News Column

Pension board needs to be reformed

December 29, 2013

Among the most important issues facing the city's Retirement Reform Task Force is how to restructure the poorly performing Police and Fire Pension Fund . Yes, the city faces a $1.7 billion unfunded liability, and annual costs of pensions are mounting at an unsustainable rate. Those must be dealt with, and they can be without unreasonable pain. But underlying the big money challenges are issues surrounding the five-member board that has failed to provide adequate stewardship. Cronyism, unsound financial decisions, wasting tax money and persistent lack of transparency have characterized the pension fund for too long. The solution: The Retirement Reform Task Force should recommend and the City Council should initiate a charter change referendum to rein in the pension fund's board of trustees. Consider these disturbing examples of poor pension fund governance:LACK OF TRANSPARENCY The fund has not issued actuarial reports annually. It has changed its method of valuing assets in some years, making it difficult to have reliable projections, according to consultants from The Pew Charitable Trusts.POOR PERFORMANCE Compared to other retirement funds, the Police and Fire Pension Fund has higher costs and lower returns, which over the years has added millions to local taxpayers' burden. Both the Florida Retirement System and the Jacksonville Retirement System generate higher returns with lower costs. The reasons include a lack of professional management, lack of transparency and wasteful practices.WASTEFUL LEGAL BILLS While all other city agencies use the general counsel's office for legal matters, the Police and Fire Pension Fund wastes hundreds of thousands of dollars by contracting the bulk of its legal work to a South Florida firm. This means the fund spends thousands of dollars on travel, hotels and other expenses in addition to the $285 hourly fee for even routine matters.TAXPAYERS PAY FOR BOTH SIDES Taxpayers sometimes must pay for legal costs on both sides of disputes when the Police and Fire Pension Fund takes ill-advised legal actions. In one case that stretched over five years, the fund ran up $300,000 in legal fees in a losing effort to lower benefits to a disabled firefighter. About half of that went to the Plantation law firm, which ran up additional costs when it appealed the lower court ruling and lost. The other half went for the firefighter's legal fees, which the court said the fund must pay. In another case that escalated over more than three years, Jacksonville resident Curtis Lee sued after the fund attempted to charge him $326 to review public records. The South Florida law firm billed the fund for more than $290,000 in the case, according to an affidavit filed by Lee's lawyer. Courts have awarded Lee legal fees, which he attests are $71,000 .ACCOUNTABILITY IS LACKING The City Council , which is ultimately responsible for funding shortfalls and other actions by the Police and Fire Pension Fund , doesn't control appointments for a majority of the fund's board of trustees. Only two members of the five-member board are appointed by the City Council . Two members are elected by police and firefighters, and those four appoint a fifth member. While police and firefighter representatives must make up 40 percent of the pension board by law, the City Council needs authority to appoint the fifth member if elected officials are to be held responsible for the fund's conduct. The board's history has been one of long-serving members who have received lax oversight by past city administrations, city councils, auditors and the news media. One result is a so-called 30-year agreement signed during the John Delaney administration and subsequently amended with benefit improvements that are locked in until Sept. 30, 2030 . Lawsuits are challenging the agreement's validity, but it needs to be renegotiated, and that would be more likely under an improved governance structure.HIGH ADMINISTRATIVE COSTS The Police and Fire Pension Fund's administrative costs have been excessive, aided in part by the pension fund's administrator, John Keane . He receives the highest salary of any pension fund director in the state. Keane argues that his salary reflects long years of experience and doing several jobs. Nevertheless, in what amounts to an illogical sweetheart package, Keane's $291,000 annual salary is the average of the salaries paid to the heads of three independent agencies, the Jacksonville Port Authority , the Jacksonville Aviation Authority and the Jacksonville Transportation Authority . It's an absurd arrangement approved by the Police and Fire Pension Fund board. Keane also benefits from a lucrative retirement plan that the city's General Counsel said was created illegally. The Senior Staff Voluntary Retirement Plan has $2.3 million in assets, but it wasn't mentioned in actuarial reports and was unknown to City Council auditors until last year. The Retirement Reform Task Force has studied these issues and ought to recommend that the charter be changed through a referendum to bring about reform. In addition to revising the board's makeup, other changes need to require the fund to use the Office of General Counsel , set standards for hiring the next administrator and require annual actuarial reports. Had such sensible reforms been in place, warning signs would have flashed much earlier and much of the red ink now facing the city could have been avoided.


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Source: Florida Times Union


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