Pension reform agreement letter to City Council
Dear Council Members:
After nearly three weeks of public negotiations at City Hall, our negotiating team reached a tentative retirement reform agreement this evening with the Jacksonville Police and Fire Pension Fund. This comprehensive agreement addresses each of the major areas of concern that City Council identified during the debate over last year's agreement, and that the Jacksonville Retirement Reform Task Force identified during its review of pension issues.
· Both Current and Future Employees Participate in the Solution
All City of Jacksonville police and fire employees – both current and future – will participate in this retirement reform solution.
The agreement adopts the Retirement Reform Task Force recommendations for significant changes to future employee pension benefits. As a result, any new police and fire employees who begin work on or after October 1, 2014, will have a fair but financially sustainable set of pension benefits. These changes mean that future employees will work longer before they are eligible to retire, will pay 10% of their salaries toward pension benefits, will see a reduced Cost of Living Adjustment (COLA), and will no longer have the option to participate in the Deferred Retirement Option Program (DROP). Please see the attached document showing the present benefit package as contrasted to the new benefit package for future employees that will take effect later this year.
Current employees will also share in efforts to address our pension issues. At present, current employees contribute 7% of their salaries toward pension benefits. Under this agreement, that contribution will increase to 10%. Additionally, this agreement abolishes the 8.4% guaranteed rate of return in the Deferred Retirement Option (DROP) program. Instead, current employees who have not yet entered DROP by the end of this year will receive the actual rate of return, subject to a floor of 5% and a cap of 10%. Please see the attached document showing all of the changes being made for current employee pension benefits.
· Increases Transparency and Accountability at the Police and Fire Pension Fund
The agreement includes stringent new governance reforms recommended by the Retirement Reform Task Force that will increase accountability, transparency, and investment performance at the Pension Fund. These reforms include the establishment of a new Financial and Investment Advisory Committee; new Ethics, Certification and Disclosure Requirements for Investment Managers and Advisors; improved actuarial standards; increased financial transparency and disclosure from the Pension Fund to the City of Jacksonville; stringent hiring criteria for the selection of the next Executive Director; and language addressing the future negotiation and modification of pension benefits. A copy of the agreed governance provisions is attached to this email.
· Reduces Unfunded Liability
Under this agreement, both the City and the Pension Fund make significant financial commitments to reducing the unfunded pension liability of the Police and Fire Pension Fund. In addition to the extra $4 million annually that current employees will ultimately contribute toward their retirements, the Police and Fire Pension Fund will contribute more than $100 million during the next decade to help reduce the unfunded liability. The City has agreed to contribute an additional $40 million annually until the PFPF reaches a healthy 80% funded status. Both parties have agreed to a series of measures to ensure that both the City and the PFPF make their additional unfunded liability payments annually. The agreement also provides the Police and Fire Pension Fund expanded investment authority like that of the Florida Retirement System and General Employees Pension Fund, a change that could help increase the rate of return on investments.
In short, this comprehensive agreement includes major reforms that will protect taxpayers and respect public safety employees. We expect to introduce the agreement to City Council next week.
Thank you for your role in addressing the critical subject of retirement reform, and please let us know if you have any questions. We will be setting up meetings with each of you over the next week to brief you on the details of the agreement.
Chief of Staff
Office of Mayor Alvin Brown