How Lansing can attract police & firefighter recruits
July 15, 2016
A June 28 article in the Lansing State Journal quotes officials as saying the Lansing Police Department has as many as 25 vacancies and the Fire Department has 28. If finding qualified people is the problem, I have a suggestion: Stop offering pensions and retiree health care to new police and firefighters and use the money saved to increase salaries. Having been young and short-sighted once myself, I suspect job applicants are more attracted by the starting salary than the pension they might get after 25 years.
Doing away with pensions for new employees would also reduce turnover. Currently, police and firefighters can get a pension after only 25 years on the job. Many to do so before age 50. (See list of police and firefighter retirees since 2010.) As a result, we lose all that valuable job experience. They are encouraged to leave as soon as they are eligible by the fact that they accumulate no service credit after 25 years; staying on does not increase their pensions.
Doing away with pensions and retiree health care for new employees would also be the first step in getting out from under Lansing's huge unfunded pension/retiree health care obligation. It would take 30 years, but it would be a start. The Police & Fire Retirement System is $106,303,356 underfunded on pensions and $341,700,000 on retiree health care. (When the other pension system for City of Lansing employees is included, the City's total unfunded liability for pensions/retiree health care is $791 million. With 49,505 households in Lansing, that comes close to $16,000 per household. More on that here.)
How much could starting salaries be increased without pensions and retiree health care? I figure 40.1%. This Police Recruitment Fact Sheet on the City's website says the current starting salary is $42,206.55. A 40.1% increase would bring it to $59,131.
Here's how I came up with the 40.1%. This is the Valuation Summary from page 12 of the latest actuarial valuation report for the Police & Fire Retirement System:
I use two figures from the above. $6,548,752 is the Total Entry Age Normal Cost, the cost of pension benefits earned in 2014. $26,264,214 is the Valuation Payroll, the total payroll for 2014. Dividing Normal Cost by Valuation Payroll, I get 24.9%. Pension costs are equal to 24.9% of payroll, which means salaries for new employees could be increased by 24.9% by eliminating pensions alone, right? Not exactly.
Lansing's police and firefighters don't currently participate in the Social Security system. However, if new employees are going to give up their pensions, they'll want to participate in Social Security, which means they'll have a 6.2% payroll deduction. That, in effect, takes their salary increase down to 18.7%. Then the City will have to contribute 6.2% as its share of the Social Security payment, which will have to come out of the salary increase, bringing it down to 12.5%.
Now let's consider retiree health care. The latest actuarial valuation reports for retiree health care I have were issued in February 2015 and were based on information provided by the City as of December 31, 2013. (I sent a FOIA request for the latest reports on June 27 and haven't received a response.) This is from the Summary of Actuarial Liabilities on page 4 of the Police & Fire report:
From the above, I use only the $7,140,201 Normal Cost figure under Statutory (Partial) Pre-Funded Basis, the cost of health care benefits earned in the valuation year. Dividing Normal Cost by Valuation Payroll ($26,264,214, the same figure used for the pension calculation earlier), I get 27.2%. Retiree health care costs are equal to 27.2% of payroll. Add that to the 12.9% net cost of pensions and we have 40.1%. The total cost of pensions and retiree health care is equal to 40.1% of payroll. Eliminating them would allow salaries to be increased by 40.1%.
40.1% actually seems low to me. A 50 year old male can expect to live to an age of 82.1, another 32.1 years (life expectancy calculator here) and pensions for Lansing police and firefighters are at least 80% of their salaries.
But without a pension and retiree health insurance, how can one afford to retire? Like people who work in the private sector, you save some of that extra pay and you stay on the job longer. Or you find a different job - a second career. As I have reported here before, lots of Lansing police and firefighters already do that. Here are some examples:
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