The Houston Fire Department has paid 928 employees over $57 million during the last six years in termination pay, due when the employees retire or quit.
The generous payouts come at a time when the city of Houston is suing the firefighter's pension fund for the right to have local negotiating power over the city's future contributions to the fund in an effort to absorb a projected $8.5 million unfunded liability in unanticipated overtime costs.
One recent retiree, who served the Houston Fire Department for 40 years, claimed a check for $177,000, according to The Houston Chronicle.
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Six-figure payouts are not uncommon of late: 197 fire department employees collected more than $100,000 from 2008 to 2013. Termination pay is compensation for the accrual of sick time and vacation days that the employee forewent over their careers.
The policy of allowing public safety employees to accrue leave time could trigger a further debt crisis, worry critics. Many fire department employees are currently eligible for retirement, and would be owed sizable checks for termination pay. City officials can't predict when those eligible will retire, making budgeting for what is owed in termination pay difficult, if not impossible.
Texas law allows Houston's firefighters, and those of other large city departments, to accumulate their leave and collect a lump-sum payment for what they did not use over their careers. But other departments have been able to negotiate caps on what can be accrued, and have significantly less liability. Termination pay in Austin averaged between $40,000 and $50,000 for retiree firefighters.
Defenders of public unions that have generous termination pay argue that if employees use their sick and leave time, municipalities would accrue other expenses in covering that time, often having to backfill schedules with employees working overtime, thereby incurring further costs on city budgets.
Nearly one-third of Houston's fire department has twenty years on the job and is therefore eligible for retirement. An aggressive adjustment to termination pay policy could not only add to Houston's budget woes, but also spark a mass exodus of fire fighters looking to claim the highest payout.
Defenders of the policy note that the largest payments are collected by firefighters who joined the department decades ago, when a pension paid 35 percent of pre-retirement earnings.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
