The Fire and Police Employees? retirement fund is underfunded by nearly $500 million, if present market value is used to calculate its worth.
The number, revealed in a report to the Taxation and Finance Committee Thursday, prompted Chairman Keiffer Jackson Mitchell, D-District 11, to express “concern” after the meeting.
“We need to improve our investment performance,” Mitchell said.
The comment was made after a presentation to the Taxation and Finance committee, which Mitchell chairs, by ThomasTaneyhill, executive director of the Fire & Police Employee?s Retirement System. Taneyhill revealed that the unfunded liability of the plan, the amount of money needed to meet future obligations to retirees in excess of its assets, is $500 million if the fund is measured at “market value” rather than “actuarial value.” Actuarial value excludes the ups and downs of the market by “smoothing” an assumption that big losses and gains will even out over time.
Market value recognizes the value of the fund now, if the assets of the plan were sold today. Based on market value, the actual “funded ratio” of the pension plan has dropped from 103 percent ? or fully funded in 1996 ? to 78 percent ? or $544,934,681 ? under-funded in 2005, according to the report.
Based on actuarial valuation the plan is 95.9 funded, or short $104,419,525.
According to the report, the performance of the fund ranked near the bottom when measured against other pension funds for the last five years, with an annualized return of 2.4 percent. In 2005, the fund?s performance significantly improved after switching investment advisers, Taneyhill told the committee. Still, based on the numbers Taneyhill believes that “city contributions to the pension fund will have to increase.”
Baltimore City Budget Chief Raymond Wacks said the increase in contributions reflects the problem facing city government?s across the nation. “The stock market hasn?t done as well as it did in the ?90s, so local governments are being forced to step up and contribute more money for future employee benefits,” Wacks said.
Baltimore City this year alone is making a $80 million contribution to all the pension plans of city employees, including officers, fire and police employees, nearly 25 percent more than the year before. Of the $87 million increase in projected revenues for the fiscal 2007, $39 million ? or 45 percent ? is dedicated to city employee benefits.
According to a recent report in Business Week, municipal pension funds have significantly increased payouts since 2000, with cumulative expenditures rising from $78.5 billion in 2000 to $117.8 billion in 2004.
Wacks said this means the city will face tough choices with regards to future benefits for city employees.
“Businesses are stepping away from pension and retirement health care plans because of these costs, ” he said. “That is the same challenge facing the city. We?re going to have decide what we?re going to be able to afford in the future.”
