Once they were considered a sacred perk for public sector employees.
But pensions have morphed into an albatross for many municipalities, compounded by shrinking tax revenues, investment losses and longer life spans. Now cities such as Fort Lauderdale and Delray Beach are reining in costs for future retirees, with others ready to follow suit.
"Pensions are the hardest to go after because of the bargaining with the unions, but we have to take them on," said Hallandale Beach Interim City Manager Mark Antonio. "Taxpayers who are unemployed are not getting these pensions, and they are questioning why police and others are getting guaranteed pensions."
Recent money-saving measures range from Sunrise raising the retirement age from 58 to 62 for new general employees to Hollywood requiring greater pension contributions (9 percent, up from 7) from their general employees. Other cities, including Pembroke Pines, Fort Lauderdale and possibly Hallandale Beach, are shifting new hires to 401(k)-type plans, which are subject to fluctuations in the market.
An informal survey shows that while retirement plans can vary widely, pensions account for roughly 10 percent or more of municipal budgets. Benefits typically include health care payments plus a guaranteed income, based on salary, age, service and other factors. When investments fall short, the difference is borne by taxpayers.
Municipalities with the largest payrolls are beset with heavy pension shortfalls. They include Fort Lauderdale ($306.8 million shortfall), Hollywood ($353.3 million) and Pembroke Pines ($201.4 million) in Broward County and Delray Beach ($51 million) and West Palm Beach ($90 million) in Palm Beach County.
Retirement contributions for Fort Lauderdale firefighters and police, for example, will rise from 8 to 8.25 percent of their base pay in October 2011. New hires already contribute 8.5 percent.
In Pembroke Pines, general employees hired after July 1 will shift to a 401(k)-type plan, in which employees contribute a percentage of their salary, a portion of which is usually matched by their employer. Pensions will remain intact for current workers, although the city will contribute less each year. New officers and firefighters hired after May 1 won't receive longevity pay, while current employees will have their longevity pay frozen at the current rate.
Union officials say switching to 401(k)-type plans could prove disastrous. Employees will flock to other places with pension benefits, said Scott McGuire, local president of the Police Benevolent Association, which represents the approximately 125 officers and sergeants in Delray Beach.
Also, a wholesale switch to 401(k)-type plans could diminish pensions for current employees, who often depend on contributions from new hires to help fund their retirement benefits, he said. If these funds fall short, taxpayers could be forced to cover the difference.
Over the past decade, many South Florida municipalities used extra cash from the housing boom to boost employee pensions. They pumped up payouts, lowered the age to qualify or granted annual cost of living increases, a 2008 Sun Sentinel investigation found.
"Local governments, as they grew, the pay wasn't great so they gave great benefits. It was OK then, but now we can't afford it anymore," said Pembroke Pines Mayor Frank Ortis. "We have to take a new direction otherwise cities will be broke."
Cities are legally prohibited from revoking contracted pension benefits for current employees without consent from the unions. With the weak economy imperiling the overall health of pension funds, however, union leaders are more willing to control costs.
"A lot of the cities are not funding the plans appropriately," said Scott Dayne, president of the Fort Lauderdale Professional Firefighters union, which represents about 375 firefighters. "We don't want to lose our pensions altogether. Because of the economy and the payroll, we realize something has to be done.''
Fort Lauderdale's tax base this year slipped more than 10 percent, blowing a $17.3 million hole in next year's budget. Investment returns for the firefighters and officers' pension plan plummeted 22 percent in 2008, according to the city's most recent actuarial report.
Not all local governments will be forced to prune pensions this year. Those whose benefits are administered by the Florida Retirement System will not see any changes. The system covers more than 650,000 current state, school district and municipal workers.
Some cities, such as Boca Raton, are still weighing their options.
Still, a growing number of cities that fund their own benefits will likely slice pensions to cope.
"Property values are down and investments are down. Pensions have to be analyzed and put into perspective," said Joseph Safford, Delray Beach's finance director.
Pension costs will gobble about $10 million, or 10 percent of the city's budget beginning Oct. 1. To cope, the city hired an actuary to identify some cuts, with a report due this summer. To the north, West Palm Beach commissioners on Monday will consider doing the same.
"When you sign up to become a police officer, one of the things you look at is pension," McGuire said. "Late in the game, to say we are going to cut something, I think it's unfair."
City officials say there's little choice.
"It is increasingly difficult for taxpayers to continue to fund government at the same level,'' said Sunrise City Manager Bruce Moeller. "The unions understand that the costs are going up. They have an interest in making sure their pension fund is viable for employees."
Jennifer Gollan can be reached at email@example.com or 954-572-2083.