The Coral Gables City Commission unanimously reaffirmed its December decision to reject the Retirement Board’s request to provide a nearly 6 percent cost-of-living (COLA) increase to their pension plans for retirees.
Last year, in a 3-2 decision, the commission countered the Retirement Board’s argument that the city must pay its retirees the increase in January. Former commissioners Ralph Cabrera and Maria Anderson voted to pay the retirees the COLA. The amount would have been $1.6 million per year over 30 years — or $48 million.
The Retirement Board, at Tuesday’s regular commission meeting, argued that since its return on assets for the budget year that ended on Sept. 30 was 18.2 percent — a return that exceeds the threshold of 10 percent that triggers a COLA increase — the city had an obligation to pay out the requested 5.95 percent hike. But the city cited state law that says COLAs must be funded at the time of dispensation.
Florida statutes state that pension benefits must be “fairly, orderly and equitably funded” by current, as well as future, taxpayers. The statute prohibits any procedure that “transfers to future taxpayers any portion of the costs which may reasonably have been expected to be paid by current taxpayers.”
Though the return on assets was 18.2 percent, the overall financial picture wasn’t as promising. There was an actuarial loss of $22.6 million on assets of $265 million and liabilities of $514 million. The unfunded actuarial accrued liability on Sept. 30 was $249.1 million, an increase from the previous year’s figure of $235 million.
Ten years ago, the unfunded actuarial accrued liability was $126.8 million.
Florida statutes also say that to the extent there are conflicts, state law prevails over local retirement ordinances.
At the December meeting, Mayor Jim Cason instructed city attorney Craig Leen to draft a letter to the state’s Department of Management Services for clarification and to share the letter, and his findings, with the legal team representing the unions.
The response, from Bureau Chief Keith Brinkman and dated March 21, read:
The Division finds that since the net actuarial experience of the Coral Gables retirement plan accumulated from all sources of gains and losses is negative, pursuant to Section 112.61, Florida Statutes, the cost of this benefit could not be paid from actuarial experience.
“In my view, you may rely on this letter to interpret the statutes, which means substantial weight if this is to be reviewed in court,” Leen counseled the commission, reaffirming his position that the COLA could not be paid because it is unfunded.
Jim Linn, the city’s special counsel on pension matters, agreed with that position.
“The market return last year was very good, but even though the plan had this good rate of return last year, there was still an actuarial loss of $22 million,” Linn said. Part of the reason for the loss is that there were 41 retirements in the fiscal year versus the 25 that were expected, and that led to an increase in the unfunded liability of $3.8 million. Turnover was also less than expected with 13 terminations of employment, rather than 22, and that boosted the unfunded liability by $1.5 million.
“If you look at one piece of experience, there is no way one year of investment return can offset many years of actuarial losses, which is the situation here. That’s why state law was put into effect,” Linn said. “This is not like a disability benefit. This is a contingent benefit.”
Ronald Cohen, the attorney representing the police, fire and general employees’ unions, argued, as he did in December, that the COLA was not an additional benefit and that the increase should be paid. He also acknowledged receipt of Brinkman’s letter.
“If the cost can’t be paid from actuarial experience, OK, it has to be paid from somewhere else. Nowhere does it say it doesn’t have to be paid. The Retirement Board is made up of people who study this — they know how the state has treated it, and they have looked at this very carefully and unanimously decided it should be paid, and you’re making a radical departure. There’s no support from the state letter that says it doesn’t have to be paid.”
Vice Mayor Bill Kerdyk Jr., Commissioner Frank Quesada and Cason stood by their earlier position. Newly elected commissioners Pat Keon and Vince Lago also joined the majority.
“After looking over the numbers … the real numbers are $48 million. Yes, we’ve had good returns for one year, but I don’t think we can take $48 million and stack it onto what we already owe. I don’t think that’s responsible leadership,” Lago said.
“I strongly feel it is my responsibility to support the ordinances and the laws of our city and also our state,” Keon said. “Sometimes laws may require us to make decisions we might not like, but that is the law. We are not bound by the judgment of past commissions and not bound by prior legal council. …This does not diminish the respect we have for all of you who work here in the city.”
After the vote, Cohen said he planned to file suit against the city as soon as possible.
“We intend to file a lawsuit to recover the benefit that they’ve earned and that was promised to them.”
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