Mayor Lenny Curry threw down the gauntlet earlier this month by proposing to eliminate pensions for all future city employees, upending what is widely viewed as a bedrock of government service, particularly for higher-risk employees like cops and firefighters.
The idea is potentially precedent setting. No other major city has eliminated pensions for all its employees in favor of the 401(k)-style investment accounts Curry wants to provide instead, and his success could provide a blueprint for politicians elsewhere who want to get rid of employee pensions. His idea is virtually certain to meet strong pushback from employees.
The new front Curry has opened on pensions has already attracted outside interest. The Florida branch of Americans for Prosperity — which has ties to the Koch brothers, billionaire conservative political donors — said last week it is making phone calls and knocking on doors to “educate citizens about the looming pension crisis.”
Negotiations with the nine local unions that represent employees across Jacksonville’s vast consolidated government are high stakes, especially with the police and firefighter unions. The outcome not only determines the future of city retirement plans but also Curry’s efforts to pay down Jacksonville’s massive $2.85 billion pension debt.
As a result, it also carries enormous political weight for Curry.
Voters this summer approved extending a half-cent sales tax that is intended to serve as a source to pay off the already existing pension debt. But the law requires the city to close a pension plan to new hires before any tax money can be applied to that plan’s debt.
The bulk of the city’s pension debt stems from police and firefighter retirements.
Those unions will respond to Curry’s proposal this week and are keeping details close, but union leadership has already expressed strong skepticism of adopting 401(k) plans for new hires. And the announcement this past week that the Florida-branch Americans for Prosperity is getting involved has perplexed some union officials.
“I wonder why billionaires now are trying to weigh in on a problem that we’ve been trying to fix for eight years,” said Randy Wyse, local president for the International Association of Fire Fighters. “Seems like they’re a little late to the party.”
Curry’s rhetoric so far suggests he sees little room to negotiate on the core issue. He has called pensions “dinosaurs,” relics of a bygone era of government employment that are no longer sustainable.
Experts who study retirement issues see things a bit differently.
“Our perspective is that there is certainly no one size fits all,” said David Draine, a Pew Charitable Trusts researcher who studies pension plans nationwide. Draine was an adviser for a Jacksonville pension-reform task force that made several recommendations in 2014 to address the city’s pension problems.
Draine noted that there are examples of well-run, model pension plans around the country, including the plan administered by the state of Florida.
“The expensiveness of the plan has to do with the design, not the type,” he said.
It’s possible Curry and the unions will find a path forward without much acrimony.
“We are committed to working with the city for a solution that is good for our members and the city going forward,” said Steve Zona, president of the local Fraternal Order of Police, in a statement.
But if negotiations break down and both sides dig in, the city might find itself with relatively little leverage.
Under normal circumstances, state law gives cities a big leg up in collective bargaining through an impasse process. The end result of that process gives the City Council the power to unilaterally impose temporary benefits on employees until longer-term agreements are struck. That is a strong incentive for unions to come back to the bargaining table and hear out proposals they might otherwise be strongly opposed to.
It is also a familiar tactic to the man heading the city’s negotiating efforts, Michael Mattimore, a Tallahassee attorney at Allen Norton &Blue, a major employment and labor law firm in Florida.
“As we think about innovation and as we hear some opposition, it’s always great to sit down and negotiate with your unionized workforce and get to an agreement that everyone’s happy with. That would be ideal,” Mattimore told attendees this summer at an education summit organized by Gov. Rick Scott, according to an account from WFSU-FM.
“But if that’s not the case, you have options. You have options in management rights. And you can get to your priority through the impasse process.”
But Curry’s desire to change retirement plans for new hires is also linked with his plan to use a sales tax to pay down pension debt, and that might complicate the picture. The state law that allows Jacksonville to use the sales tax requires that the city and unions first “mutually consent” to bumping employee retirement contributions to 10 percent of pay.
That “mutual consent” clause could mean the city can’t unilaterally impose changes and unlock the sales tax money without an agreement from the unions. Some union officials believe that is the case.
City officials did not respond to a request to clarify their interpretation of that legal issue.
