Joplin City Council members should vote to ask residents to increase the sales tax by a half-cent to bail out the city’s underfunded pension plan during a special meeting on the issue set for 6 p.m. Monday.
Those covered by the Police and Firemen’s Pension Fund have to approve the change to the plan to allow a city sales tax to pay into the fund. That vote ended Friday, and the results are expected Monday.
The city’s finance director, Leslie Haase, told the council last week that the city would need about $72 million to cover the cost of paying out benefits owed by the fund, to move some current employees to a state retirement plan if they choose to move and to put newly hired employees into the state plan.
Joplin has struggled for years with its pension fund. For more than 10 years, the city has attempted through increased funding to raise the percentage of benefits the fund could pay at its current value. The funded ratio is now around 63%. At least 80% needs to be funded for it to be considered solvent.
The underfunded pension plan was a key element in Standard & Poor’s decision to lower Joplin’s city credit ratings. Late last year, S&P reduced the city’s rating for loans through certificates of participation from A+ to AA-. The financial analyst also reduced the city’s issuer credit rating from AA to AA-. That means it costs us more to borrow money and issue bonds.
The proposed sales tax could generate $6 million to $7 million a year until the fund could be closed out, according to Haase.
The plan proposes a sales tax increase for 12 years or until the pension is funded to 120% to ensure there would be enough to pay the benefits owed and to cover losses in the value of the fund if investment values dipped. New police and firefighting recruits would be moved into the statewide Local Area Government Employee Retirement System. Those hired the past 10 years under different plan rules could be enrolled in the LAGERS state retirement plan if they chose to move.
You might ask why the city doesn’t move public safety workers into a 401(k) plan. Most workers have seen defined benefit plans such as this pension plan disappear as companies have shifted workers into defined contribution retirement plans. Public sector employees are an exception to this trend, particularly, police and firefighters who accept the increased risk and tough working conditions of their jobs in part because of the good retirement plans.
“In the public sector, pensions remain a key component to public safety recruiting and retention efforts,” Haase said earlier.
But the city fund is an underfunded obligation on city taxpayers. It is one the city has struggled to resolve for years. This sales tax plan looks like the best option to get square.
It is time to fund the plan and close it out. The City Council must put the tax before city voters in November.