OPINION: Coral Gables Taxpayers- Backed Into A Corner By The Pension Benefits

By: Katherine Newman, Coral Gables Resident

We are running out of choices. In 2001, Coral Gables pension fund was almost fully funded. By 2009, the unfunded deficit had risen to over $165 million. In 2018, even after the stock market rose 300%, that unfunded deficit had risen to almost $200 million, with the total liability to current and retired employees nearly $600 million. The Covid-19 crisis increased that deficit by $60 million in the last 2 months, which means our plan is only 55% funded. Coral Gables has received a grade of “F” for most of the last 15 years for the  management and health of its pension plan – May 2019- Leroy Collins Institute .

The unfunded pension deficits do not include another liability the taxpayers are on the hook for- $26 million in post-retirement health care benefits.

There are several reasons for the unfunded liability skyrocketing, despite major investment gains. The most important reason is the extremely generous pension benefits promised 20 years ago. If one reviews the list of pension payments to the retired workers -it is available by a public documents- the amounts and age at retirement tell the whole story.

Our first responders in Coral Gables are the best of the best. They have the highest benefits, and  that would be still be recognized by changing them to the Florida Retirement System plan, as Pinecrest and Palmetto Bay first responders are.

 But “general employees”, the people who answer the phones, file clerks, paralegals, etc. retire in their late 40s or early 50s at amounts very close to the salaries they were making while working. Those payments, for people who retired in certain years, are automatically increased each year by 3%. That 3% may not sound like much, but if you compound it, an employee who retired in 2008 with a $65,000 pension is now making $90,000. And the total payout, if that person lives to be 85, is almost $4 million. An employee who retired in 2010 at 50 years old at a pension of $100,000 will receive over $6 million. How many in the private sector could amass that type of fortune?

All of these facts can be gleaned from the city’s audited financial statements, which are on the Coral Gables website, and any annuity calculator.

The taxpayers of Coral Gables have contributed over $29 million to the pension plan this year and for the past 10 years. The employees contribute about $4 million, a fraction of what the taxpayers must pay in to an ever-expanding liability. That represents 1/5 to ¼ of our total budget, and a percent of payroll reaching 50% in some years. Those pension contributions have crowded out funds for sidewalks, infrastructure, safety, a reasonable reserve fund and shade trees for some of our sweltering neighborhoods.

The only way to dig out of the spiraling pension liabilities is to immediately move all general employees to a 401K plan, and all first responders to the Florida Retirement System plan, which many municipalities did years ago. Among those are high end, tree shaded and safe cities, like Pinecrest and Palmetto Bay.

If these changes are made tomorrow, it will still take Coral Gables taxpayers decades to dig out of this mess. The current benefits will be frozen, but will still be paid out. While the private sector taxpayers lose their jobs and the value of their 401Ks, the public sector remains safe from any impact of Covid-19 or any other economic impacts the private sector is subject to.

If we stay with the status quo, the only choices are to keep raising taxes or declare bankruptcy.

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30 thoughts on “OPINION: Coral Gables Taxpayers- Backed Into A Corner By The Pension Benefits

  1. Let’s do a little math. A private sector worker can retire at 66 or 67 at a maximum social security payment of $22,000 a year. If that person lives to 85, they will have received $396,000 in SS payments. ( $22,000 X 18 years). Say a lower level management employee at the city of CG retires after 30 years at age 52, and makes $75,000 a year. Under the current rules ( See Note 8 of CAFR on CG website) , that employee will begin retirement at $50,000 a year. During the 15 years the private sector worker is working to reach the retirement age of 67, the CG employee will have received $862,000, assuming only a 1% COLA per year. When that CG employee reaches the age of 85, he/she will have received $2.3 million. Compare that to total retirement benefit of the private sector worker who gets $396,000. The benefit of not working those extra 15 years a private sector person must work is only quantifiable in terms of quality of life.

  2. If you are worried or feel this article was “eye-opening”, then you don’t know the facts. If you feel aggravated or exhausted from false information, then you KNOW THE FACTS.

