The Board of Directors of the Fire and Police Pension Fund (Board) was recently made aware from several sources that members are concerned that the Board is considering potential modifications to the benefits structure of the Pension Plan. Members’ concerns seemed to be focused on changes to specific features. We wanted to take this opportunity to remind all members of the functions, responsibilities, and obligations of the Board and to address these concerns. With that in mind, the Board wants you to know that we are totally committed to the defined benefit plan structure for public safety officers and firmly believe that it is the best, most efficient way to provide retirement benefits to you and your family members.
First, each Board member has a fiduciary obligation to protect the Plan and its assets. The Board’s primary focus is on the long-term health of the Plan. It is very important that the Plan remain in solid financial condition for all current and future retirees and beneficiaries. While the Board obviously studies the impact of short-term developments, all of our decisions must be made in the context of a long-term outlook for the Plan.
Second, all public pension plans continue to absorb the impact of the Financial Crisis of 2008. Without getting too deep into matters such as pension accounting and actuarial methods, it is enough to say that most pension funds will require several more years to fully recover from the effects of the stock market collapse. That said, our Plan has substantially increased its value over the past five years and has performed well.
Third, several years ago, the Board significantly modified the investment structure to better protect the principal value of our assets against adverse market conditions while also generating acceptable returns. The Board also worked with its investment consultants to structure a method of funding cash flow obligations (i.e., DROP payments) in a low interest rate environment. We are pleased to report that our investment of the portion of the Fund dedicated to DROP payments has worked much better than originally expected.
Finally, the Board has undertaken a review of all features of the Plan. This review is a fiduciary obligation of the Board, and is part of a continuous examination of all matters related to the health of the Plan. Each year, the Board works with its consultants to review projections of the Fund’s liabilities and funding status (the ratio of assets to liabilities). The Board’s priority is the Plan’s funding status, as that determines the future health and, ultimately, stability of the Plan. While near term considerations are always relevant, the Board’s primary responsibility is to ensure that the funding status remains stable and healthy over the long-term. Any modifications that the Board considers will be determined through careful study of the numerous factors that have an impact on the Fund’s long-term condition. The Board has not fully completed its process of examining all matters related to the Plan.
The Board undertook a survey of its active members several months ago. The survey was designed to allow members to communicate their preferences with respect to the Plan’s features and structure and we are pleased to say that most of the active members responded. That information was quite valuable as it allows the Board to factor in the relative importance members place on various aspects of the Plan. The Board has also conducted meetings with union leaders and Chiefs of both departments. All of this information was gathered to allow the Board to make informed decisions as it studies the plan. The Board also wants to allow all of the constituents of the Plan to have input and to communicate their concerns or preferences. The Board acknowledges that modifications to pensions can have an impact on recruitment and retention. The Board further acknowledges that modifications to pensions can have unintended consequences in that regard. Therefore, the Board would like to stress that the review of the Plan is ongoing and will be comprehensive. The Board intends for the process to be transparent and informative and we welcome input from all members.
Regards,