MORGANTOWN — Fire pension in trouble.
That’s the headline The Dominion Post ran atop a Nov. 22, 2003 story explaining that the city of Morgantown’s fire and police pensions represented about $23 million in unfunded liability.
The author compared the state of the pension plans at that time to a four-alarm inferno.
Twenty-one years later, that unfunded liability sits around $100 million and climbing.
Now the city has decided to address it.
Morgantown is considering following the overwhelming majority of cities in the state in switching to what’s called the “Optional I or II” pension funding method through which an actuary determines the city’s annual contribution needed to cover the fund’s normal cost and amortize any deficiency by a certain deadline. In the case of Optional II, which is Morgantown’s preference, that deadline is 2063.
Under this plan, the city would begin contributing about $5.5 million per year to the plans – up from the $2.7 million it contributed this year.
Currently, the city uses what’s called the “Alternative” method, which requires it to contribute 107% of what it contributed the year prior. Doing so triggers the Municipal Pension Oversight Board to release the city’s portion of the state premium tax, which equaled about $1.6 million this year. Those two pools of money equal the annual contribution.
But it’s not keeping up.
In 2015, the city’s police pension was 25% funded. The fire pension was 27% funded.
By 2023, those numbers had fallen from 21% and 24%, respectively.
“The reason for that is the contributions you were making were not enough to cover the normal cost of the amount you were spending on the plan each year, plus interest,” Bolton Retirement Senior Consultant Jim Ritchie said, noting South Charleston – one of the few cities along with Morgantown to have not made this change – currently has pensions funded at 11% and 13%.
As part of making the switch from the Alternative to Optional II funding method, the city is proposing a 15% increase in fire fees to augment its available funding sources.
Further, while there will be no change to the pensions of current active employees and retirees, all new hires after the switch will be on the state pension plan.
City administration is recommending the move to the Optional II funding strategy, “ASAP.”
“The status of our unfunded liability has been brought up by previous audits. It’s been brought up when searching for finance directors in the past. It gets brought up a lot as kind of this thing that nobody wants to touch or deal with because it’s a lot to tackle,” Assistant City Manager Emily Muzzarelli said. “Again, it didn’t seem like there was ever a strategy to tackle that until about a year and a half ago.”
If left unchanged, Muzzarelli explained, the current plan will not only eventually fail its members, but severely hamstring the city as annual contributions compound year over year.
“Our main goal is to try to get the city in position to continue to pay pension benefits to those who’ve earned them,” she said.
Deputy Mayor Jenny Selin said this has been a known problem going back numerous city administrations.
“This is the first time that an administration has had the nerve and the wherewithal to figure out a strategy and bring one forward and have the analysis done and look to the future,” she said.
The initial reviews from the police and fire community were less glowing.
Their points fall into a few baskets.
One, they say the pensions are in the state they’re in due to long-term neglect by city administration, which, at best, didn’t take the necessary steps to address deficits and, at worst, didn’t fund the plans.
“I think it’s insulting to try to raise the fire service fee and put this on the taxpayers’ backs for the lack of effort that’s been done by city administration all these years,” Morgantown Firefighters Local 313 President Chuck Campbell said.
Further, when the city passed its 1% municipal sales tax, it dedicated 25% of the revenue generated through the tax to unfunded liabilities in the pension plans, with the understanding that city council could use up to half the tax revenue for that purpose.
The sales tax went into effect on July 1, 2020. It’s generated a combined total of $11 million for the pension plans.
Even so, retired Morgantown Police Sergeant Larry Hasley said, the city has not invested those dollars through the city’s pension boards and instead left the money sitting in a checking account earning 1.125% interest until about three months ago, when it was moved to a 4% money market account.
“A conservative estimate on our pension funds in the past year is 12%. So, that’s $11 million that’s in a checking account. Imagine what the compounded interest would be if our citizens, who pay that extra tax, could have had that gone into our investments and gone to work for us to make money,” he said. “Imagine what the compounded interest would be on that money over 4.5 years.”