  3. How demeaning to refer to general employees as people who answer phones and retire in their 40s. General employees are the essential employees that have worked through COVID-19 every single day to keep your life normal. General employees are the essential employees that pick up your garbage in your backyard so you don’t have to carry it out to curbside just like everybody else in every other city. General employees are the people that leave their families to protect you before ,during and after a hurricane. General employees are the people that respond to all your Diva Privileged requests. City of Coral Gables residents pay one of the lowest tax millage rates in the State of Florida and get pampered each and every day. You cannot compare the percentage that general employees contribute to the pension in comparison to the thousands of residents living in Coral Gables. The city workforce is small but our commission and city manager maintain order and accountability of all employees and expect 110% in return. All City employees ,not only Police and Fire work their tails off to maintain the utopian standards the residents request. Next time you open your faucet and have running water, flush your toilets, go out for a walk under those beautiful canopies, feel safe at night and brag to all your friends about where you live, thank a City of Coral Gables Employee.

  4. Other than Police and Fire who risk their lives for us, all other employees should go to a 401K, immediately!

  5. Steve Rogers, QUOTE BELOW. What you say is obviously true.
    Please put all your information into this discussion.
    ************************************************
    Steve Rogers says:
    May 19, 2020 at 7:30 pm
    This article leaves out so much information about the coral gables pension system. F

  6. I like that this community is discussing our biggest financial liability. At the same time with all due respect to everyone, you mUST separate Police/Fire from other employees known as general employees when speaking about pensions.

    all new “general employees” there’s no reason why we must offer pension benefits.

  7. These are the very items, that ALL these people we have elected hide from us. It’s vox populi
    that they care more for themselves than their constituents! Thanks to the Newman’s for their
    endeavor.

  8. I think our police and fire do a heck of a job and deserve even more than what their getting. There’s no money that will equate to putting your life on the line, to protect citizens who’s first name you don’t even know. I know when I retire I don’t want to have to work again. The no sleep, high stressful work environment, long hours, back braking work that our police and fire put in day in and day out deserve to be compensated when they retire. As a coral gables resident I’m in favor of whatever we need to do, to keep giving them what they deserve and that’s a great retirement. Thanks police and fire.

  9. Has Coral Gables attempted to negotiate all employees to the FRS? It appears this was a mess created by Coral Gables management through the collective bargaining processes throughout the years, and the elected officials who voted in favor for it. This article is written to make the employees look at fault. It’s important to know that the City Manager negotiated this throughout the years, and most importantly, the elected officials voted for it.

  10. “ retire in the late 40s early 50 s “ , where do I sign up ?
    As usual the property owner tax payer becomes the cash box of the paper pushing system. I know the value of these city employees however I have to fund my own retirement and IRA. Mind you these “ pension “ don’t include social security payments at retirement age. The system need to be fixed !

  11. This is incredibly eye-opening. This sounds more like highway robbery of taxpayers than a “pension plan.” Who made these decisions? Was this done by politicians trying to get re-elected with union support and money? The politicians responsible for this mess should all be fired. Obviously this cannot continue. Major changes need to be made. Thank you Gables Insider for making us aware of these problems! No wonder we have to pay so much in taxes! ENOUGH!

  12. From the 2019 audited financial statement footnotes
    “Benefit Payment-
    For credited service through and including September 30, 2013 and 2012, the monthly amount of normal retirement income payable to firefighters and police officers, respectively, shall equal 3% of the average final compensation multiplied by the total years of credited service as of such date, not to exceed 75% of the average financial compensation. For credited service after September 30, 2013 and 2012, the monthly amount of normal retirement income payable to firefighters and police officers, respectively, shall equal 3% of the average final compensation multiplied by the first 10 years of credited service, and 2.5% of average final compensation multiplied by the total years of credited service in excess of the first 10 years of credited service, with the combined normal retirement income not to exceed 75 percent of average final compensation. “

  13. Thank you, Mrs. and Mr. Newman, for an eye opener. Kudos also to Insider for featuring this festering issue.
    Unsurprisingly, all those commenting in favor of continuing the bankrupt pension plan are retired Gables employees. That should tell you something right there.
    One wonders why the Slesnicks won’t comment…

  14. Anyone who would like to see the retirement payments to our police, fire, and general employees can request it from Gables Insider- I have sent a copy to them. It is public record- there are no names in it, but it gives age at retirement and annual pension of all Gables retirees.
    We have an excellent police force. But so do Pinecrest and Palmetto Bay, and their first responders are in the very generous FRS pension plan. And their general employees have 401Ks. I think that saying that Pinecrest is like Opa Locka is not appropriate. Pinecrest is a safe, tree-shaded and well run community. Without the huge pension liabilities hanging over Pinecrest, they have not had an incentive to build more and more concrete monsters that create traffic and safety issues. Those huge high-rises generate more tax revenue so there is huge incentive for Coral Gables to keep building and ruining the character of our city in order to try to stay ahead of the pensions debt. But it is pretty clear that no matter what, they will never get ahead of it.

