The shadow of two lawsuits over New Orleans’ funding of its firefighters pension system continues to hang over efforts to reach a compromise on how to right a system that is, for practical purposes, almost completely unfunded.
Suggestions for capping or dropping judgments against the city in those two cases as part of a global deal to put the system on a sounder financial footing were the primary reason union and pension system officials voted against plans for such a compromise Monday night, even as the two sides seemed closer on other issues that have been controversial in the past.
The failure of those efforts at compromise means it may be back to the courts — and possibly the halls of the state Capitol — as the city and firefighters fight over what mix of higher city spending and cuts in benefits will allow the troubled system to be set right.
The pension system board is putting the wheels in motion to restart hearings on those cases, retirement system attorney Louis Robein said Tuesday.
That action came after the city and firefighters could not agree on any of the four plans put before a task force that has been meeting since the fall. The task force had brought together the two sides, with the Business Council of New Orleans and the River Region acting as a broker.
“We would like to avoid (going back to court); we would like to continue this (negotiating) process,” Robein said. “But if we’ve got to litigate, we’ve got to litigate.”
The city is considering its options, Chief Administrative Officer Andy Kopplin said.
“We’ll keep all our options open,” he said. “We welcome the firefighters saying yes to one of the options that were presented Monday.”
The central issue to emerge Monday focused on the lawsuits filed by firefighters and the pension system against the city. One suit, which resulted in a $26 million judgment against the city, accused Mayor Mitch Landrieu’s administration of failing to make required payments into the fund. The second suit, which would cost the city between $75 million and $150 million, is based on the claim that multiple administrations have failed to grant required raises to firefighters.
Firefighters and union officials at Monday’s meeting reacted angrily to proposals that did not require the city to pay those judgments to the pension system to shore it up.
Both the city and the firefighters have largely agreed on structural changes to the system aimed at preventing a future crisis by improving oversight and advice on investments. Further, the two sides have agreed there should be no increases in benefits or cost-of-living adjustments until the system is 80 percent funded, something that could take decades under any plan.
There’s also the potential for agreement on a series of changes sought by the city in the way benefits are calculated, which would be a key part of the plan.
The two plans being pushed by the city aim to infuse about $35.4 million a year into the system, more than $10 million above what the city is currently paying. About $6 million of that would come from an increase in a special Fire Department millage — an idea the city has shelved until after the negotiations — while benefit changes would account for much of the rest.
Those changes would include revising two elements that make the New Orleans firefighters’ plan unique. First, firefighters in the system are allowed to collect disability payments on top of their retirement benefits, something not allowed by other retirement systems in the state. Second, the system interprets state law over how quickly its firefighters accrue benefits in a way city officials say is incorrect and grants greater benefits than authorized.
Both those areas, as well as further changes that would slow the accrual of retirement benefits, could be put on the table, Robein said.
“I think there’s some way to settle this,” said Paul Flower, who represented the Business Council as chairman of the task force. “We don’t have the total answer yet, but we made a ton of progress.”
The court judgments were initially not supposed to be part of the pension negotiations, which were intended to focus more on future funding, the structure of the retirement benefits and procedural changes.
While the judgments represent the firefighters’ best leverage in the negotiations, they also are essentially a paper tiger. There are few ways the city can be forced to pay the judgments, as firefighters have learned through long and convoluted legal battles over their pay and pensions.
One of the four options called for paying the judgments in full, which would have forced the city to spend $29 million more on the system next year and similar amounts in the foreseeable future. That’s a nonstarter for city officials.
The proposed structural changes to the way pensions are determined are the key, Kopplin said, and making those changes — along with a 2-mill tax increase — should put the system on the right track. “When you’re talking about asking the voters to pay more ... you don’t want to ask for a penny more than what” you need, Kopplin said.
As it stands, the system is short about $352.5 million to meet its anticipated obligations and almost completely insolvent.
Even when viewed through the rosiest of lenses, the fund has less than 20 percent of the money it needs to pay what it owes to current and future firefighters. By comparison, the state Firefighters Retirement System is 76 percent funded.
But dismal as it is, that assessment is still among the more optimistic estimates. When amounts that firefighters in deferred retirement programs can claim are taken into account, the system is almost completely unfunded.
As a result, the system is essentially taking all the money that comes in from the city and current firefighters’ contributions and giving it directly to retirees. That’s essentially a doomsday scenario for a retirement system, which typically relies on investment income to meet its obligations.
While firefighters maintain that the lack of money results from underpayments by the city in the past, administration officials say the real problems were overly generous benefits and poor investment decisions.
The negotiations allowed for two “placeholder” bills to be filed for the legislative session that starts Monday. Had a consensus been reached, those bills, in revised form, would have become the vehicles to cement the deal.
Right now, the pension system has no plans to move forward with any legislation on its own, Robein said.
Asked about bills the city might push, Kopplin repeated that the administration is keeping its options open, and he encouraged the firefighters to reconsider the options presented this week.
For their part, the firefighters are still open to negotiations, Robein said. “The system remains committed to, or at least interested in, continuing this process,” he said.
Follow Jeff Adelson on Twitter, @jadelson.