The Mehlville Fire Protection District’s employee pension plan would have an unfunded accrued liability of nearly $18 million today if it had remained a defined-benefit plan.
If the pension plan had not been changed to a defined-contribution plan, the unfunded accrued liability would total $17,813,578, according to a projection performed by Milliman, an actuarial firm. The pension plan would have a funded ratio of 67 percent today if it had not been changed, according to the projection.
Milliman’s projection covers the period from Jan. 1, 2007, to Jan. 1, 2011, and was performed at the request of Board of Directors Chairman Aaron Hilmer, who wanted to know “where the defined-benefit plan would be today if we hadn’t changed it.”
“… I think the numbers speak for themselves,” he told the Call. “I certainly can’t add anything to the numbers. They’ve almost tripled from where it was.”
On Jan. 1, 2007, the unfunded accrued liability totaled $6,595,794 and the plan’s funded ratio was 85 percent, according to Milliman’s projection. Over the four-year period, the unfunded accrued liability increased by roughly $11.3 million — “almost 300 percent,” Hilmer said, adding, “At that point, your options of solutions aren’t very big then. They’re draconian. People are going to have their benefits cut and there’s going to be tax increases. We avoided both.”
If the plan had not been changed, the shortfall “would have been the public’s responsibility or at some point the district would say: We just can’t make our payments. We can’t afford to give you your retirement check any more. And that’s something we didn’t want to happen. You see, when we made our change anyone who was already retired was guaranteed to continue to get that check. We only changed benefits for people currently working there,” he said.
Hochschild, Bloom and Co. found in its 2008 comprehensive annual financial report, or CAFR, of the fire district that the pension plan’s unfunded actuarial accrued liability totaled $449,885 on Jan. 1, 2009.
The plan’s funded ratio was 98.5 percent, according to the report. A valuation was not performed in the district’s 2009 CAFR.
Hilmer and board Treasurer Bonnie Stegman were elected in April 2005 after campaigning on a reform platform, vowing to eliminate fiscal waste while improving services. The biggest reform by far, according to Hilmer, was changing the pension plan to a defined-contribution plan.
“I would say the pension reform is the largest because we couldn’t have done things like ask people to vote on a tax decrease if we wouldn’t have structurally fixed the district, and the pension was the largest structural fix we did. It was systemic. The problem was systemic,” he said.
Voters in April 2009 approved Proposition 1 and Proposition 2, which reduced the district’s tax-rate ceiling by a total of 40 cents and resulted in the district not being able to collect more than $10 million in tax revenue annually.
The board voted on March 16, 2006, to adopt an amendment and two resolutions changing the district’s pension plan from a defined-benefit plan to a defined-contribution plan. Within days of the vote, Local 1889 of the International Association of Fire Fighters filed a lawsuit seeking to prohibit the board from changing the plan.
In August 2007, a St. Louis County Circuit Court judge dismissed the lawsuit filed against the board by Local 1889. The union appealed that decision, but the lower-court ruling was upheld by the Eastern District of the Missouri Court of Appeals in December 2008. Two weeks later, the Board of Directors voted unanimously to approve a settlement agreement with Local 1889, ending the nearly 3-year-old legal dispute over changes to the district’s pension plan.
The Mehlville Fire Protection District is the first and only government entity nationwide to terminate a defined-benefit pension plan and replace it with a defined-contribution plan, according to Hilmer.
That’s why the district has spent $1,800 to launch
, a website that offers a timeline with news articles, editorials, court rulings and other documentation about how the pension reform was accomplished, he said.
“… Not only can the residents actually see what happened over four years of fixing it, but if there are other governments out there and there obviously is a plethora of them who need to fix it, they can look at our road map the residents of south county created,” Hilmer said. “… When Bonnie and I got there, the pension plan was creating what I have coined ‘Mehlville millionaires’ on the taxpayers’ dime. At the time, they told us this pension plan has been in place since the 1960s, it cannot be changed. Well, we changed it and the union attorney told Bonnie: ‘See you in court.’ And Bonnie replied: ‘What’s new?’ And because we went for it, we’ve been able to cut the pension tax levy in half and we’re the leader in the nation in public pension reform.
“… On the website are all the court decisions, so people can even actually look and see the legal arguments that were brought up — the arguments these public-sector unions draw up like implied contract or you’re breaking the contract clause of the United States Constitution,” he said. “Well, they brought all those things up and they failed on them. So this is a template not just from news articles but through actual court decisions and that’s what other entities will need when they make this change. They can point to those court decisions.”
Under Mehlville’s defined-contribution plan, the district contributes from 8 percent to 11 percent of an employee’s total compensation to the plan based on years of service.
“When you talk about a pension plan to a lot of workers today, they look at you with a befuddled look and they say: What’s a pension that your employer gives you?” Hilmer said. “We’re still giving them (employees) a pension head and shoulders above the majority of the residents of south county. There is absolutely no reason why public employees should have pension plans more generous than the public who’s forced to provide them. And that’s what it really came down to and I think we made the pension scales fair and balanced.
“… I certainly do feel vindicated when you look at these numbers, especially when you consider what Bonnie and I had to endure as far as the lawsuits and the threats, and we were just community volunteers trying to fix something. It really shocked me how we were treated. But we fixed it and the results speak for themselves. And I think this is even more prescient today, considering the headlines today. All you read about is pension crises throughout the country, sinking government budgets, causing cutbacks, causing layoffs and we were out here in early ’06 saying we have to fix something,” the board chairman said.