  15. My statement that no retirees pension is anywhere close to what they last earned on the job is true. Pension estimates based on an average of the highest 3 years went away a long time ago when Mr. Pat Salerno was the City Manager, as did many other employee benefits. Further information for you. The pension fund declined from 1999 to 2012 due to a number of factors. Primarily due to poor investment returns, market crashes, transition to a non-contributory pension system, no contributions by the City to stabilize the fund, changes in the assumptions for the rate of return, and changes in the assumptions of the mortality tables. In 2015 the City Commission did the right thing and embarked on a actuarial study and followed up with a plan to stabilize the pension fund and bring it back up to a well funded retirement system. And that was to follow a formula of annual supplemental contributions over of a period of 15 years through the year 2030. That is the plan and everyone needs to stick with the plan and have confidence in it, because it is succeeding. No public pension fund is 100 % funded, that is a misnomer. Pension plans are amortized over a period of 30 years and are guided by qualified actuaries, retirement boards, and the Commission. All public sector pension plans are afforded protections under the Florida Constitution, Article I, Section 10. This constitutional provision has been interpreted by the Courts to protect all vested pension benefits. I have no intent to try to win a public debate over e-newsletters or social media. I am simply trying to relay more information to help inform your readers. Thank you.

  16. What’s ridiculous is that Coral Gables has the WEAKEST high liability pension in South Florida, one of the main reasons that police officers don’t stay here. We contribute more than any other police agency and yet you still want to take away from us. This unstable environment coupled with the tyranny from Chief Hudak/Vince Lago and it’s not really surprising that no one wants to stay here. We’ve lost the equivalent of nearly 20 percent of our agency in the past 2 years…TO OTHER POLICE DEPARTMENTS. That’s a shame, as Coral Gables was once the best place to be in South Florida and now it’s the most common police department to come from.

    The residents will complain about their high taxes, though the reality is that the tax rate is quite low; there is quite a difference there. When you ask most people what they love most about Coral Gables, police and fire are consistently at the top of the list. The agency, police mostly, is speaking downward and will soon be merely a former shell of what it once was. Someone earlier mentioned that Opa Locka has reasonable taxes, and if you continue to get cute with the police benefits, you’ll soon see what it’s like to deal with that caliber of police, too.

  17. FULL DISCLOSURE, I AM KATHERINE NEWMAN’S HUSBAND.
    I worked for a Fortune 50 company for almost 30 years. Two important messages here:
    1) Our retirement program “target payout” was based on paying retirees who were eligible for FULL RETIREMENT approximately 42% or their highest consecutive 3-year, average annual salaries. Not 50% to 75% as Lt. Pickering says Coral Gables says.
    2) At least 25 years ago, my company, and most other large companies at the time, gave a 10-year, grandfather period for employees to decide if they wanted a defined benefit retirement plan or a defined contribution (401-k) plan. At the end of those 10 years, EVERY employees was put on a 401-k and the defined benefit plan went away.
    About 10 years ago, my wife and I, and an attorney from Coral Gables, went before the CG Board and explained all of this with professional charts and graphs. We gave him very pertinent ideas on how to start working out of this tsunami that was headed our way. At the end of the presentation, Mayor Don Slesnick said basically “thanks but no thanks”. My last words to him, admittedly were almost shouted: “OK, BUT WHAT YOU’RE DOING IS NOT SUSTAINABLE”.

