Delray’s $100M underfunded pension plan.
Here’s a guest column written by Delray Beach activist and resident Kenneth MacNamee.
Given your track record as a Trustee for the Police & Fire Pension Plan (P&F), I clearly see why you didn’t respond to my two email requests to you below. I’m surprised you haven’t left the country!
Thanks to Ms. Nubin and Ms. Walinsky, I received the necessary information (that you already had) to divulge the following facts about your disastrous tenure as Trustee since early 2008. Here is your “Report Card”!
(For interested blind copied recipients, many of the disturbing facts I cite herein can be confirmed on page 32 of the P&F 2011 Actuary Report. It can be accessed at “www.mydelraybeach.com/finance/pensions/resources“. Page 32 reveals several very alarming trends. I highly recommend that you analyze it to grasp the magnitude and adverse direction P&F is taking the City!)
1)- When you became a Trustee, P&F was in poor financial condition– only 77.6% funded and short $33.6 million (technically, “Unfunded Actuarial Accrued Liability”). But, after four plus years of your ‘oversight and guidance’ (???), it is now is far worse being only 56.5% funded and short $91.5 million! That’s right, in 4 years the P&F’s unfunded liabilities have increased $57.9 million or close to $14.5 million per year!
Let’s put this disaster into perspective that taxpayers can relate to. If Delray tripled its property tax rate next year, the P&F would still be ‘short’! Another drastic solution is that Delray’s population is approximately 64,000. That means every citizen would have to pay $1,430 to cover the $91.5M underfunding. How could this have happened under your 4 year watch?
2)- Can’t blame the Delray taxpayers! The City has funded the P&F actuary’s recommended annual contributions 100%. It was $5.2 million in 2007 and has risen rapidly to $8.0 million in 2011. That’s right the annual contributions have jumped 54% in 4 years while the unfunded liability increased (instead of decreasing) an astonishing $57.9 million!
3)- Can’t blame Delray police officers and firefighters! P&F only added 12 Plan members to a total of 454, a paltry 2.6% increase over 4 years. Total Covered Payroll only went from $16.9 million to $17.8 million– less than a 1.5% increase annually.
4)- Ah, P&F’s (lack of) investment performance! Every year for the past four, P&F has experienced a NEGATIVE investment return on its $100+ million in assets– for an average annual return/(loss) of (1.7%)! During the same four year period, the City’s other Pension Plan (General Employees) averaged a reported 4.5% annual investment return.
To put this key performance difference into a dollar perspective, had your P&F mirrored the other Plan, it would have generated approximately $27 million reducing the current $91.5 million unfunded liability to $64 million!
5)- How about “Investment Advice”? Over the past 4 years, P&F paid $2.2 million ($550K annually) for “Investment Related Services”. The other Plan paid less than $800K. That’s right! P&F paid $1.4 million more for obviously “Bad” investment advice. How can you possibly justify P&F’s excessive expenditures and the resulting failed investment performance? The other Plan’s overall performance? It reports its funding level at 96.8% (compared to P&F’s 56.5%). Far less expenditures there has obviously generated far better investment results.
6)- It gets worse! The $91.5 million unfunded actuarial liability is understated. If one uses the realistic market value of P&F assets, the unfunded liability exceeds $100 million. The actuary’s calculations assume the P&F will earn 8% annually going forward (and assumed higher earnings rates in the past, which were not close to being attained!). If the P&F actuary used the Gen. Employee Plan 7.25% assumed rate of investment return (more conservative and probably far more realistic), P&F’s unfunded actuarial liability would probably be closer to $110 million.
7)- As stated above, the City paid $8.0 in P&F pension contribution in 2011 based on $17.8 million in Covered Payroll. That means the Pension cost equals “45% of Covered Payroll” and yet the underfunding dramatically increased! Doesn’t that sound outrageous? Again, at $8.0 million, the 2011 P&F pension expense equals 18% of every property taxpayer’s dollar! I’ll bet the P&F’s actuary’s pension expense for 2012 for the City will be close to $9 million.
