History of police and fire pensions
A little explanation is needed. 40 years ago, against the advice of the city manager at that time, the city commission placed Act 345 on the ballot, and the residents voted it in. Act 345 sets up a special account for police and fire pensions that is outside of the general fund. These pensions are “defined benefit” pensions, meaning the retirees receiving them get a guaranteed amount of benefits from the city – as opposed to the “defined contribution” model where the employee gets a set amount of contribution towards his or her retirement fund. Most people are familiar with defined contribution retirement benefits as the rule in the private sector.
Because Act 345 uncoupled the funding of police and fire pensions from the general fund, the cost city taxpayers pay to fund these pensions changes each year independently of any action by the city commission through the budget process. Instead, the amount city taxpayers must put into the fund each year is determined by an actuarial study. The actuarial study looks at the size of the city’s fund, the assumed rate of return on the city’s investments, and the amount of benefits that likely will have to be paid out to support the city’s future obligations to police and fire retirees.
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This might help this is what someone put in a comment.
Act 345 pays for their pension when they retire. Police and fire also have money taken out of each paycheck that they receive when they retire or enter the DROP. This is separate from their pension. To me, it seems like a savings account. This “annuity” as it is called is paid in a lump sum. This is 100% of their money. I hope this helps a little. I’m not an expert on Act 345, but I know a little.