COLA Calculation Making a Big Difference to Ft. Worth System

April 28, 2008 ( - The shortfall in the Fort Worth, Texas, municipal pension system dropped from $410 million in 2007 to $237.5 million at the beginning of 2008 - a decrease of 42%.

According to the Fort Worth Star-Telegram a report issued by an actuarial firm showed that the shortfall decreased in large part because the City Council changed the way cost-of-living adjustments are calculated. The cost-of-living change was cited as the reason for more than half the reduction in the shortfall.

Employees receiving smaller raises in 2007 and the hiring of a lot of younger employees who are farther from retirement were also factors that improved the funding status of the system, the report said, according to the Star-Telegram. In addition, the City Council voted in October to increase the city’s contribution to the system.

Another measure by the city intended to improve the funded status of the system – placing a limit on increases to an employee’s base salary in the last years before retirement – was recently shot down by the Texas Attorney General (See Texas AG Shoots Down Plan to Shore Up Fort Worth Retirement Fund ). The Star-Telegram reported that a large part of the pension fund’s shortfall came from employees spiking their pensions by working lots of overtime or taking promotions in their last few years before retirement, increasing salary amounts used to calculate pension payments.

The Attorney General issued an opinion pointing out that the Texas constitution does not allow pension benefits already earned to be reduced, so the salary cap cannot be applied to employees who have already worked for the city long enough to be vested in their pensions. Assistant City Manager Karen Montgomery said in the news report it is unclear whether the opinion applies to imposing the limit on newly hired employees or those not yet fully vested in their pension benefits.

However, the plans that were put in place to reduce the system’s shortfall seem to be working as the system saw the 42% decrease in the shortfall despite earnings not reaching its goal. The fund only earned 5.3% in 2007, significantly below its 8.5% goal.