the move from the funding dispute to the reduction of benefits battle

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The Move From The Move From the Funding Dispute the Funding Dispute

to the Reduction to the Reduction of Benefits Battleof Benefits Battle

The Move From The Move From the Funding Dispute the Funding Dispute

to the Reduction to the Reduction of Benefits Battleof Benefits Battle

Presentation By: Daniel G. Tobben, Esq.


Who Am I and How Did I Get Into This World of Firefighter Pensions?


What I am and what I am not....




Danna McKitrick – The other parts of the puzzle


What is Going on in the World of Public Pensions? What is Going on in the World of Public Pensions?

Nationally, in District 2, and in my practice.


What is Going on in the World of Public Pensions? What is Going on in the World of Public Pensions?


The World has Changed – The “Gratuity Theory” of Pensions

The World has Changed – The “Gratuity Theory” of Pensions

No pensions

Pensions as gratuities

Pensions as exceptions to general rule that no public money can be spent for private purposes

Pensions as a matter of right

Pensions under attack due to governmental budget concerns


Know What’s HappeningKnow What’s Happening

Each group needs to have someone who understands at least the basics of the actuarial reports (usually a trustee with at least two years’ experience).

Leadership at the local level needs to become familiar with the key pension issues and with where the “money battles” will occur.


What Does Your Attorney Know?What Does Your Attorney Know?

Make sure your attorney understands actuarial reports and how the plan is being administered.

City attorneys may have a conflict of interest. (Major practical consequences)

Labor lawyers may not fully understand public pensions.


The Starting Point – Know What is in Your Pension Ordinances or Statutes

The Starting Point – Know What is in Your Pension Ordinances or Statutes

Do this NOW, if you haven’t already.

Many things we will talk about later depend on this.

Know your other plan-related documents (SPD and policies and procedures).

Keep track of past concessions made in order to get new benefits or keep existing benefits.


Motivators Regarding Plan Review:Motivators Regarding Plan Review:

Threats of benefit reduction.Proper funding each year; the problems of severe underfunding (the “UAAL”).Task forces – never take them at face value, but do participate.IRS compliance. (Determination letter)Do you know what you have – pluses and minuses; how clear is the language?Be proactive


Social Security Vs. No Social SecuritySocial Security Vs. No Social Security

BIG DEAL

Legal significance

Public relations significance

The “fairness” argument

Political – things may change here as well More firefighters into Social Security?

National debate re: modification to Social Security?


New Employees - No GuaranteesNew Employees - No Guarantees

No promises made therefore no expectations

Government unit has great flexibility regarding new employees

Move to a new tier / multiple tiers

Move to state-wide pension programs

Alternative plan design for new hires (Combo DB-DC plans)


Retirees - Benefits Can’t be Changed Under Most States’ Laws

Retirees - Benefits Can’t be Changed Under Most States’ Laws

Lawsuit in Springfield, Missouri regarding COLA

The very recent Colorado and Minnesota trial court decisions regarding COLA

Other challenges around the country --- watch Atlanta

Even older cases that didn’t protect pension rights thoroughly upheld retirees’ rights as guaranteed – service completed


The Battle Ground is Regarding Active FirefightersThe Battle Ground is Regarding Active Firefighters

Right to receive all that has been promised vs. right to keep all that you have earned to date.

The Constitutional Guarantee – State and Federal (The Contracts Clause)

The guarantee only protects what you have; it doesn’t create additional contractual rights. (Read your plan.)

The dilemma is places like Omaha and in Illinois.



Governmental entity cannot impair the rights under a contract (under the constitutions of many states and the federal constitution) The federal history

Dire circumstances exception (Great Depression and WWII – not a severe recessions or an “AA” credit rating for the U.S.)

