The Problem with Indiana's Police and Firefighter Pension System

1977 Police Officers' and Firefighters' Pension and Disability Fund 

As a firefighter, my retirement plan is based largely on a pension, called the 1977 Police Officers' and Firefighters' Pension and Disability Fund, whew...  a mouthful.  It's also called the 77 Fund or I'll call it the Fund.  The Fund was created to serve public safety officials in the State of Indiana.  Cities/towns and employees contribute to the Fund, which then pays benefits to retirees, disabled members and survivors of members.  The Fund has been performing well and is well "funded", meaning there is enough money in the fund to pay the members their share.    

Benefits and Contributions

The money that goes into the Fund comes from both the city or town, and the employee.  According to IN.GOV and the latest information, the contribution percentage is around 23-25%.  17-19% of this comes from the employer, leaving the last 6% coming from the employee.  With that being said, the employer may chose to pick up some of the employees 6%, which is the case on my department.  

After 20 years of employment, you become "vested" or allowed to collect some of the benefits from the Fund.  You can't collect those benefits until you are 52 years of age.  So, after 20 years of service, you can collect around 50% of base salary, which in our case is "New Guy Salary", aka Not Much Salary.  You can continue to improve your percentage until you hit 32 years of service, capping out at 74% of Not Much Salary.  You will continue to collect at that dollar amount until you die.  There are a couple different stipulations and situations that can cause that to change, but those are for another post.     

Why it's good?

The Fund is good because it forces retirement savings.  In a world where not enough young people are saving for their futures, the Fund creates laws that force members to have retirement savings.  This is a good thing!  The monthly distributions aren't much, but they are enough to help a retiree continue to eat.  

Second, after a calculation by my financial advisor, receiving a monthly distribution at the 50% mark (if the member had 20 years of service) would be as if they had a nest egg of $300,000-$500,000!  This is a BIG number for a fireman!

The Fund also provides some lump sum benefits to those that die "In the Line of Duty" or during a call.  This is a nice benefit to surviving families and children of those that have lost their lives in the public safety setting.   

Why it's bad?

There are a couple situations and reasons that I feel the Fund is restrictive to police officers and firemen.  The first one is how hard it is to get into it, which then in turn, makes it really tough to get out of it.  

Stick with me here...  from the time I turned my application in, until the first day of employment, was 18 months.  Those 18 months were filled with an application, a written test, a physical agility test, an interview, a polygraph (lie detector) test, a psychological test, then finally an extensive health physical.  All of these tests are to make sure the Fund wants you and aren't making a mistake...  To illustrate, I broke my ankle in 2002, 3 years prior to employment, which was surgically repaired.  I had to sign a release saying that if my ankle ever caused me to not work, the Fund wouldn't be liable for that.  

So after such a lengthy process of pre-employment, it's hard for the employee to walk away from such a process.  For example, a young kid decided to give the firefighter thing a go, but realizes within a couple years that it's not for him or her.  The guilt of being the subject of such a process, which is rather expensive, could keep him or her around when otherwise they wouldn't stay.  

Then, fast forward a couple years, and put them at the 10 year mark.  They are now half way to inheriting a $300,000-500,000 nest egg for the rest of their lives, they would be stupid to leave at 10 years!  This keeps men and women on the police and fire departments that otherwise would leave.  This adds to some of the poor work ethic, poor work relationships and the virus of bad attitudes, that at least the fire service deals with at times.  Especially in a world where young employees are averaging less than 5 years at a job (from thebalance.com), to stay in a career for 20-32 years is really tough for today's young workers.  

Take home points

• We are keeping good, short term employees out because they won't meet the Fund's stipulations.  We are losing good employees because the process is too long and too difficult.
• We are keeping people around too long.  Some employees outstay their welcome, and some employees could be great in another career.  But the result is grumpy, ready to move on, and don't want to be here employees.
• The Fund isn't like a retirement account and it's not guaranteed money.  It's not exactly an account with money that moves from heir to heir, a lot of it dies with employee.
• The Fund is at risk.  As cities and towns struggle for money, pension funds are being targeted all around the country.  More and more pension funds are raided, leaving them underfunded and in trouble.