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Fire Union Sues City over Pensions

Fire Union Sues City over Pensions

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The Baltimore Sun via YellowBrix

June 04, 2010

BALTIMORE – Baltimore’s police and firefighters’ unions filed a lawsuit against the city in federal court Thursday, contending that officials “knowingly underfunded” their pension plan over the past decade — ignoring the advice of financial experts hired by the city.

The lawsuit threatens to introduce a protracted and costly legal battle into the emotionally charged debate about altering the retirement benefits paid to public safety officers.

If officials do not make drastic changes to the pension system by July 1, the city will owe $65 million that it cannot pay.

Union leaders, who stress the dangerous and grueling nature of police and fire work, have resisted the pension changes that the city has proposed, saying they constitute a violation of their contract.

“Some in city government are portraying this as a crisis,” said Bob Sledgeski, president of the firefighters union. “This has been long, ongoing neglect on the part of the city to follow their own experts’ advice. That’s not an accident, and 10 years does not a crisis make.”

City Council members, led by Helen L. Holton, chairwoman of the taxation and finance committee, have been scrambling for a solution to the pension problem before the fiscal year ends June 30.

Scores of police and firefighters have threatened to resign or retire if their benefits are significantly diminished. But city officials, grappling with a $121 million overall budget shortfall, say they cannot pay much more than the currently allotted $101 million pension contribution, although the city’s required obligations would be about $166 million if no changes are made in the way benefits are calculated.

The lawsuit, filed Thursday, names the mayor and City Council, pension board members, city finance director Edward J. Gallagher and public safety pension system director Thomas P. Taneyhill as defendants. In it, the unions allege that from 2003 to 2008, pension board members and city officials disregarded repeated recommendations by actuaries to reduce the pension fund’s assumed rate of return because it would have forced the city to contribute millions more to the plan.

The lawsuit alleges that the actuaries warned pension board members in 2006 that the plan was underfunded and laid out four ways the problem could be averted: an increase in the city’s contributions; a decrease in benefits; an “incredible actuarial experience,” such as many members retiring later or dying younger; or the funds earning “a lot more,” which actuaries said was unlikely.

Despite the recommendations, city officials did not boost funding to the plan even though Baltimore had a $61 million surplus that year, according to the suit.

The lawsuit demands that the city retroactively fund the plan at rates proposed by the actuaries for the previous seven years, with interest, and “cease and desist from enacting, executing or enforcing improper and illegal legislation” to alter the plan.

Ryan O’Doherty, a spokesman for Mayor Stephanie C. Rawlings-Blake, said Thursday that he was unable to comment extensively on the lawsuit because city officials were still reviewing it.

“Other than these government employees, there is not a citizen in Baltimore that can retire as early as age 39 with full benefits, and the city certainly can’t afford to sustain that — it is unfortunate that the lawsuit was filed to prevent a compromise,” he said in a brief written statement.

The filing of the lawsuit comes as Holton is preparing to introduce a bill to overhaul the pension system.

She described the legislation Thursday as a revision of an earlier bill that was unpopular with the unions. That measure would have increased the age of retirement and replaced the existing “variable benefit” — a payment that increases in good economic years and stays high during bad — with a set cost-of-living increase.

Holton said her new bill is an attempt to reach a compromise with the unions while keeping the pension plan viable in the long run.

“At the end of the day, we have to look at what’s in the best interest of the sustainability of the pension system,” Holton said.

City Solicitor George A. Nilson characterized the lawsuit as an attempt to strong-arm the council into watering down the pension bill.

He said union chiefs had informed city officials as recently as Wednesday that they did not intend to file a lawsuit immediately.

The city and the unions had signed an agreement extending the time during which the unions could file a lawsuit, a move that was intended to avoid the “distraction” of a legal fight as the council races to solve the pension problem before July 1, Nilson said.

“You shouldn’t be able to affect important legislative decisions by filing lawsuits and getting everyone upset,” Nilson said. “They’re probably trying to send a message to the council to not mess with the pension or we’re going to make the lawsuit even worse.”

The city and the unions have hired private attorneys to handle the lawsuit. A third public safety union — the fire officers’ group — is not among the plaintiffs. The president of that union, Stephan Fugate, is included among the defendants because he has served in a dual role as chairman of the pension board for the past decade.

As pension funding declined, according to the lawsuit, Fugate “regularly assured” union members that the plan was “in good condition.”

Fugate did not immediately return a phone call seeking comment Thursday.

Robert Cherry, president of the Fraternal Order of Police, said Holton’s proposals do not address the central problem — the lack of long-term funding for the pension plan — but said the unions are open to an agreement.

“After months of attempting to reach a settlement with the city, we have not been successful,” Cherry said. “We feel that this is our only recourse in federal court.”