Houston, Citing Detroit, Sues Pension Fund
HOUSTON (CN) - Houston pays millions of dollars a year to its firefighters' retirement fund, a spiraling debt an unconstitutional Texas law gives the city no authority to rein in, the city claims in court.
The city sued the Houston Firefighters' Relief and Retirement Fund in Harris County Court.
Citing its "growing concerns about its long-term ability to meet its pension obligations," Houston claims it had to sue the fund to prevent the financial woes that put Detroit into bankruptcy.
"Houston cannot and will not ignore the lessons to be learned from the recent Detroit bankruptcy and the financial difficulties related to pension obligations being experienced by municipalities throughout the country," the complaint states.
"Too much is at stake. Unique amongst all pension systems, with HFRRF, Houston pays millions of dollars each into a firefighter pension fund over which it literally has no control."
The Texas Legislature in 1997 passed a law that governs how Houston's firefighters' fund is managed.
"By statute, HFRRF members and beneficiaries hold or control eight of ten board seats. The fund-member-controlled board dictates how much Houston must pay into the fund every year, based on recommendations by its hand-picked actuary," Houston says in the lawsuit.
The law mandates that members contribute 9 percent of their annual salary to the fund, and "Houston must contribute at least twice that much: 18 percent of member payroll, plus any additional amount required by the fund's board," the city claims.
The fund's board has voted to increase the city's dues several times, the city claims, projecting it will have to pay more than $90 million into the fund for fiscal year 2015.
Houston also pays into retirement funds for its municipal workers and police, and says it contributed $260 million to the three funds in fiscal year 2013.
The firefighters' fund is the most volatile, Houston says, due to the inclusion of overtime in calculating a fireman's monthly salary.
"In the other funds sponsored by Houston, and for most if not all firefighter plans outside Houston, the average monthly pension benefit is calculated using base salary - without overtime," the complaint states.
"Not so in the HFRRF statute. The fund member's average monthly salary is based on his highest 78 biweekly pay periods, including overtime. The inclusion of overtime significantly increases a member's pension benefit."
Firefighters can also enter a deferred retirement plan after 20 years with the department that includes automatic 3 percent yearly cost of living increases and compound interest.
The city estimates a firefighter who defers retirement will get a lump sum payment of $500,000 to $1 million upon retiring at 60, a windfall "worth many times what the member contributed in real dollars."
"No social security, 401k plan, or any other pension system in Houston or in this state can compete with such a pension," the city claims.
The chairman of Houston firefighters' fund called the lawsuit a groundless attack by three-term Mayor Annise Parker.
"We were shocked that she filed this meritless lawsuit," Todd Clark told Courthouse News. "It's nothing more than a power grab and publicity stunt by this mayor. What she's doing is, she is continuing her vendetta against the Houston firefighters for not supporting her in past campaigns.
"The lawsuit is a political tactic and the bottom line is she's continued to do this since day one when she took office, and it's disastrous because it will hurt our elderly and disabled firefighters who served three and four decades with the city of Houston."
The city's lawsuit seeks to establish a "meet-and-confer" process to give it authority to negotiate its debts to the fund.
But Clark said that system is a no-go for the firefighters' fund.
"We don't like the meet-and-confer process simply because the other two pension systems have it and it's been disastrous for them," Clark said.
"I mean, the city has not kept up its end of the deal in paying in what they're supposed to pay in over 15 years. They should have been required to pay as they go, but now they've dug a hole and they want to go back on the promises made. So we don't see an upside to meet and confer."
Clark denied the city's claim that the firefighters' retirement fund is unsustainable.
"There's not been one actuary that said this fund is unsustainable," Clark said. "The firefighters' pension system is just under 90 percent funded with $3.7 billion in assets. We're not Detroit. We're a strong city. There's a crane on every corner in Houston and energy's booming."
The dispute will play out in court, as the city wants the statute governing the firefighters' fund declared unconstitutional, and an injunction to stop the fund and its board from "any lobbying activity."
Houston is represented by its City Attorney David Feldman.