Retired Cops and Firefighters in Minneapolis Ordered to Pay Back $76 Million to Pension Fund

1,423 Minneapolis Retirees Ordered to Pay Back $76 Million

May 18, 2010

Star Tribune - Two pension funds must collect $76 million in overpayments that went to retired Minneapolis police officers, firefighters and their survivors.

A judge has ordered two Minneapolis pension funds to recover about $76 million in overpayments to retired police and firefighters or their spouses.

Under the order, the 860 retired police officers or their survivors must repay the city an average of $60,000 each, and 563 beneficiaries of the firefighter fund must repay an average of about $43,000 each.

City officials who have warned that the funds were headed toward insolvency hailed Monday's ruling by Hennepin County District Judge Janet Poston. But it's a further blow for the retirees who rely on the funds, which have been closed to new hires since the mid-1980s.

"I am upset over the unfairness of it," said Marlies Mack of Columbia Heights, widow of a slain officer.

"It's not over," warned police retiree and former City Council Member Walt Dziedzic. "It's a shame after all those people gave all they had for the city for all those years. I'll trade them the two bullet wounds I've had in my leg and all the operations I've had since, for my health."

There was no immediate word Tuesday from officials of the two funds on how they'd try to collect the overpayments. They could, for example, seek to reduce future benefits for a time. Poston gave them until June 4 to devise a method and said they must start collecting July 1.

Under state law, the money won't be returned to the city, but will be applied toward reducing the deficit in each pension fund, thus reducing future city payments.

Poston ruled last November that the funds overcharged the city by including certain fringe benefits when calculating the pay level on which individual pensions are based. Pensioners already were steamed about that order, which their funds plan to appeal.

That ruling saved the city at least $10 million annually going forward. But it cut police pensions by 12 percent or about $427 monthly, and firefighter pensions by 9 percent or about $340 monthly, effective Jan. 1. Poston's new order requires the funds to make plans for recouping overpayments back to the year 2000.

The pension issue veered into the political arena last winter when city police and firefighter political funds sent a letter to past DFL caucus attendees ripping Mayor R.T. Rybak for their pension cuts during his run for party gubernatorial endorsement. Rybak fired back Tuesday.

"The members of these funds should be upset at the lawyers who have made excessive amounts of money to give them very bad advice," Rybak said. "These lawyers have dragged the funds' members through years of litigation to defend a practice that Judge Poston has once again ruled is improper. Her ruling strikes the right balance between our obligation to pay our retirees as much as they have earned and doing justice for our taxpayers."

Walter Schirmer, executive secretary of the firefighter pension fund, said it plans to huddle with attorneys on the ruling next Monday. Larry Ward, president of the police fund, couldn't be reached.

The city's push to force a recalculation of police and fire pensions is part of a larger city strategy of trying to cope with burgeoning costs for its three closed pension funds and keep current on contributions to statewide funds for younger city employees. Its levy for older pension funds is projected to zoom from $15 million this year to $50 million in 2015, consuming large shares of anticipated property tax increases.

Betsy Hodges, who chairs the City Council's budget committee, pushed for pension changes.

"It's another good outcome for the city," she said of Poston's ruling. "At this point, the members and the boards of those funds have a lot of decisions to make by June 4."

According to pension fund valuations, the average police pension was $47,467 in 2008, with surviving spouses averaging $26,818. The average retired firefighter drew $43,553, while survivors got $24,150. Unlike many pensions, which are based on the highest salaries a pensioner was paid, those of police and fire retirees are based on the pay of a top-grade patrol officer or firefighter, regardless of rank.

Poston said the city can't reclaim overpayments directly but that the pension funds have a fiduciary duty to collect.

Minneapolis Pension Cuts Questioned

March 19, 2011

Star Tribune - Appeals court judges question how Minneapolis saved millions of dollars on police, fire payouts.

Three appeals court judges sharply questioned the city of Minneapolis' argument that police and fire pension funds didn't follow proper procedures in calculating pensions, resulting in millions of dollars in overpayments.

The action came Wednesday as the judges heard the two funds' appeal of a lower-court decision. A ruling is due within 90 days.

The case has implications in the tens of millions of dollars for Minneapolis taxpayers who fund retiree checks, and for about 1,400 people who collect them through pension funds that have been closed to new members since 1980. The 1,400 include retirees or surviving spouses.

