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The Move From the Funding Dispute to the Reduction of Benefits Battle

The Move From the Funding Dispute to the Reduction of Benefits Battle. Presentation By: Daniel G. Tobben, Esq. Who Am I and How Did I Get Into This World of Firefighter Pensions?. What I am and what I am not. Who Am I and How Did I Get Into This World of Firefighter Pensions?.

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The Move From the Funding Dispute to the Reduction of Benefits Battle

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  1. The Move From the Funding Dispute to the Reduction of Benefits Battle Presentation By: Daniel G. Tobben, Esq.

  2. Who Am I and How Did I Get Into This World of Firefighter Pensions? • What I am and what I am not....

  3. Who Am I and How Did I Get Into This World of Firefighter Pensions?

  4. Who Am I and How Did I Get Into This World of Firefighter Pensions?

  5. Who Am I and How Did I Get Into This World of Firefighter Pensions? • Danna McKitrick – The other parts of the puzzle

  6. What is Going on in the World of Public Pensions? • Nationally, in District 2, and in my practice.

  7. What is Going on in the World of Public Pensions?

  8. The World has Changed – The “Gratuity Theory” of Pensions • No pensions • Pensions as gratuities • Pensions as exceptions to general rule that no public money can be spent for private purposes • Pensions as a matter of right • Pensions under attack due to governmental budget concerns

  9. Know What’s Happening • Each group needs to have someone who understands at least the basics of the actuarial reports (usually a trustee with at least two years’ experience). • Leadership at the local level needs to become familiar with the key pension issues and with where the “money battles” will occur.

  10. What Does Your Attorney Know? • Make sure your attorney understands actuarial reports and how the plan is being administered. • City attorneys may have a conflict of interest. (Major practical consequences) • Labor lawyers may not fully understand public pensions.

  11. The Starting Point – Know What is in Your Pension Ordinances or Statutes • Do this NOW, if you haven’t already. • Many things we will talk about later depend on this. • Know your other plan-related documents (SPD and policies and procedures). • Keep track of past concessions made in order to get new benefits or keep existing benefits.

  12. Motivators Regarding Plan Review: • Threats of benefit reduction. • Proper funding each year; the problems of severe underfunding (the “UAAL”). • Task forces – never take them at face value, but do participate. • IRS compliance. (Determination letter) • Do you know what you have – pluses and minuses; how clear is the language? • Be proactive

  13. Social Security Vs. No Social Security • BIG DEAL • Legal significance • Public relations significance • The “fairness” argument • Political – things may change here as well • More firefighters into Social Security? • National debate re: modification to Social Security?

  14. New Employees - No Guarantees • No promises made therefore no expectations • Government unit has great flexibility regarding new employees • Move to a new tier / multiple tiers • Move to state-wide pension programs • Alternative plan design for new hires (Combo DB-DC plans)

  15. Retirees - Benefits Can’t be Changed Under Most States’ Laws • Lawsuit in Springfield, Missouri regarding COLA • The very recent Colorado and Minnesota trial court decisions regarding COLA • Other challenges around the country --- watch Atlanta • Even older cases that didn’t protect pension rights thoroughly upheld retirees’ rights as guaranteed – service completed

  16. The Battle Ground is Regarding Active Firefighters • Right to receive all that has been promised vs. right to keep all that you have earned to date. • The Constitutional Guarantee – State and Federal (The Contracts Clause) • The guarantee only protects what you have; it doesn’t create additional contractual rights. (Read your plan.) • The dilemma is places like Omaha and in Illinois.

