There are two Cities in Broward County (the Ft. Lauderdale Area), Fla., at least that I know about, which are making contributions of 25 to 27% of Payroll to Employee Retirement Funds. In the case of Ft. Lauderdale, the City Commission is trying to determine how to modify those contributions or, otherwise, they will go up to 32%. The Commissioners seem divided, with some suggesting 20 to 22%, and others 10 to 20%. And, that is on top of the matching FICA Contributions that Employers already make to fund Employees’ Social Security Benefits in Retirement.
To me, this whole question of Retirement Contributions is ludicrous, especially when you consider that many large corporations contribute somewhere in the range of five-to-seven percent if there is, in fact, a Plan. I cannot believe that these Excessive Contributions are unique to South Florida. And, you wonder why local governments are going broke?
When times were good, City and County Commissions hired more and more workers; because, employees tend to vote for who is taking care of them–and generally, their families and friends vote along those same lines, as well. Give them whatever benefits they want, to keep them happy. One hand washes the other, huh? Or, make my “Public Service” (HA!) into a Career!
Believe it or not, some local governments are actually borrowing money to fund Retirement Benefits. In New York State, City and County governments are borrowing money from the State, in order to make their necessary payments into the local State Retirement System. I kid you not: the State provides for that Loophole.
Today, in Ft. Lauderdale, the City Commission was voting on a plan to Float some $314 Million in “Pension Bonds”, to be invested, in order to bring their Unfunded Pension Liabilities up-to-date. Thus, they are merely trading one liability for another. And, is there any question as to why they are behind the proverbial eight-ball?
To make matters worse, the City is going through this exercise to invest the bond proceeds, to fill that Benefits Hole, while the US Stock Market is near the highest level that it has been over the last four years. Smart, huh? Also, there aren’t any guarantees.
They commented that Financial Advisors have suggested that it is almost fool-proof. What would you expect FAs’ to say? There Primary Job is to Generate Revenue. In this situation, Wall Street will make money on the Bond Issue, as well as on the on-going management of the Proceeds. Good work if you can get it!
Now, several years ago, Jefferson County (Birmingham Area), Alabama bought-into a Debt Re-structuring Deal, as sold by Wall Street Bankers. The Securities Firm received its Commission; but, Jefferson County recently filed for Bankruptcy. Did the County Officials truly understand that Deal–and the Risks involved? Did the Broker selling “The Answer” really understand it? But, Wall Street did generate its Revenue. And, obviously local services have been cut-back drastically. Always keep in mind why Warren Buffet rarely invests in Technology: because he doesn’t understand it, as he says.
I would seriously recommend that you check your own City and County, and check what the percentage of Retirement Contributions they are making, how up-to-date in their funding they are and whether there are Unfunded Liabilities that they will have to close. Do they have any debt to fund their responsibilities? If they are planning a financing, start to ask questions.