8)- I believe you (and the other P&F Trustees) had good intentions when you became a P&F Trustee but the above proves that you have been “in way over your head”! I guess it has been a “Learning Experience”. While you have been “learning” for 4 years, the taxpayers have “experienced” a $57.9 million loss. Where were our exalted leaders (Mayor McDuffie and City Manager Harden) during these 4 years while P&F was “hemorrhaging” a $1.2 million per month loss? Did either ever attend some monthly P&F Trustee meetings to try to learn what was going on and offer some sage advice? Mayor McDuffie had the time to take a week plus junket to Japan and just recently traveled to Denver for a few days on City business. Why couldn’t he find the time to attend some P&F meetings? Mr. Harden appears to have delegated his involvement to one of his Asst. City Managers. Apparently, losing $1.2 million a month over 4 years didn’t warrant his direct involvement? Wow, McDuffie’s and Harden’s apparent ambivalence to this ongoing catastrophe seems like a serious City “leadership void” to me. One might even consider it, “Dereliction of Duty”.
Have the other Commissioners been aware of P&F’s status and why haven’t they taken corrective action? If they weren’t aware, then who withheld the facts from them? Commissioner Carney pledged during his 2011 campaign to look closely into Delray’s pension plans. Why am I disclosing this matter 15 months after he has taken office?
Why hasn’t P&F’s problems set forth above been previously communicated to the public on multiple occasions at Commission meetings or in press releases? Why has this grave situation apparently been concealed from the public? What other matters call for greater Commission attention and action than the P&F $91.5 million actuarial unfunded liability? There seem to be a lot of critical, unanswered questions contained herein.
It appears every aspect of Delray’s pension plans must be evaluated and addressed now. Boca has publicly committed to doing so with its pension plans. Boca Mayor Whelchel appears to have already taken the “bull by the horns”! I and probably many others will be closely watching the Delray Commission re pensions going forward.
Several months ago you told me you didn’t receive one of my emails to you. So, I am sending a SECOND REQUEST to my email below on this critical matter because you haven’t responded to this one. To start I just need four pertinent questions answered that you as Plan Trustee for the Police and Fire Pension Plan should have readily available.
For each of the Plan years since you have been a Plan Trustee, please provide the following as of the Plan year end:
- Total Plan Assets
- Amount ($ & %) the Plan was underfunded
- The Plan’s investment percentage performance for that year
- The Plan’s 10 year average investment performance at that year end (Is the average weighted by Plan assets or a simple average?)
I thank you in advance for your anticipated prompt reply.
—– Forwarded Message —–
From: Kenneth MacNamee
Sent: Tuesday, May 29, 2012 1:04 PM
Subject: Re: Pension and Legacy Cost Issues
STOP!!! Please don’t laud and encourage Mr. Harden to do any more “good things”! Delray citizens can’t afford it.
Read Harden’s #1 below. Police and Fire are only funded at 56.5%? That is a disgrace, a disaster! Harden states the City always has made its required contributions. That seems to indicate the investment performance has been woeful. How can one Plan be at a 96.8% funding level and Police and Fire at 56.5%?
How many millions of dollars are we talking about? And, correct me if I am wrong, but the underfunding assumes the Plans will earn 8.25% on average when their 10 year average return has been less than half that. How much is the underfunding (in % and $) assuming a 7% return, or the average investment return over the past 10 years? Those numbers must be disclosed to the Delray public so that they can understand the magnitude of this colossal problem! Pension Plan performance and funding status needs to be readily accessible on the City’s website.
Why isn’t this financial ‘time bomb’ frequently discussed and disclosed? This is the first I have seen it. Classic HardenI He conceals” another major issue. This undoubtedly ‘boxcar’ underfunded dollar amount (my guess at least $50 million) makes virtually everything else pale in comparison.
Also, the Investment Advisor and the individual Plan trustees should be disclosed. I believe Commissioner Frankel used to be a Trustee and maybe still is. How far underfunded ($ and %) were the Plans when he came on board compared to where they are now? I have cced him for his response.
This needs to be disclosed in the Intelligent Report so that Delray citizens finally become aware. Accordingly, I have copied Vince Dole.