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Mayor, unions agree to scale back pension plan
Police, firefighters' deal on deferred payments may save $7 million a
year
By Annie Linskey | annie.linskey@baltsun.com
8:37 PM EDT, March 16, 2009
Three Baltimore public safety unions have reached an agreement with the Dixon
administration to scale back lucrative retirement payouts for police officers
and firefighters who work longer than 20 years.
The compromise, fueled in
part by the down economy, would save the city an estimated $4 million to $7
million yearly while preserving elements of a popular pension selection known as
the deferred retirement option plan, or DROP.
Under the plan, public
safety officials receive a large lump-sum payment if they continue working past
their traditional retirement date.
The proposed revisions address only
one element of public safety pension problems, however. City officials continue
to worry about the growing cost of other benefits and insist that more changes
are needed.
The 13-year-old deferral program was supposed to keep
experienced police officers and firefighters on the job longer without
significant additional expense but has wound up costing Baltimore as much as $10
million a year.
The problem has been apparent for years, and efforts by
Gov. Martin O'Malley to alter the deferral option when he was mayor failed amid
bitter opposition from the unions and an onslaught of amendments that gutted his
efforts in the City Council.
This time the legislative process might be
smoother: The heads of three public safety unions, along with a deputy mayor,
signed an agreement that any changes to legislation introduced in the City
Council today must be backed by all of them.
"We try to do this a lot of
the time. We really try to get people to buy in," Mayor Sheila Dixon said,
calling union leaders "extremely open" to pension fixes.
Dixon called the
program a "luxury" that is no longer affordable in tight budget times. "That
money could go back into the Police Department or the Fire Department for
day-to-day operations," she said.
Deputy Mayor Christopher Thomaskutty,
who led lengthy negotiations with unions, called the compromise "a big deal" and
"a longtime fix to a budget-busting problem."
Amid economic turbulence,
police and fire pension plan assets have plummeted from roughly $2.4 billion
last summer to about $1.5 billion now. The decline played some role in bringing
the parties to the table, said Bob Sledgeski, who heads the firefighters union.
Stephan Fugate, the head of the fire officers union and a frequent critic of the
administration, noted that labor and management worked "collaboratively" in "a
cleaner process" than in the past.
The DROP program was designed to
retain police and firefighters after their 20 years of service -- a date at
which many retire because they become eligible to earn 50 percent of their
salary as a pension. There are 980 participants in the program.
A city
police officer, for example, who participates in DROP can retire after 30 years
with a $215,000 lump sum plus a pension payout of $61,000 a year.
Under
current rules, those who continue working after 20 years can receive their
regular salary plus pension payouts for three years. The payments go into a
savings account earning 8.25 percent interest until the member stops working.
The proposed change cuts the interest on that account to 5.5 percent.
The
legislation would also curtail a practice that allowed police who participate in
the deferral plan to eventually catch up to colleagues who did not enroll and
saw their years-of-service credits used for pension benefits increase.
Firefighters would still be allowed to catch up.
The proposal also
includes a requirement that those in the deferral plan stay on the job longer
before their pension payments reflect salary increases earned after enrollment.
Police would have a shorter wait (3 1/2 years) than firefighters (five
years).
The fix to DROP, however, does not address a much more costly
structural problem with the fire and police pension plan which will likely cause
a more intense fight. That issue -- how to change a little known provision
called the variable benefit -- will be the subject of a City Council hearing
Thursday.
The variable benefit, in its current form, could drive the
city's contribution to the fire and police pension plan to $110 million in
fiscal year 2011, up from $69 million this year.
"The scale of the
problem is much larger," Thomaskutty said.
Copyright © 2009, The Baltimore Sun