FAYETTEVILLE -- A bill that would have authorized local fire and police pension boards to reduce benefits for funds determined to be at risk of financial ruin failed to clear the Arkansas General Assembly this legislative session.
Its failure means the Fayetteville Firemen's Pension and Relief fund, which stopped taking new beneficiaries in 1983, will continue on its path toward insolvency.
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Go to the online version of this story at nwadg.com to read a copy of House Bill 1216.
Source: Staff report
"We're left in exactly the same location as before the bill was proposed," City Attorney Kit Williams said this week.
Arkansas senators rejected House Bill 1216, sponsored by Rep. David Whitaker, D-Fayetteville, by a 19-3 vote last month. The action came after the Arkansas House of Representatives unanimously supported the measure.
Whitaker and city officials have said the bill was an attempt to save Fayetteville's fledgling pension fund, which provides monthly checks for 51 retired firefighters or their spouses. State actuaries predict the firefighters' fund is one of six funds statewide that will run out of money in the next 10 years.
"We did not want to see the pensioners left with nothing in the future -- to spend it all now and then have nothing," Williams said. "That's what we really wanted to avoid."
Local pensioners, who hold four of six seats on the firemen's board, have consistently resisted attempts to cut benefits, citing a 2009 attorney general's opinion that indicates they may be prohibited from doing so.
The fund pays beneficiaries an average of $2,215 per month, or $26,575 annually, according to City Clerk Sondra Smith. Actual monthly payments range from $109 to $5,377.
By state law, anyone who works for a fire department for 20 or more years is entitled to a monthly pension equal to 50 percent of ending salary.
That's how much local pensioners were paid when the city's old pension fund closed in 1983. Over the years, however, the pension board voted to increase benefits to 90 percent of ending pay, with the last increase coming in 2001.
The increases have strained the long-term viability of the fund.
City officials expect to pay pensioners more than $1.4 million this year, leaving $3.8 million in the firemen's fund at the end of 2015.
Expenses will be offset somewhat by roughly $950,000 in revenue from a 0.4-mill property tax levy ($552,000), turnback from homeowners' insurance premiums ($301,000) and investment earnings ($99,000), but that's not enough to prevent a nearly $500,000 shortfall this year.
"On a cash-flow basis, contributions are not covering expenses," Mayor Lioneld Jordan told members of the City Council earlier this year.
The pension board and City Council members have several options for dealing with the situation.
They could increase property taxes or turn over assets and administration of the local fund to the Arkansas Local Police and Fire Retirement System, which handles active pension funds across the state.
Or they could do nothing and hope revenues will be enough to cover expenses until the last of the pensioners, who range in age from 55 to 90, dies.
So far, the local pension board has chosen the latter route.
And city officials have resisted consolidation with the state system.
Paul Becker, city finance director, said consolidation would cost city taxpayers hundreds of thousands of dollars each year. He based his projections on 2010 estimates from the state Pension Review Board.
"We don't have any way to generate that in the current budget," Becker said.
David Clark, executive director of the Pension Review Board, said Thursday the 2010 figures may now be inaccurate.
"A preliminary examination shows that they should be able to consolidate at this point ... and not have any additional out-of-pocket (costs)" if payments were spread out over a 25-year -- rather than a 15-year -- period, Clark said.
He emphasized determining the true costs of tying into LOPFI will require a full study by state actuaries.
Also unclear is what will happen if the Fayetteville firemen's fund runs out of money.
Clark and Peter Reagan, one of the local pension board's members, said the city is obligated to continue monthly payments at their current rate.
Williams, Becker and Jordan disagree.
"The city has no direct obligation to fund the pension plan other than the 0.4-mill dedicated levy," the mayor told aldermen in January.
For the owner of a $200,000 house in Fayetteville, the millage works out to a $16 per year payment.
State law sets general rules for what should happen if a pension fund runs dry, although, according to Clark, that's never happened.
He said 162 plans across Arkansas, including a policemen's fund in Little Rock and firemen's funds in Stuttgart and Pine Bluff, have been consolidated with the state system.
"So far everybody, meaning the sponsoring location, has stepped up to make sure that there were sufficient assets," Clark said.
According to Title 24, Chapter 11 of Arkansas Code, local pension boards would distribute funds on a prorated basis once a fund is depleted.
Attorney general opinions from 2009 have called into question the constitutionality of that solution, however, especially if pensioners' prorated payments were to fall under the statutorily required 50 percent of ending pay.
Article 2, Section 17 of the Arkansas Constitution prohibits the passage of any law "impairing the obligation of contracts."
"While it is my opinion that such a reduction would be constitutionally suspect, the question may ultimately require judicial resolution," former Attorney General Dustin McDaniel stated in 2009.
The Fayetteville Policemen's Pension and Relief Fund is also deemed to be "at risk," but it's not in as dire straits as the firemen's fund.
According to the city's 2015 budget, the policemen's fund ended 2014 with about $7.5 million in assets.
Payments to pensioners were expected to be $1.6 million this year -- nearly $600,000 more than the $1 million in revenue the fund is projected to bring in.
The policemen's fund also relies on a 0.4-mill levy and state insurance turnback money.
Joel Walsh can be reached by email at [email protected] or on Twitter @NWAJoel.
NW News on 04/13/2015