FAYETTEVILLE -- A declining Fayetteville pension fund could remain solvent under a proposed state law, but at the cost of reducing benefits to its 59 former firefighters or their spouses.
House Bill 1216 by Rep. David Whitaker, D-Fayetteville, would affect the Fayetteville Firemen's Pension and Relief Fund. That fund stopped taking new members in 1983 when a new statewide pension system for firefighters and police began. The older, closed pension fund still provides retirement payments to its members and surviving spouses.
The old fund is running out of money, according to the state Fire and Police Pension Review Board. The fund is scheduled to pay an estimated $1.4 million in benefits this year, financial figures show. This would take up to 28 percent of its current balance of less than $4.9 million.
The local pension board has refused to reduce benefits, citing a 2009 state attorney general's opinion that it lacks the legal authority. Whitaker's bill would grant that authority.
The city would be obligated by contract to add those recipients to the statewide Arkansas Local Police and Fire Retirement System if the local fund runs dry, said Peter Reagan, a member of the city fund's board. Fayetteville Mayor Lioneld Jordan, also a board member, disputes this. The attorney general's office stated in its 2009 opinion that such a dispute would likely require a suit in federal court to resolve.
Reagan said he believes Whitaker's bill would conflict with other laws governing pensions. Jordan said a reduction in benefits is clearly needed to avoid the fund's collapse. Adding those retirees to the newer, statewide pension plan for firefighters would cost the city at least $750,000 a year, said Jordan and city Finance Director Paul Becker. The city would be have to pay the added expense of taking in the older system's pensioners if the two systems were consolidated, Jordan and Becker said.
Whitaker filed the bill at the city's request, he said in an interview Friday. Whitaker is a former assistant city attorney for Fayetteville. The bill would allow a pension fund that is "in substantial risk of ruin" to reduce its benefits to members.
The pension plan's fund balance fell below $5 million in October, passing a threshold that restricts investments the funds board can make under state law. Pension funds with less than $5 million are restricted to low-risk investments such as purchasing government bonds.
Another, similar closed pension fund for Fayetteville police is in better shape but facing the same prospect in the long term, Jordan said. Merging both pension plans into the statewide system would cost the city an estimated $1 million a year. General fund collections for the city budget are about $38 million a year, Jordan said.
The pension fund paid half the rate of pay a firefighter earned upon his retirement in 1983. Those benefits went to him or his survivors. Increases over the years raised that figure to 90 percent of pay by the time of the stock market crash of 2008.
Fayetteville would not be the only city affected by Whitaker's bill. Nine police and fire pension funds around Arkansas were projected by the state to be insolvent in the next 10 years if local authorities don't supplement or restructure the funding methods for the plans, according to the state pension review board figures.
NW News on 02/10/2015