Winston-Salem to consider eliminating local police pension

by Jordan Green

The Winston-Salem City Council cut managerial positions, eliminated a police recruit class, delayed vehicle replacement and reduced funds for road maintenance, but they still had to raise property taxes by 3.4 percent.

And council members want to find a way to introduce Sunday bus service and improve the city’s public transit system in a time when federal stimulus funds have run out and tax revenues are down. The brutal budgeting process in recent months has city leaders anxious to find cost savings that won’t have a detrimental impact on services.

Council members gave City Manager Lee Garrity a to-do list during budget discussions. Among them was to review the city’s police retirement system, the only one of its kind across the state.

The city matches Winston-Salem police officers’ contributions to the local police retirement system and also matches their contributions to the NC Local Government Employees Retirement System administered by the Department of State Treasurer. Other local law enforcement agencies across the state participate only in the state system. The local retirement system allows Winston-Salem police officers to avoid paying into Social Security, but they also don’t receive benefits.

Yet by participating in the local and state retirement systems, retired officers who have given the city 30 years of service can receive 110 percent of what they earned in their last four years on the job. For example, a Winston- Salem police officer whose earnings for the last four years of service averaged $50,000 could receive up to $55,500 in combined benefits from the state and local plans. A law enforcement officer employed by any other municipality or county would receive only half that amount.

“I think it’s asking more of us than we can afford,” West Ward Councilman Robert Clark told YES! Weekly. “I think it makes more sense to let the police be a part of the state system.”

Clark, who is a member of the council’s finance committee and the council appointee to the Winston-Salem Police Officers Retirement Commission, remarked from the dais after the council’s budget vote that Garrity would be presenting a revised retirement policy to the council in the fall.

Clark’s sentiments put him at odds with many police employees. Lt. Robert Cozart, who works in the criminal investigation division and previously served on the police retirement commission, said the local pension system is popular among officers.

“There’s a lot of sacrifices to be in a difficult occupation like this,” he said. “One of the perks is the stability of the retirement. It is kind of a shame to even see anybody talking about changing it or altering it.

“We carry guns and wear bullet-proof vests for a reason: There is a lot of risk,” Cozart added. “There is a lot of stress. Everything you do is scrutinized by the media. There’s a lot of ways to get jammed up. It takes a toll. With the shift work, I know myself being on call for homicides I’ve lost a lot of time with my family…. I think a lot of us look at the retirement as the reward.”

The local police retirement system was established in 1977 when all other city employees voted to transfer into the state system, said Denise Bell, the city’s chief financial officer and administrator of the plan. Police officers broke ranks and elected to stay in the local system. Most if not all police officers also voluntarily participate in the state plan to double their benefits.

The costs of the program to the city have steadily risen over the years as the number of beneficiaries has climbed, the system’s annual reports show. Meanwhile volatility in investment markets has cut into revenue for the system.

Officers contribute 6 percent of their annual income to the retirement fund, not counting the 6 percent contribution they make to the state system. After investment returns or losses factored in, it’s up to the city to make up the difference to meet its obligations to pay out benefits every year.

Since 2007, the number of retirees, beneficiaries of deceased officers and vested terminated employees has risen from 263 to 294. Benefit payouts have increasing accordingly — from $6.4 million to $7.8 million, or 19.8 percent. The ranks of active employees paying into the system has increased from 495 to 551, and total member contributions has risen from $1.4 million to $1.5 million, or by 8.1 percent.

The fund took an investment loss of $7.2 million in the 2008-2009 fiscal year, followed by a $15.8 million hit the following year. Investments have rebounded into the black in the past two years, with the result that the past four years has essentially been a wash.

With the city as the contributor of last resort to the defined benefit plan, the annual cost of the system to city taxpayers has soared from $4.2 million in the 2007- 2008 fiscal year to $5.6 million today — an increase of 34 percent.

The fiscal strength of the local police pension has gradually eroded over the past decade, according to the system’s most recent annual financial report. In 2002, 95 percent of the system’s future obligations were covered, but today only two thirds of liabilities are covered. Known as the “funded ratio,” the annual report characterizes the figure as “a good indicator of the fiscal strength of a pension fund’s ability to meet obligations to its members.”

In contrast, the Local Governmental Employees’ Retirement System handbook issued by the Department of State Treasurer indicates that the state retirement system has consistently maintained a funded ratio of 99 percent since at least 2003.

“If [a pension plan is] better funded, that means local governments are required to put in a lesser amount than another plan such as ours that has a lesser funding ratio and would require a higher level of contribution,” said Bell, the city of Winston-Salem’s chief financial officer.

Any savings to the city by eliminating or scaling back the local pension plan would be realized incrementally, considering that the city is obligated to maintain benefits for all current employees. The city’s liability would gradually decrease, following the lifetimes of retired officers and their spouses. In other words, the city wouldn’t see the full savings from eliminating or scaling back the program for at least 30 years.

Cozart said eliminating the local pension would be shortsighted because cutting retirement benefits in half would harm the department’s ability to attract and retain quality employees.

“You’re also looking at retention of personnel,” he said.

“One of the reasons we’re able to hire and keep the people we keep is because of the benefits. We’re competing with a lot of other agencies that pay more in starting salaries. Is the quality of the people we keep around here important? I like working with the best qualified personnel possible.”

Mayor Pro Tem Vivian Burke, who chairs the council’s public safety committee, questioned the fairness of maintaining benefits for city employees who do not pay property taxes as Winston-Salem residents during the hearing before the budget vote. At Burke’s prompting, Garrity said a little more than half of city employees live within the city limits.

“Now all of the struggles that we’re having and all of the people who live in this city who pay these taxes and who’s been paying these taxes,” said Burke, who did not specifically single out police officers. “[As senior citizens] we have been carrying this city, and we have people who don’t live in this city who’s employed in this city.… And some of our taxpayers can’t even go to town on the bus.”

Cozart said the matter of whether police officers live in the city and contribute to the tax base should not be part of the discussion of the relative merits of the local retirement system.

“Anyone who sees the people coming down Highway 52 to go to work — and only a small portion of them are police officers — if you’re going to calculate how you’re going to increase the tax base by such a small number of people, that’s naïve,” he said. “It’s not just people who live in Winston-Salem that drive the economy of the city.”

Cozart said he is concerned that the young men and women taking the oath in the future who would be affected by any changes to the retirement system might not realize what is at stake because people don’t tend to think much about retirement until they get older. He added that the job is more demanding than it was when he became a police officer 25 years ago.

“Right now, people are grasping at ways to save money,” Cozart said. “I hope somebody slows down and actually really looks at the consequences of these actions. I understand that cuts have to be made, and some of them will affect me…. Hopefully, this recession will end at some point. I hope the actions we take don’t hurt us down the road because once you take that step it’s hard to turn back.”