Soaring costs of KC’s pension plans squeeze residents, employees

The sticker shock of pension reform is hitting home for Kansas City residents and employees.

The city expects to funnel $80 million into funding the pension systems for police, firefighters and mostly blue-collar workers in the coming fiscal year, which starts May 1.

That’s $17 million more than just two years ago — or a nearly 30 percent leap in that time.

Go back a bit more, and the jump in taxpayer contributions for public retirement benefits is even more startling (see chart).

The public’s cost to support Police Department pensions — for officers and civilian positions — has jumped 143 percent in the last 11 years. Fire Department expenses have doubled, while the plan for other employees is costing taxpayers just over 70 percent more.

The consequences of these large increases in pension contributions are being felt in the neighborhoods and at City Hall.

Services for residents are being pinched. Crucial infrastructure projects are lingering on the drawing board longer than they should. Mayor Sly James and City Manager Troy Schulte cut funding for indigent health care and the American Jazz Museum in their proposed 2015-16 budget. Some tax revenues for the bus system likely will be diverted.

In addition, the city has had to reshuffle millions of dollars in debt, which could result in added costs for future taxpayers.

Meanwhile, thousands of city workers likely will not get raises in the budget the City Council is expected to approve Thursday. Some city staff positions have been eliminated or held open.

Pension reform has also had big upsides.

The city’s retirement funds are slowly climbing their way back toward being adequately funded.

That’s crucial for Kansas City employees, because it means they should get the benefits promised to them in retirement.

As for the public, under-funded pension systems can be ticking fiscal time bombs. They ultimately could cause drastic cutbacks, or even help lead to bankruptcy, as occurred in Detroit. The current belt-tightening at City Hall is preferable to having left the retirement plans untouched.

Schulte points out that the city is now funding the required contributions for the systems after many years of not meeting that goal. And while $80 million a year is far higher than in the past, Schulte says that the expense would have skyrocketed to around $130 million a year if the retirement systems had not been overhauled.

The city boosted the contributions from most city workers for their pension plans, and extended the amount of time many employees needed to serve before qualifying for better retirement benefits.

But the city must do more to keep that $80 million annual figure from rising too much higher.

Schulte says he expects pension costs to be at the center of future annual budget discussions.

The city could try to hold down cost-of-living raises for retired workers, for example. New employees could be affected more than anyone, because the city might further extend how long they must work before obtaining maximum benefits.

The city also could require new and current employees to put more of their own money into their pension plans.

Schulte points out that many new management employees are being put into a defined contribution system, much like a 401(k) plan, that does not require the city to guarantee monthly payments upon retirement.

Pension reform is squeezing taxpayers and city employees. But it also has forced City Hall to tackle a fiscal problem many other governments have ignored.

This story was originally published March 24, 2015 at 4:23 PM with the headline "Soaring costs of KC’s pension plans squeeze residents, employees."