Retirement
Benefits While Working
Why the economics donÕt
work; the plan wasnÕt designed for it; pension philosphy
Yes, it is that time of year again. The General Assembly is in session and the question of receiving benefits while continuing to work has surfaced once again, not unexpectedly. While I have addressed this issue in articles for the Georgia State FirefightersÕ Association and at association conferences and district meetings, my sense is that those publications and venues are not reaching all of the pension members to the degree that I would like. This article is the FundÕs rationale (The Board and I) for why this is not a good benefit improvement for our fund, not now, not in the future. This is a long article. It probably has more in it than you really want to know. But bear with me. Please, sit back and take a few minutes to read it with an open mind. Not that you should agree with it at all. Just absorb it so that next time we argue, er..discuss, the issue, we are on the same page. You will know what I know and from where the Board and I are coming.
First, a little history, (encapsulated). In 2002, I had just joined the staff
when I attended the Joint Conference in Savannah where this issue was debated
and supported by the Association.
I was approached then and made some perhaps na•ve comments and suggested
some data gathering. In the
ensuing months, several rationales were offered both pro and con relative to
benefits for the departments and the fire service, most of which were reasonable,
but unsupported. A previously
issued Attorney GeneralÕs Opinion suggested such a change would be detrimental
to the fund. The Board was opposed
to such a change on a philosophic basis also in that Òthis was not the purpose
for which the fund was intended .Ó
The discussions got rather emotional, as one can imagine when we talk
about retirement and money, and Òwhose money is it?Ó Nonetheless, the Board relented and ordered an actuarial
study of the cost of such a change, which turned out to be not favorable
relative to our ability to offer COLA for our retirees in future years. On that basis, the Board declined to
support the initiative and it never went to the Legislature.
The members promoting this change were not especially
pleased with the outcome. After
all, the Peace OfficersÕ Annuity and Benefit Fund, (POAB) implemented this
benefit in 2000 as did the Teachers Retirement System! Why not the FirefightersÕ? Well, hereÕs why not, and I want to
start with Teachers first. But,
stay tuned.
The Teachers did not actually get this benefit. What the Teachers got was the ability
to come back to work after retiring as a contract worker on a term by term
basis, in at-risk situations, and only as long as a vacancy exists, with no
benefits other than retaining their retirement benefits. If a new qualified teacher shows up to
take the job, the retiree is jettisoned.
This is not quite the same as keeping oneÕs job and receiving benefits
or moving to a new school, full time and receiving benefits. It turns out that very few have accepted
what was hoped to be a measure to attract veteran teachers back in to stopgap a
shortage.
The POAB did implement this benefit ÒimprovementÓ in 2000
as our members have noted. (A
Òcommittee of concerned chief officersÓ went over the objections of their Board
and the recommendations of the actuary directly to the General Assembly.) Kudos to them. They now offer an excellent example and
study of the effect of such a change.
Since they have put it in, they have doubled their dues from $10 per
month to $20. Like us, they
suspended COLAs in 2000 due to market conditions, but due to the cash drains on
the portfolio as a result of their benefit ÒimprovementÓ, they have not offered
a COLA since. We have now provided
six full COLAs!
The primary consideration underlying this issue is the behavior
of our membership relative to their tenure on the job. Some time back, I wrote an article for
the GSFA Magazine, ÒUsing Statistics to Manage
the Plan,Ó which
also appears on our website. In
there, I noted how the actuary uses statistical models to reflect how members
retire early, on time, stay late, defer payment and pass away. All of this affects how we pay them and
manage the plan. If we change
the plan, we change the model. The
change discussed here, would mean that we would eliminate late retirements
and any deferments; these would become non-discretionary and immediate payouts.
That is, no one on reaching pension eligibility would turn down a pension
benefit. In short, we would significantly increase our cash out flow each
month.
When we priced this benefit improvement, the cost was
slightly more than a COLA, year over year. Thus in any year where a COLA would have been tight, e.g.
2003, 2004, 2005, we would not have offered COLA had we agreed to this
ÒimprovementÓ. And, this effect
has a somewhat cumulative effect to it as more people become of age each
year. That is what is so
detrimental to the plan.
Notice that I havenÕt commented on any effect this might have
on the fire service itself. In the
early going of this debate, that is what it was all about, (aside from ÒitÕs my
money and I want it!Ó). I have
spoken to Bob Carter, Secretary-Treasurer, POAB, several times regarding their
experience with this benefit change.
His sense is that it has had virtually no effect on recruiting in the
Peace Officer Corps. Regarding
retention of veterans, he is reluctant to say whether they have really retained
very many beyond those who would have stayed anyway. (Remember they are fully vested at 20 years.) Now they are simply paying them. I would guess we could count on fingers
and toes the number of people for whom this is truly a retirement decision and
even fewer for whom it is a recruitment enhancer.
Finally, I would like to close this up with some comments
relative to why our plan, any pension plan, is designed the way it is. These are background comments on
pension plans in general, our plan in particular, for which you may or not have
an interest.
Pensions were originated at the turn of the century in this
country as a means of attracting workers from the farm, where they enjoyed
life-long security, to the industrial city, where they would have a finite
working life. Supposedly, the
pension provided security and income when they could no longer work and had to
retire. The retirement age was
originally set at 65 years of age, almost universally. (Interestingly, the average life span
then was around 53!) The military
offered a 20 year pension as an attractant due to low wages and soon the public
sector followed suit with enhanced pension and health benefits to augment what
was perceived to be a lower compensated area. Now, for a variety of reasons, not to be explored here, the
average retirement age, from the first career, is mid-fifties, while the life
expectancy is mid-to-high seventies.
Indeed, many mid-fifty year olds are still quite vital as opposed to
their counterparts of fifty years ago.
So, they are off to second and third careers.
So, what does that mean to Firefighters? Well, pension system design was and
still is based on an individual ÒretiringÓ from the sponsor system in order to
receive his/her benefits from that system. All systems are this way, whether corporate or public. It is the basis for the statistical
formulae that determine the payout levels of benefits. Thus, for example, to receive benefits
from Fulton County, one must leave that system, or ÒretireÓ, and go to another
system (Cobb, Gwinnett, Cherokee, etc.) to work. There is no other retirement
plan in the U.S. (other than POAB) that I am aware of that allows one to
Òretire,Ó begin receiving benefits and remain in the sponsor system. Even the ÒDROPÓ (Deferred Retirement
Option Plans) utilized in Florida and Louisiana require that members guarantee
an exit from the sponsoring system at a particular time.
The Georgia FirefightersÕ Pension Fund is a state-wide,
fire service system. You must exit
the fire service, this system, to collect benefits.
As always, I am open to discussion. Your comments are welcome; your
criticism is accepted. But, do
keep in mind, benefit improvement is a slippery slope and we are watching major
corporations slide down that slope, one by one, every day.
Jim Meynard
P.S. Social
Security says you are expected to exit the national work force (that ÒsystemÓ)
at age 67 or
later!