Letter: City responds to claims made about ‘gutted’ retirement promises

(NancyOnNorwalk requested a response from the city of Norwalk to a letter written by a retired firefighter and published here today. Here is the response from Director of Finance Tom Hamilton.)

By Thomas Hamilton

Norwalk Director of Finance

To the Editor:

NORWALK, Conn. — Mayor Moccia requested that I respond to your request to confirm things that were reported as “facts” by a retired firefighter in a letter to the editor. Most of these statements are not factually correct. I have provided factual responses after each item below, and I have attached the source documentation from which my factual statements are derived. … I do appreciate your effort to try to confirm facts, and I am happy to respond when asked.

(Retired firefighter’s assertions are preceded by a bullet)

Health insurance rates for pre- and post-65 Fire retirees for Employee plus 1 (employee and spouse) coverage. Some retirees are single, and only carry individual coverage, and some retirees still have dependent children on their health insurance and carry family coverage. The most common coverage for retirees is employee plus spouse.

• Last year Norwalk firefighters were required to contribute $1.7 million to their pension fund.

TH: This statement is incorrect. The actual amount of money that Norwalk Firefighters contributed to the Norwalk Pension fund last year was $637,496.20. See attached Fire Pension Fund Revenue Report, for FY 2013, Account #4891.

• Firefighters contribute 10 percent of their pay every year. This has increased from 7 percent when I was hired (in 1977).

TH: This statement is incorrect. I do not know what the firefighters contributed to the pension fund in 1977, but at least since the Fire pension valuation dated 7/1/2007 the employee pension contribution has been 8% of base pay, not 10%. It remained at 8% of pay until the most recently negotiated Firefighters contract, which was overwhelmingly approved by the firefighters and approved on consent by the Common Council on 8/24/2013. As a result of the new collective bargaining agreement, the Firefighters employee contribution is now 9.0% of base pay. Under the approved contract, that amount will remain at 9% until 7/1/2015 when it increases to 9.5% of base pay. A new defined benefit pension plan was agreed to in collective bargaining for new hires which has different provisions than the plan in place for existing employees.

• The city does not pay into the fund every year. If the pension fund drops below 100 percent funded, it is not the fault of the firefighters. The city manages the fund.

TH: Under the City Charter, the City is required to pay the amount determined by an independent actuary which is necessary to maintain the pension fund on a sound financial basis. Unlike the employee contribution which is a fixed percentage which cannot change unless the City and the union agree to do so in a successor collective bargaining agreement, the City’s contribution is a variable amount, depending upon the financial status of the fund and the amount that the actuary determines is necessary to contribute. Another way of saying this is that all of the financial risk associated with a downturn in the stock market or changes in other actuarial factors rests with the City. Neither the employee’s contribution nor the value of their pension benefit is affected whatsoever by a market downturn.

The amount that the actuary determines that must be contributed by the City is called the “Annual Required Contribution” or “ARC. I have attached the latest GASB #27 Calculations from our pension actuary and highlighted the relevant columns. This information is furnished to our independent auditors, subject to audit testing by our independent auditors, and is included in the City’s audited Comprehensive Annual Financial Report. This schedule includes 17 years worth of data, and the schedule shows that the City has consistently and without fail, made the Annual Required Contribution as determined by the actuary. While there have been some years when no contribution was required (notably between FYE 2002 and FYE 2006), more recently substantial City contributions have been required. For FY 2012-13, the City’s Fire pension contribution was $1,455,860, and for FY 2013-14, the contribution is $2,150,257, or 22.72% of base pay of the firefighters. I have also attached page 8 from the most recent Fire Pension valuation, which confirms the required contribution for FY 2013-14.

• Each firefighter is required to pay over $3,600 per year for retiree’s medical benefits.

TH: This statement is not correct. Under the approved Firefighters collective bargaining agreement, since 2008 active firefighters have contributed 1% of base pay into the City’s OPEB Trust Fund, which is used to fund retiree medical expenses. All active City employees who are entitled to retiree medical benefits contribute to the OPEB Trust Fund. The average firefighters’ base salary is approximately $75,000, so the average firefighter contribution is approximately $750/year, not $3,600 per year. I have attached a 6/30/2013 OPEB Trust Fund revenue report which shows that the total employee contributions (all bargaining groups, not just firefighters) into the OPEB Trust Fund for FY 2013 were $374,884.43. This same report shows that the City (employer) contribution into the OPEB Trust Fund for FY 2013 was $13,846,636.00. Looked at another way, the City made 97% of the contributions into the fund; the employees contributed 3%.

