Kansas City municipal employees may have to contribute more of their paychecks and accept modest pension payment reductions to help stabilize the city’s pension funds.
Those were among the recommendations from a citizens’ pension task force that held its final meeting Tuesday. The group met for months to seek solutions for the long-term future of the city’s four pension plans, which collectively cost taxpayers $52 million per year and are still underfunded by more than $500 million.
“Reaching our goal of having fully-funded plans requires some sacrifices by all stakeholders,” Task Force Chair Herb Kohn told the group. “Only by having fully-funded plans can we assure that all retirees will receive the benefits they have earned and the city will maintain its strong credit rating.”
The recommendations will be compiled into a written report, and some task force members, particularly representatives of the firefighter and police pension systems, said they will likely dissent on some of the strategies. The City Council must approve any significant changes to the city’s retirement system, affecting municipal employees, firefighter, police, and police civilians.
Mayor Sly James argued the city’s pension plans need reform, although probably not as drastically as those in some municipalities and states. The 2008 stock market plunge left many pension funds drastically underfunded, and most have not fully recovered.
“We will need to make some changes,” James said. “It doesn’t have to be with an ax or meat cleaver. A scalpel might be just fine.”
A consultant to the task force found that the proposed changes, if adopted together, would help stabilize the retirement system over time.
However, task force members cautioned that any changes will have to be ratified in collective bargaining agreements and some recommendations require a change in state law.
Among the key recommendations:
The city should gradually improve the funding level of its four pension plans, reaching 100 percent of the recommended funding level in 25 years and beyond.
Employees should contribute a minimum of 1 percent more of their paychecks to the pension funds. Currently, municipal employees contribute 4 percent and police civilians contribute 5 percent. Firefighters contribute 9.55 percent and police contribute 10.55 percent; their rates are higher because they don’t participate in Social Security.
The mostly automatic 3 percent cost-of-living increases for retirees would likely drop to 2 percent, although the legality of such a reduction has not been fully vetted by the courts.
The funding formula to calculate benefit levels for current employees would be slightly reduced, requiring them to work longer to increase their final benefits. For example, the average municipal employee makes $46,630 and retires after 25 years with a monthly benefit of $1,943. Under the proposed formula, an employee would get a monthly benefit after 25 years of $1,797.
The city would continue to contribute about $52 million annually to the retirement system, which is about 10 percent of overall personal service costs. As those costs increase or decrease over time, the city would continue to contribute about 10 percent to the retirement plans.
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