROP) participant, which means he had to retire from the force by the end of May or risk losing money he had already paid into a separate account.
Police Chief James Barber said it’s not unusual for a retired officer to seek a second career once he or she has reached the 30 years of service required for maximum pension benefits. In fact, he said MPD officers routinely move to the Mobile County Sheriff’s Office upon retirement.
Former Prichard Police Chief Lawrence Battiste will take over as assistant chief for Kennedy.