• When a retiree turns 65, his medical benefits are automatically shifted to Medicare. Thus relieving the city of the bulk of the costs.

TH: This partially correct and partially incorrect. Firefighters and Police officers hired prior to 1986 were not required to participate in Medicare, so for these retirees unless they become Medicare eligible from some other employment their retiree medical expenses remain completely with the City. For those employees hired in 1986 or later, they do participate in Medicare and when they turn 65, some portion of their medical expenses are shifted to the federal government.

However, it is not correct to suggest that this relieves the City of the bulk of the costs. The City’s insurance continues in place after a retiree becomes Medicare eligible, and basic Medicare does not cover a substantial portion of retiree medical expenses. Specifically, Medicare only pays 80% of covered expenses, and may types of medical expenses are not covered at all under Medicare Part A & B. For instance, prescription drugs (which are a major portion of medical expense) are not covered at all by Medicare Part A & B. Moreover, as people age, health care expenses rise dramatically due to more frequent hospitalizations, more serious chronic illness, etc. The bottom line is that our 7/1/2013 fire retiree health insurance premiums for those that are under the age of 65 is $1,603.73/month, or $19,240.44 per year. The cost for post 65 fire retirees is $1,154.61 per month, or $13,855.32 per year.

• A firefighter, when he retires, does not collect Social Security benefits. Even if he qualified for Social Security by working before he got on the job, or works a second job, he can only receive 30 percent of normal benefits.

TH: As provided under federal law, Firefighters (and Police Officers and Teachers) in Norwalk do not participate in Social Security, and therefore do not receive Social Security benefits from their employment with the City of Norwalk. These employees may receive Social Security benefits from employment outside of the City of Norwalk. Since these employees do not participate in Social Security, they also do not contribute the 6.20% from their paycheck which the federal government requires of all participants. I would also note that in recognition of the fact that they do not participate in Social Security, the defined benefit pension plan afforded to Norwalk firefighters and police officers is significantly more generous than the defined benefit plan for other City employees.

Health insurance rates for pre- and post-65 Fire retirees for Employee plus 1 (employee and spouse) coverage.  Some retirees are single, and only carry individual coverage, and some retirees still have dependent children on their health insurance and carry family coverage.  The most common coverage for retirees is employee plus spouse.


6 responses to “Letter: City responds to claims made about ‘gutted’ retirement promises”

  1. NorwalkVoter

    Interesting that the Mayor asks his City staff to fight his political battles…

  2. jlightfield

    Thanks Tom for posting this. I think the nub of the argument about pensions comes down to the burden on the City to maintain the fund’s balance when the market has a downturn. But isn’t it more than that? Isn’t a part of this just a demographic bulge represented by baby boomers all hitting retirement for a the next few years coupled with the limited returns available in low risk investments these days?

  3. M Allen

    Do you want the detailed answers or do you just want to make a silly comment? If the chief executive, who doesn’t live and breathe every contract detail or budget line item, had responded with an answer containing less details, you would have whined he wasn’t being honest or transparent. No winning with the anonymous grenade tossers.

  4. LWitherspoon

    Kudos to Tom Hamilton for providing the numbers. Facts are a far better basis for discussion than emotion and self-interested partisanship.
    What determines the amount of a firefighter’s pension?
    Is the pension plan for new hires recently agreed in collective bargaining a defined benefit plan or a defined contribution plan?

  5. M Allen

    @jlightfield – I wouldn’t think the various departments are skewed demographically the way the broader public is. The number of retirees is based on time in job rather than age of the employees.
    There are no issues with the pension plans that I have heard about. Norwalk’s pensions have always been strong and retirees should be quite happy with how these plans are managed over the long term. By all accounts they are safe and secure. The fact that asset declines occurred in the most recent bear market has not put these plans in jeopardy. It has required to city to make some catchup contributions in order to compensate, but that is just the nature of the beast. Markets don’t go up in a straight line. On the flip side, contributions by the city were unnecessary in prior years because of strong market growth by the plan. Some years the city must kick in, others it isn’t necessary. Norwalk’s pensions are far better off than those of the State of Connecticut. By a long shot.
    As for changes to the amount employees kick in to the pension now versus in the past, that is part of shifting some of the burden of normal contributions, not as a way of making up for asset declines. It is no different than requiring more from the employees as part of what they pay into the medical plan.

  6. John Levin

    Thank you NON for inquiring, and Director of Finance Tom Hamilton for responding with clear and complete, yet succinct, information correcting misinformation posted in a letter. NON is a class act, and so too, it appears, is Mr. Hamilton.

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