The Truth About the Fire and Police Retirement System of Iowa
In the recent years, there has been a barrage of attacks on the fire and police pension systems on both the national and local fronts. Many in the political arenas are blaming the fire and police pension funds for bankrupting states and municipalities. Below are some FACTS that has been conveniently omitted from those attacks that will shed light on why these claims are false.
The Municipal Fire and Police Retirement System of Iowa (MFPRSI) was established as a result of action taken by the Iowa General Assembly and Governor Terry Brandstad in 1990 to establish a state-wide retirement system for fire and police personnel covered by provisions of Iowa Code Chapter 411. Permanent, full-time firefighters and police officers in the participating cities are granted membership by Iowa Code Chapter 411. By Iowa law, the MFPRSI is administered under the direction of a Board of Trustees representing the membership, the cities, the citizens of Iowa, and the Iowa General Assembly.
Upon its establishment as a defined benefit plan, MFPRSI consolidated 87 local fire and police retirement systems formerly administered by 49 of Iowa’s largest cities.
How the System Works
Member - Member contribution rates are set by state statute. In accordance with Iowa Code Chapter 411 as modified by act of the 1994 General Assembly to establish compliance with the Federal Older Workers Benefit Protections Act, the contribution rate is currently set at 9.40% of earnable compensation. Overtime wages are not considered earnable compensation under the MFPRSI and are not computed into retirement benefits.
Employer - Employer contribution rates are based upon an actuarially determined normal contribution rate using a 5-yr smoothing acturary and set by state statute. The normal contribution rate is provided by state statute to be the actuarial liabilities of the plan less current plan assets, with such total divided by 1 percent of the actuarially determined present value of prospective future compensation of all members, further reduced by member contributions and state appropriations. Under the Code of Iowa the employer’s contribution rate cannot be less than 17.00% of earnable compensation. Of the 21 years of the plan's existance, the contribution rates for municipalities has averaged 21.06%, and in 9 of those years municipalites were only required to contibute the statutory minimum of 17%.
State Appropriations - State appropriations are approved by the state legislature and may further reduce the employer’s contribution rate. When the MFPRSI was enacted in 1990, the State contributed 3.79% of earnable compensation to the system, which would equal approximately $9.2 million based on current payroll. However, the State has reduced or defaulted on its obligaitons over the years, and has placed the funding burden solely on the members and cities.
MFPRSI retirement is 66% of high three-year salary average at age 55 with 22 years of service. Retirees may receive an additional 2% for each year over 22 years of service, but not to exceed 30 years of service, or an additional 16% for a maximum benefit of 82%, and all benefits are considered taxable income.
Current Health of System
In December 2012, MFPRSI director Tom Slattery was quoted as saying "The 12-month return well exceeds our annual assumed rate of return of 7.5%. Since January 1992, MFPRSI’s annualized return was 7.52% equaling our assumed rate of return for the past 20 years." What does this mean? Despite a downturn in the economy in recent years, the overall long term health of the system remains strong. At the end of FY2012 (6/30/12), the MFPRSI was considered 79% funded; in other words, the system's investment portfolio accounts for 79% of it's obligations. In 2011, the average of the nations top 100 public pension plans was funded at 73.64%.
Little Known FACTS about the System
MFPRSI benefits are the sole source of retirement income for your public safety professionals. Members belonging to the MFPRSI are not eligible, due to federal law, to collect social security wages upon retirement for the time served as a public safety professional. A portion of the city’s contribution is intended to make up for this omission. Furthermore, any social security wages that have been previously earned by these professional prior to employment with the City of Sioux City, or a earned in conjunction with through a part-time job, are slashed by approximately 50% under the federal "Windfall Elimination Provision". Bottom line – fire fighters and other public safety personnel are penalized by the federal government for being public servants.
In addition to not paying individual social security wages for personnel enrolled in the MFPRSI, municipalities are not required to pay for workers compensation insurance or short and/or long term disability coverage, as these are included as part of the pension system. Workers Compensation alone account for nearly 30%.
For comparison, if the city would pay social security and workers compensation for public safety personnel, the city would pay an estimated 30.10% based on FY2012 rates of other municipalities in Iowa. Additionally, this rate does not include any long or short term disability coverage. Due to the nature of public safety work, this omission of disability coverage is critical as 31% of all retirements from public safety occupations in Iowa are due to service related injuries. These disability retirements are the result of personnel not being able to physically perform the required job duties, which are determined by a third-party physician at University of Iowa hospitals in Iowa City, IA.
Placing the city’s and state’s financial woes on public safety professionals who put their lives and health at jeopardy everyday, is not only unconscionable, but irresponsible. The opponents of the current pension system will try to convince the public using misinformation and skewed statistics in an attempt to destroy our retirement safety net which we have work so hard to build. We ask that you see through all the smoke and mirrors and help protect those you protect you.
Page Last Updated: Dec 29, 2012 (08:54:06)