Pasadena Seeks Change in Retirement Plan

Voters will decide March 5 whether to make the city’s Fire and Police Retirement System conform to federal tax rules.

“The bottom line is that it doesn’t cost (Pasadena residents) anything,” said Deputy City Atty. Larry Newberry of the changes proposed in Proposition 1. The changes would keep the retirement system tax-exempt.

If the changes are not approved, the city and 84 current city employees could end up paying up to a total of $102,000 annually in new taxes, Newberry said.

Under Proposition 1, voters are being asked to modify the city charter to impose benefit ceilings for retired workers. Rules imposed by Congress in 1988 prohibit pension plans from paying retired employees more than the highest annual salary they received while working. This sometimes happens because of annual cost-of-living increases, Newberry said.

Retirement systems that don’t conform to the new rules lose their tax-exempt status, Newberry said. Thus, failure by voters to approve Proposition 1 would cost city employees in the system a total of $50,000 annually in taxes owed for city contributions to their retirement funds. The city would have to pay an additional $52,000 annually on earnings from pension plan investments.

The changes apply only to 84 city workers still covered under the old Fire and Police Retirement System. Because of financial problems in the past that have since been resolved, that system was closed to incoming workers in 1977.

Police officers and firefighters are now covered, along with other city employees, under the state-run Public Employees Retirement System.

Because the new federal rules exempt employees hired before Jan. 1, 1990, when the rules took effect, none of the Pasadena workers is affected by the ceiling limits.

The Fire and Police Retirement System will continue until it drops below 50 currently employed workers. At that point, the city is required to pay out money invested in the pension plan to the remaining participants. When that occurs--which is anticipated within the next 10 years--the Internal Revenue Service will likely scrutinize the plan. That scrutiny is another reason for the city to make changes now, Newberry said.

Newberry said there was no organized opposition to Proposition 1. But similar non-controversial housekeeping measures have failed in the past, he said.