The police pensioners lost 10 percent of their monthly checks and fire pensioners lost 4 percent under a 2009 ruling by Hennepin County District Judge Janet Poston. The city estimates that her ruling would save taxpayers $87 million in future payments by the time the last pensioner dies. Poston also ruled that the two pension plans must recoup past overpayments to members, which the city figures would restore at least $52.6 million to the funds' balances.

Retirees in the group average about 70 years of age while surviving spouses average 78. They get a benefit that rises with the salary paid to current top-grade patrol officers or firefighters. At issue is whether certain items of compensation beyond base pay were correctly included in the definition of what is salary, and whether others were correctly calculated.

Attorney John M. Lefevre Jr. argued for the city that Poston's ruling should be sustained -- that state law requires an amendment to pension plan bylaws when new elements are added to the definition of salary on which pensions are based. The judges peppered him with questions on that contention.

Charles Lundberg, representing the pension funds, said the 1995 settlement of a previous lawsuit allows salary items gained in future contract talks to be added without an amendment if they meet certain criteria.

Lundberg also said that Poston erred in ruling that the funds must recoup the overpayments back to 2000. He said state law already gives the city a remedy of having overpayments credited against future pension obligations. Moreover, the funds say, because pension fund members weren't parties to the 2006 city lawsuit that launched the case, it's not fair to collect from them.

Fire and pension costs have taken on a high profile at City Hall and among property taxpayers. Pension costs soared for the city's closed pension funds after the 2008 stock market plunge sharply cut the funds' assets. That required the city to ramp up contributions to offset the losses.

City officials placed the blame for this year's property tax increase on rising pension costs, primarily for closed funds, but also for increased contributions to statewide pension plans that cover more recent public workers.

The city saved about $10 million in 2010 from Poston's ruling, enough for last year's property tax rise to be pared from 11.3 percent to 7.3 percent.

The typical police pensioner is paid $44,742 annually, and the typical fire retiree is paid $41,479. They get little or no Social Security pension. Police widows are paid $23,931 annually, and fire widows, $21,727.

Minneapolis Wants Specifics on Pension Repayment

June 21, 2010

Star Tribune - Minneapolis says pension funds aren't complying with judge's order on recovery of pension overpayments of $75M.

Attorneys for the city of Minneapolis have asked a judge to order two pension plans to get specific about how they'll recover $75 million in pension benefits that she ruled were overpaid to retired city police and firefighters.

In a strongly worded filing released Monday, the city's outside attorneys accused police and fire pension funds of delay tactics and being argumentative rather than complying with Hennepin County District Judge Janet Poston's ruling.

The city said the June 4 filing by the pension funds was "marked with defiance" of Poston's ruling that they devise a collection plan for the overpayments by that date.

"Demonstrating disrespect for this court, defendants act as if the court were an adversary and its rulings were somehow preliminary," attorneys for the city wrote.

The long-running dispute, now in its second lawsuit, concerns whether the pension funds improperly included some fringe benefits in calculating pensions, which are based on the salary and some fringes paid to top-grade firefighters and police.

Poston ruled in November that some fringes were improperly used, a ruling the city said would save taxpayers tens of millions of dollars in future payments if it stands up in a planned appeal by the pension funds. A month ago, the judge ordered the funds to collect past overpayments from pensioners dating to mid-2000. The pension funds also plan to appeal that.

Walter Schirmer, executive secretary of the firefighter pension fund, said Monday it makes no sense to spend time and money on determining recoupment if it won't happen until the appeal is decided. The city and the funds agreed to stay recovery efforts and freeze benefits while the appeal is heard.

"They are just trying to terrorize our members into accepting less than they were promised by the city," Schirmer said. "The city's letter to the judge is just trying to make these retirees' lives more difficult."

However, the city argued to Poston that the pension funds' plans on recouping the payments were vague. The police fund outlined general principles, and the fire plan added only that it would freeze benefits. They spent much of their submission to Poston on what they regard as the practical difficulties of devising a repayment plan.

The city argued that previous pension litigation and federal pension practices offer guidelines for how the money could be recovered, either by freezing future benefits until the amount is recovered or by reducing them to collect more quickly. The city's attorneys acknowledged it may be impractical to collect from the estates of dead pensioners if the cost exceeds the amount to be gained.

But at a minimum, the attorneys argued, the plans should specify the manner and amount of recovery, to which pension plan members or spouses the recovery would apply, the period of recovery and a process for unique circumstances.

The city suggested pensioners sitting on the boards of the funds have a conflict of interest because they face loss of benefits. It said it's important to have the recoupment plan so that all issues in the lawsuit can be considered in one appeal.