Curry’s proposal to eliminate pensions for new hires is paired with some pot sweeteners for current employees like salary increases and lump sum payments. The majority of employees in the city’s consolidated government haven’t had pay raises in years, and some took pay cuts when City Hall was going through the depths of the financial crisis. And yet creating a system of only 401(k)-style plans for new hires is a sea change.
Curry enjoyed nearly unanimous support earlier this year from the city’s civic, political and labor leadership when he campaigned for voters to approve the referendum that gives Jacksonville the option of using the sales tax to pay for pension debt. The unions were a front-and-center part of Curry’s sales pitch in news conferences and in talking points. At the time, Curry would not say whether he would seek to cut pensions for future hires.
His efforts now will strain the coalition of support he built.
Tad Delegal, a labor and employment attorney who served on the city’s pension reform task force and supported Curry’s pension-tax referendum, said moving forward with only 401(k) plans would be a “disaster.”
“It doesn’t make logical sense, but it makes political sense — short-term political sense,” he said.
Zona and Wyse will present their unions’ responses to Curry this week. Both have aired strong reservations about 401(k) plans. Wyse called them “unheard of” for public-safety workers and said they could create a “serious recruitment and retention issue.”
Individual investment accounts like 401(k)s (also called defined-contribution plans) are relatively rare in the public sector.
Since the financial crisis, a few cities have introduced plans that are a hybrid of pensions and defined-contribution plans. The jury is still out on those plans.
“Most of them have only been introduced in the last five years, so it’s been hard to assess how they’ve worked out,” said Caroline Crawford, a research associate at the Center for Retirement Research at Boston College.
There appears to be little precedent for a major city that offers only defined-contribution plans to all employees, including public-safety workers. Such plans are attractive for cities because they remove the risk of market downturns from taxpayers. If investments made by pension funds perform poorly, the difference has to be made up by taxpayers. That can become a big cost in big market downturns.
With defined-contribution plans, the risk is entirely shifted to employees, while the city maintains a fixed cost.
The specifics of Curry’s proposal differ for the different types of city employees.
Future hires for police, firefighters and corrections officer positions would get their retirement nest eggs from individual investment accounts. The employees would contribute 8 percent of pay toward the accounts.
The city’s match for police and firefighters would start at 12 percent in the first five years of employment, then increase to 14 percent in the next five years, followed by a 16 percent in years 11 through 15, an 18 percent match in years 16 through 20 and finally a 20 percent match after that point.
The matches for corrections officers and general employees are lower, but the employer contribution ranges are far above normal for private-sector jobs. (Unlike the vast majority of American workers, employees in Jacksonville’s consolidated government do not receive Social Security).
That might be a sticking point for some observers of the pension negotiations.
“We are concerned that the proposed employer match rates are out of sync with the rest of the employment market,” said Andres Malave, communications director for the Florida branch of Americans for Prosperity. “The average employer contribution is only 2.7 percent and only 10 percent of employers have a match rate of over 10 percent.”
But labor officials say it’s not just the size of the benefit that is at issue. Pensions provide employees with an essential guarantee that 401(k)-style plans do not, and that could hurt recruitment and retention efforts, they say.
“I think they’ll lead to higher costs and a poor quality workforce,” Delegal said.
Curry insists his proposals are competitive and sustainable.
Sheriff Mike Williams has refused to weigh in, even as the changes Curry and the unions negotiate could profoundly affect the department he oversees. His predecessor, John Rutherford — who is heading to Washington, D.C., to represent Jacksonville in Congress — was a strong defender of pensions, calling them an “essential tool for law enforcement.”
The current pension in place for new police officers and firefighters — the result of a high-profile reform agreement signed by former Mayor Alvin Brown last year — costs the city about 10 percent of payroll. A 2014 analysis of that plan, commissioned for the city’s pension reform task force, found the reformed pension plan to be less costly than a hybrid option that blended a pension with a 401(k)-style option.
The city has not released the kind of detailed data necessary to determine how expensive Curry’s plans would be for taxpayers, or if it would be cheaper than the 2015 plan in place for new police officers and firefighters.