  17. The Battle Ground is Regarding Active Firefighters • Governmental entity cannot impair the rights under a contract (under the constitutions of many states and the federal constitution) • The federal history • Dire circumstances exception (Great Depression and WWII – not a severe recessions or an “AA” credit rating for the U.S.) • Only as long as required by the emergency

  18. The Battle Ground is Regarding Active Firefighters • What does this mean in different contexts? • Transfer to a new plan – not as simple for the governmental entity as they believe • If value of benefit isn’t equal or greater, liability to the firefighter on the part of the city, if there is a transfer • Be careful about what the new plan provides

  19. The Battle Ground is Regarding Active Firefighters • Reduced benefits for new hires probably won’t save the governmental unit money for 10 years • Increased costs in a closed plan • Costs of maintaining two plans • Have to add costs of old and new plan to get a true understanding of implications

  20. The Battle Ground is Regarding Active Firefighters • Things to think about • States can’t file for bankruptcy • No bailouts by states or federal government likely • Take care of yourselves, by making sure your plans are funded properly

  21. The Battle Ground is Regarding Active Firefighters • “Definitely Determinable Benefits” -- an IRS requirement that may also afford protections • Federal interests in the solvency of public pensions (no bailouts) • IRS regulation is the backdoor – remember Al Capone? • Did you ever believe the IRS might be your friend?

  22. Things to Think About • Money paid into the pension – no longer the City’s or FPD’s money (but read what the plan says) – abig deal! • The bankruptcy threats – serious, but... What has really happened to date? • Pension benefits have almost never been reduced. (Orange County, City of Vallejo) • But see Pritchard, Alabama, and perhaps now Central Falls, Rhode Island. • Current fallout in San Diego.

  23. Things to Think About • What if’s • The economy gets much worse? • The Tea Party’s influence expands significantly • But also, what if • The economy gets better and stabilizes • The political center re-emerges

  24. Things to Think About • City’s taxing authority vs. the city’s ability to pass a tax increase • Public Safety may be different (St. Louis and Springfield) but consider the lessons of the Mehlville, Missouri FD. • The voters may like you and the police more than the elected officials. • Or not, the Omaha situation • History • Well-funded and militant opposition

  25. Things to Think About • “A Tale of Two Cities” • Omaha vs. Lincoln • The rest of Nebraska • All politics is local • What is your history and, again, what is your governing law?

  26. Things to Think About • KNOW WHO YOUR FRIENDS ARE • Know who you can work with, even if they are not always your friends • Figure out ways to try to work with the police or at least don’t fight publicly • The bond rating agencies may be your friends • KNOW WHO YOUR FRIENDS ARE AND HELP THEM

  27. Going Forward • Where do we go from here? • Core vs. non-core benefits • Is there a difference between cutting core and non-core benefits? • The Colorado and Minnesota trial court decisions and other pending lawsuits – see Atlanta. • Is a requirement to have firefighters contribute more from their paychecks a violation of the Contract Clause?

  28. Going Forward • Is your city or FPD administration friendly, hostile or neutral? • What is your political reality? What would the voters do, if push came to shove? • Do you have a P.R. consultant? • What is going on politically, socially and economically in your communities? • Does your local media have an agenda affecting you beyond having stories to help sell papers?

  29. The National Media Story • The current job security envy and ongoing “pension envy.” • When the economy improves, envy of job security may disappear. • Pension envy will almost surely remain. • Hard to explain someone in their mid-40s getting a pension check. • The Tea Party and also the tax radicals. • The tax and government spending issues are REAL.

  30. The National Media Story • Public safety is different. • Many don’t receive Social Security. • Citizens don’t want 60-year-old police officers and firefighters. • Major gap in healthcare coverage upon retirement before Medicare eligibility. (Many firefighters) • However, often firefighters are held in high regard (often better than police officers). • But see recent actions of Omaha PD.

  31. Dangers in Bargaining Away Pension Rights • If you bargain away pension rights • Has the contractual commitment argument been weakened? • Won’t the governmental entity come back for more, especially in hard times? • Can firefighters sue you, if they are adversely affected?

  32. Fighting to Preserve Your Pension Benefits • The battle can be won. • The funding battles have largely been won. • No one ever said this would be easy. • Make sure you are ready. • Know your plan. • Know your politics. • Have a good attorney. • Consider a PR professional or media advisor.

  33. Questions • There are no bad questions. • There are no perfect answers.

  34. Thank you for your attention!Enjoy the rest of your time in Sioux City! Daniel G. Tobben, Esq. dtobben@dmfirm.com 314.889.7125 http://www.dannamckitrick.com/Documents/IAFF_2nd District_presentation_Daniel_Tobben.pdf

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