Here’s a little blast from the past.
The city of Houston may sue a company whose advice it relied upon in making changes to firefighters’ retirement benefits in 2001, saying the firm’s inaccurate predictions left the city on the hook for pensions it cannot afford.
Houston’s contribution rate to the firefighters pension skyrocketed soon after the changes were approved, despite an actuarial report from Towers Perrin, now Towers Watson, that predicted the payment rate would remain flat for a decade. This year, the city is contributing 33 percent of payroll to firefighters’ retirements, more than double the rate prior to the changes.
Former Mayor Lee Brown’s administration also based its support for 2001 changes to municipal workers’ pension benefits on a separate Towers Perrin report that projected the city’s contributions to that fund would not top 14 percent of payroll; by 2003’s end, the rate was 42 percent.
Both reports were commissioned by the employee- and retiree-controlled pension boards; the city did not seek second opinions.
City Attorney David Feldman said the proposed lawsuit is targeted at the actuary’s fire pension projections because the specifics of the situations make the fire report a “cleaner” case; he did not rule out bringing suit based on the flawed municipal estimates.
“When we were closely studying how we got to where we are today, I started collecting all the historical information, and I came across this and said, ‘Wait a minute, look at these projections. What happened?’ ” Feldman said. “Even if we weren’t in the ditch we’re in, if I came across that information I’d have a duty to my client to say, ‘You have a cause of action here.’ ”
While relatively rare, disputes between local governments and pension actuaries do occur, and have yielded damages.
In Alaska, where state pensioners have their retirement and health care benefits covered, the state sued its actuarial firm, Mercer, for allegedly projecting rising health care costs incorrectly; the firm ultimately settled for $500 million.
Mercer also was sued by Milwaukee County, Wis., which accused the firm of underestimating the cost of new benefits offered in 2001; the firm settled for $45 million.
I had to go back ten years to find the last mention of Towers Watson (née Perrin) on the blog. The fact that some other governments have collected for crappy pension forecasts in the past is intriguing, but suffice it to say we’re a long ways off from any kind of settlement. If we do ever get to that point it’ll be nice, but probably not transformative. I figure it can’t hurt to at least explore this, but we’ll see how it goes.