Portsmouth faces a heavy burden from pensions

PORTSMOUTH

Roy Cherry earned a $115,000 salary last year as superintendant of the Hampton Roads Regional Jail.

He also pulled in a $90,000 pension for a city job he left more than 16 years ago.

Cherry is one of dozens of retirees who have moved on to other government jobs while they collect their Portsmouth pension, a benefit that isn't available to most other municipal workers in Hampton Roads.

It also illustrates how generous one of Portsmouth's old retirement systems can be - and one of the reasons the city is struggling to meet its pension obligations. Other localities are seeing their retirement costs rise as well, but nowhere in South Hampton Roads is the burden as striking as in Portsmouth.

All told, the city will contribute an estimated $24 million next year to fund its three retirement systems, two of which are closed but still grow more expensive each year. By comparison, Chesapeake, with a budget twice as large and more than double the population, plans to spend $25 million.

When city staff planned Portsmouth's $232 million operating budget for the next fiscal year, they had to put 9 percent of it toward its retirement systems.

Councilman Steve Heretick estimated that could rise to 20 percent in five years. He described the situation as an avalanche that isn't raising sufficient alarm among city leaders.

"You can see it at the top of the mountain. You can hear it coming," Heretick said. "Nobody's getting out of the way."

Portsmouth's generous public safety pension was intended to better compensate its police officers and firefighters, who in the early '90s were at or near the bottom of the region's pay scale, said Lloyd Beazley, a retired Portsmouth firefighter and past president of the local union who helped design the plan.

Another goal was to give veterans a chance to retire before they left on disability, he said. Today, an estimated 400 current or retired cops and firefighters are eligible for or are drawing from the more lucrative public safety pension program.

Under the plan, which the council approved in 1994, officers and firefighters earned a pension equal to 60 percent of their salary after 20 years, 70 percent after 25 years, and 80 percent after 35. They continue to accrue 1 percent a year thereafter. The longest active police employee has accrued a pension exceeding 90 percent.

The salary equation includes overtime and supplemental pay for things such as uniforms. Another perk allows members to retire and collect their pension at any age, as long as they put in 20 years.

By contrast, the Virginia Retirement System, which covers Portsmouth's new employees as well as most other cities', doesn't let local public safety workers draw their full pension until they're 50 years old or have put in 25 years of service.

Benefits also accrue more slowly in the state-run system. Employees on hazardous duty can get up to 1.85 percent of their salary for each year of work.

In 1995, less than a year after council members enacted Portsmouth's improved public safety retirement benefits, they saw the cost and reversed course. The city switched to the state system for new hires, but by then, several hundred members were already enrolled.

A 1996 Virginian-Pilot story reported that 80 police officers and firefighters retired in the two years after the council improved their retirement benefits, more than in any other two-year stretch in city history.

Public safety wages have risen significantly since. Portsmouth's police and fire departments are now among the better-paid in the region.

Beazley said he warned city leaders to reduce the old retirement plan as they increased wages, to limit how fast the remaining employees accrued new benefits. They didn't.

Thomas R. White III, a professor at the University of Virginia School of Law who specializes in employee benefits, said an employer can change the structure of a retirement plan going forward, but is legally obligated to pay benefits that have already been earned.

Portsmouth still has about 130 working employees accruing benefits under the old public safety pension plan - about a fifth of its roughly 750-member roll. Most are already at or near 20 years of service.

"It doesn't sound like there's a lot of flexibility for Portsmouth at this point," White said.

The city's biggest weapon, according to city leaders and others who have studied the system, is a painful one: Spend even more now.

Every year, as other cities do, Portsmouth contributes an amount that an actuary determines is necessary to fund its retirement systems decades out. Despite those contributions, balances have fallen dangerously low for the city's two closed retirement systems, including one for general-wage employees hired before 1985.

Each system had assets equal to less than 40 percent of their liabilities as of July 2010. Healthier systems are funded at 80 percent or higher. The city's financial adviser, David Rose of Davenport & Co., said years of underfunding from past administrations is to blame.

Last fall, a report from New York Life told city officials that if Portsmouth's investments didn't perform well, its fund for the smaller of the two closed systems - the one for general-wage employees - could run out by 2017.

If that happened, the city would have to borrow money or pay those pensions in cash, a far more expensive prospect than relying on investment returns, and an unattractive one to the credit rating agencies.

Mayor Kenny Wright said last week that the city must begin investing more than is required now.

However, there has been no public discussion this budget season about doing so.

Meanwhile, Beazley and other retirees worry whether the benefits they earned will be there in the future.

Many of the older retirees in the public safety system left with modest pensions. Of the 568 recipients listed in the city's January payment schedule, the annual gross pension amounts of the bottom third ranged from $540 to $25,000.

Former city managers were also allowed in the police and fire plan, as was Cherry, a former deputy city manager.

Many of the more recent retirees have gone on to other public agencies. At least 40 of the system's pensioners are working other government jobs or have done so in the past, according to interviews with retirees and cross-checks of public-employee lists. Eight of those people have pensions that rank among the 50 largest in the system, ranging from $48,000 to Cherry's $90,000.

Portsmouth's police and fire pensioners work at the Norfolk Airport Authority, public defender's offices, the Virginia Department of Corrections, the Virginia Port Authority, the Virginia Department of Alcoholic Beverage Control, the Portsmouth commonwealth's attorney and sheriff's offices, and at other police and fire departments in Hampton Roads. Those places also provide retirement benefits under the Virginia Retirement System.

It's not uncommon for local government workers to move from city to city or from agency to agency in Hampton Roads, but when they do, they usually cannot simultaneously draw the retirement benefits they accrued at their last job. That's because the Virginia Retirement System does not allow the practice among its member employers.

The opportunity is more often available in the public sector to people with a federal pension, as well as to city retirees in Norfolk, which offers its own plan outside of the state-run system.

Portsmouth does not have the authority to reduce or postpone one of its pensioner's benefits if he or she is employed elsewhere, said Senior Deputy City Attorney George Willson.

Tomas Arroyo, a Portsmouth firefighter who retired after 19 years, said he loved his job but grew frustrated by how inconsistently raises were applied. He went to work for another public agency, which he asked not be named because he had not cleared the interview with his new employer. His Portsmouth pension is about $40,000.

Joseph Murray retired as a police sergeant after 22 years in 1994. In 1997, he was rehired as a civilian with the force.

Murray said he did not intend to return when he retired, but he was approached about the job. He now supervises the forensics unit, earning just under $40,000 as of last July while collecting a pension of slightly more than $37,000 from his previous employment.

Like other police employees hired since July 1995, he is accruing new benefits under the Virginia Retirement System.

Portsmouth has since banned people who are receiving a pension from the old system from returning to work in a new city job, Murray said.

Dave Forster, (757) 446-2627, dave.forster@pilotonline.com