News Story

Cops Retiring in Their 40s While Pension Systems Break Cities’ Backs

Retirees collecting pension checks while working in second career

A husband and wife who were both Ann Arbor police officers retired within a year of each other. The husband, a lieutenant, retired in 2009 at age 46. His wife, whose job title was telecommunicator, started collecting pension checks in 2010 at age 51.

Since 2009, the city of Ann Arbor has seen 43 individuals age 51 or younger retire and begin collecting police pensions.

Early retirements — many of which occur with employees still in their 40s — are not uncommon in municipal public safety departments. The practice is justified on the grounds that the high stress and sometimes physically challenging duties of the work become more difficult to sustain in middle age.

The problem for the city and its taxpayers is that Ann Arbor’s pension system is underfunded and its costs are skyrocketing. The city paid $2.9 million to fund employees’ pensions in 2006. By 2014, the figure had nearly quadrupled to $11.2 million. And still, the pension system is just 83 percent funded, meaning for every dollar the city has promised its retirees, it has only 83 cents set aside. In 2014, the system was underfunded by $89.6 million.

Police officers who retire early often go on to work in other law enforcement jobs for a different employer. For example, Ann Arbor Police Chief John Seto retired July 31, 2015, at the age of 48. One month later, the University of Michigan named Seto as its new director of Housing Security and Safety Services, the Ann Arbor News reported. Seto earned $130,491 as the police chief and will make $113,000 in his new position — plus his monthly pension checks from the city of Ann Arbor.

“Ann Arbor is fortunate to be served by a professional, competent police department,” said Ann Arbor City Administrator Steve Powers in an email. “The department is attractive to law enforcement professionals. The officers who reach the age and years of service requirements to receive a pension are well-trained and have received a variety of experiences. Because of their training and experience, they are desirable candidates for other police departments, the University of Michigan, or other employers.”

Leon Drolet, the chair of the Michigan Taxpayers Alliance, said early retirements can make sense for jobs in which employees are exposed to dangerous conditions and must meet physical standards.

“This is more of a problem with the pension system,” Drolet said. “The defined benefit pension system is unsupportable.”

Drolet said cities need to switch to a defined contribution, 401(k)-type system.

That’s the system used by Seto’s new employer, the University of Michigan. In its defined contribution system, the university contributes 10 dollars for every 5 dollars the employee puts into a tax-deferred savings account, up to 10 percent of the person’s salary. Under this approach, state taxpayers assume no long-term liabilities, funded or not, for retirement benefits of public employees.

“The record shows defined benefit pensions are just breaking the backs of taxpayers and city budgets,” Drolet said. “Cities make pension promises they can’t afford and their current leaders turn their heads.”