Dear city employees,
I’m very happy to report that, thanks to the passage of Senate Bill 2190, your defined benefit systems are now sustainable. You will be able to count on your pension benefits coming in after you retire.
When I took office, the total unfunded liability – the amount by which future obligations exceed current value - of our three pension systems was around $5.4 billion. Once we implemented more realistic expectations on investment returns, that number rose to $8.2 billion.
The cost of our pensions threatened to bankrupt the city. In Fiscal Year 2008, we were faced with the possibility of 2,200 layoffs. If we continued down this path, we could reach a point where we would be unable to provide retirees with their pension benefit checks. Thanks to this legislation, we have reversed course. We will have minimal layoffs this fiscal year – most through attrition – and we will be able to meet our obligations, now and in the future.
Before I took office, the city had sometimes failed to meet its obligation to pay its full contribution into the police and municipal employee pension systems. That stops with this new law. The city is required to make its full contribution every year. Moreover, we are committed to repaying $1 billion of the money the city effectively borrowed through underfunding by using pension obligation bonds. The bonds are required to pass a vote of the public. You have my commitment that I will be working hard, along with others, to pass these bonds.
It is important to understand how we got to a place where we were unable to meet our obligations as a city. In 2001, the city received information from its actuarial firm and based its benefits on that data. The data was wrong. We are suing the firm, but in addressing our pensions, we were faced with the reality that the city had implemented pension benefits that exceed its ability to pay them.
Through the meet and confer process with the police and municipal employee pension systems, and through the legislative process with firefighter pensions, we were required to scale some of those benefits back. To make our pension systems sustainable, we were also required to increase the contribution employees put into the system. The contribution is deducted automatically from your paycheck. Therefore, you are likely to see a dip in the amount of take-home pay you receive in your paycheck, beginning in July.
The amount will depend on the particular plan you are part of. Please look out for a letter from your pension system. The letter should explain specifically the changes you will be seeing. Your pension system may be holding informational meetings about the changes. I would encourage you to attend. I would encourage you to contact your pension system with specific questions you might have.
I have spoken often about “shared sacrifice” being required to make this city all it can be. City employees have risen to the occasion, and I cannot express my gratitude enough. Together, we will work to lift up this city, its neighborhoods and its residents.