Only as long as required by the emergency



What does this mean in different contexts? Transfer to a new plan – not as simple for

the governmental entity as they believe If value of benefit isn’t equal or greater,

liability to the firefighter on the part of the city, if there is a transfer

Be careful about what the new plan provides



Reduced benefits for new hires probably won’t save the governmental unit money for 10 years Increased costs in a closed plan

Costs of maintaining two plans

Have to add costs of old and new plan to get a true understanding of implications



Things to think about States can’t file for bankruptcy

No bailouts by states or federal government likely

Take care of yourselves, by making sure your plans are funded properly


The Battle Ground is Regarding Active Firefighters

The Battle Ground is Regarding Active Firefighters

“Definitely Determinable Benefits” -- an IRS requirement that may also afford protections

Federal interests in the solvency of public pensions (no bailouts)

IRS regulation is the backdoor – remember Al Capone?

Did you ever believe the IRS might be your friend?


Things to Think AboutThings to Think About

Money paid into the pension – no longer the City’s or FPD’s money (but read what the plan says) – a big deal!

The bankruptcy threats – serious, but... What has really happened to date? Pension benefits have almost never been

reduced. (Orange County, City of Vallejo) But see Pritchard, Alabama, and perhaps

now Central Falls, Rhode Island. Current fallout in San Diego.



What if’s The economy gets much worse? The Tea Party’s influence expands

significantly

But also, what if The economy gets better and stabilizes The political center re-emerges



City’s taxing authority vs. the city’s ability to pass a tax increase

Public Safety may be different (St. Louis and Springfield) but consider the lessons of the Mehlville, Missouri FD. The voters may like you and the police more

than the elected officials. Or not, the Omaha situation

History Well-funded and militant opposition



“A Tale of Two Cities” Omaha vs. Lincoln

The rest of Nebraska

All politics is local

What is your history and, again, what is your governing law?



KNOW WHO YOUR FRIENDS ARE

Know who you can work with, even if they are not always your friends

Figure out ways to try to work with the police or at least don’t fight publicly

The bond rating agencies may be your friends

KNOW WHO YOUR FRIENDS ARE AND HELP THEM


Going ForwardGoing Forward

Where do we go from here?

Core vs. non-core benefits

Is there a difference between cutting core and non-core benefits? The Colorado and Minnesota trial court

decisions and other pending lawsuits – see Atlanta.

Is a requirement to have firefighters contribute more from their paychecks a violation of the Contract Clause?


Going ForwardGoing Forward

Is your city or FPD administration friendly, hostile or neutral?What is your political reality? What would the voters do, if push came to shove?Do you have a P.R. consultant?What is going on politically, socially and economically in your communities?Does your local media have an agenda affecting you beyond having stories to help sell papers?


The National Media StoryThe National Media Story

The current job security envy and ongoing “pension envy.” When the economy improves, envy of job security may disappear.Pension envy will almost surely remain.Hard to explain someone in their mid-40s getting a pension check.The Tea Party and also the tax radicals.The tax and government spending issues are REAL.


The National Media StoryThe National Media Story

Public safety is different. Many don’t receive Social Security. Citizens don’t want 60-year-old police

officers and firefighters. Major gap in healthcare coverage upon

retirement before Medicare eligibility. (Many firefighters)

However, often firefighters are held in high regard (often better than police officers). But see recent actions of Omaha PD.


Dangers in Bargaining Away Pension RightsDangers in Bargaining Away Pension Rights

If you bargain away pension rights Has the contractual commitment

argument been weakened?

Won’t the governmental entity come back for more, especially in hard times?

Can firefighters sue you, if they are adversely affected?


Fighting to Preserve Your Pension BenefitsFighting to Preserve Your Pension Benefits

The battle can be won.

The funding battles have largely been won.

No one ever said this would be easy.

Make sure you are ready. Know your plan. Know your politics. Have a good attorney. Consider a PR professional or media advisor.


QuestionsQuestions

There are no bad questions.

There are no perfect answers.


Thank you for your Thank you for your attention!attention!

Enjoy the rest of your time in Sioux Enjoy the rest of your time in Sioux City!City!

Thank you for your Thank you for your attention!attention!

Enjoy the rest of your time in Sioux Enjoy the rest of your time in Sioux City!City!

Daniel G. Tobben, [email protected]

314.889.7125http://www.dannamckitrick.com/Documents/IAFF_2nd District_presentation_Daniel_Tobben.pdf