Pension fund faces cash flow crisis amid rising retiree payouts

During a recent government meeting, officials discussed the financial health of the city's police and fire pension fund, highlighting significant challenges related to cash flow and investment management. The meeting revealed that the city has been drawing more from the pension fund than it has been contributing, leading to a negative cash flow situation. Specifically, over the past fiscal year, the city had to withdraw $248,000 to cover benefit payments, indicating that contributions from both the city and active employees were insufficient to meet the demands of retiree payouts.

Investment advisors noted that while the pension fund has seen growth—rising from $29 million in 2000 to $192 million today—this growth is not enough to offset the current outflows. The discussion emphasized the importance of maintaining a balance between contributions and payouts to ensure the fund's sustainability. Advisors pointed out that the fund's maturity, with a higher number of retirees compared to active employees, exacerbates the cash flow issues.

The meeting also touched on the management fees associated with the pension fund, with officials noting that the city benefits from lower fees due to its size, allowing more funds to be allocated toward performance rather than management costs. However, concerns were raised about the long-term viability of the fund, particularly in light of the upcoming expiration of the Deferred Retirement Option Plan (DROP), which could further impact cash flow dynamics.

Officials agreed on the need for a comprehensive analysis of the pension fund's structure and potential alternative retirement options to address the growing gap between contributions and benefits. The conversation will continue in future meetings as the city seeks to develop strategies to stabilize the pension fund and ensure its long-term health.