  18. If you want the Best service pay for it or move to Opa Locka where the taxes are very reasonable.

  19. This is article is somewhat deceiving and leaves out a lot of critical information to better understand the issue. The author somewhat conflated the old State of Florida Retirement Systems 3% guaranteed COLA, with our retirement benefits in Coral Gables, giving the impression to the reader that retirees from Coral Gables have an automatic cost of living increase (5th paragraph down). That is not true, and a lot of the assumptions and figures are incorrect. Another inaccurate impression the writer gives, is that retirees retire near 100% of their salary. That is incorrect. We retire at 50% to 75% of our highest (current) 5 year average salary, and that is minus what option we pick as far as what benefits would remain if we are survived by our spouse (which further reduces our monthly pension). So our pension is well below that of what we last earned while still on-the-job. Furthermore, there is no mention that the last cost of living increase that the City Commission granted to us was in 2008 (12 years ago). We did receive a 3.225% cost of living increase in 2017, but that was after a long bitter drawn out legal battle that lasted for five years in civil court, over the City denying us a COLA that they were required by law to grant us in accordance with our retirement ordinance and state statue. To avoid prolonging the battle and avoiding further legal costs we settled for half. I can go on, and on. The City has just over 900 retirees that represents 20,000 years of dedicated public service to the residents of Coral Gables. Seven Police Officers paid the ultimate sacrifice and were killed in the line of duty protecting our residents freedom and security. How about showing a little appreciation and stand up for those who have so faithfully served you.

  20. I manage investment portfolios and deal with large pension funds for a living. There are two issues – one being overly generous retirement benefits and the second being sub-par investment performance.

    Coral Gables is living in the 1960’s. We haven’t seen a new pension plan in our practice for 15 years. Any elected representative who would continue to vote to approve employee contracts that include pension benefits should be voted out of office. The rest of the us have 401k plans.

    In respect to investment performance we typically see sub-par portfolio management since the same elected officials who vote to approve pension plans also select the investment management firms.

    When this blows up there will be plenty of finger pointing, but not at the right people or places

  21. Great replies. To the question about assumptions- basically ALL the assumptions used to calculate pensions in GC are way overly optimistic, not just the investment return assumption. For example, they use 4% turnover rate. The facts are, virtually no one at CG quits or is fired, so turnover is close to zero. I am a CPA and have a lot of experience with pension calculations, and I believe the underfunded amount is significantly higher than they are reporting.
    And another point being made about full salary- many of the retired employees are making MORE than their salaries.
    Anyone who would like more information, please let me know.
    And write emails and letters! They stay with the status quo because there have been no potical consequences.

  22. I wonder what investment rate of return our pension plan assumes. Sounds like our assumed rate has been optimistically very wrong. If so, how much more underfunded is our plan should we assume a more realistic rate?

  23. Great article. First never vote in a lawyer or their family members who represents labor unions! Next renegotiate past pensions and change existing pensions to the Florida plan or declare bankruptcy if pensioners and existing employees balk at the idea. If not we are well on our way of becoming Chicago or any city in Connecticut, Massachusetts, etc.. Pensioners will likely lose more if the city declares bankruptcy than renegotiate. Our mayor and commissioners better start addressing this immediately instead of joining frivolous lawsuits.

  24. The best and worst politicians of Coral Gables over the last two and maybe even three administrations claimed and claim they “didn’t raise taxes”.

    I ask all taxpayers in coral gables, have your property taxes gone up?

    The answer is a simple – YES. Why..how..? If the politicians show us the millage rate that has been unchanged.

    Our property values which are well known and respected in Coral Gables have gone up and that value multiplied by the same rate “unchanged” rate means an increase in taxes. It means more money towards the growing government that claim they don’t raise taxes. Nice spin they give when they say “we haven’t raised your taxes”. They are getting the extra money that’s why..

    Our garbage fee went up. we have a “fire” fee as if we needed to fund a third party entity for service. We are taxed everywhere you look and like someone else said in an earlier comment we get attitude from the very people we employ and feed.

  25. Pensions seem to be the topic of many if not all of the Blue states. New York, California, Illinois, etc. I have never read in detail the reasons why so many funds are underfunded, but the reality may be what you have stated in this article in the case of Coral Gables which I can described in four words: Retirement equals full salary.

    We have been taught and hope to pass that information forward to our children, that we all need to save for retirement. Most legacy pensions at corporations have all but disappear and moved over to 401k’s. If you were lucky, you also worked for a company that offered a pension + voluntary 401k. No more.

    The city just like all those other Blue states, need to make the tough fiscal choices that as managers and executives make everyday. Question: are pensioners collecting both their full salary pension, on top of their social security?

    Start there, then make the fiscal responsible decision.

  26. Wow what an eye opener! Thank you for this disturbing information. This generous pension plan needs to be changed. It is unfair to all Coral Gables residents & business owners.

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