FAYETTEVILLE -- An actuary for the Fayetteville Firemen's Pension and Relief Fund says he thinks he's come up with a way to continue providing benefits to retired firefighters at the current level without costing city taxpayers any more money.
But the plan relies on rosy financial projections several city officials say are untenable.
How they voted
The Fayetteville Firemen’s Pension and Relief Fund Board of Trustees recommended 4-2 on Wednesday handing over administration of the local pension fund to the Arkansas Local Police and Fire Retirement System, commonly referred to as LOPFI.
Voting for the recommendation were:
• Roy Cate
• Dennis Mullens
• Pete Reagan
• Ron Wood
Mayor Lioneld Jordan and City Clerk Sondra Smith voted against.
Source: Staff Report
The firemen's pension fund stopped taking new beneficiaries in 1983.
It's the main retirement account for about 50 retired firefighters or their widows. According to city data, pensioners' benefits range from $1,311 to $73,302 per year.
"We do not receive any Social Security benefits. This is our pension," said Pete Reagan, chairman of the Firemen's Pension and Relief Fund board. "This is what we live on when we leave employment."
The firefighters' pension benefits weren't always as generous as they are today. The pension board, composed of four pensioners, Mayor Lioneld Jordan and City Clerk Sondra Smith, has voted over the years to increase annual payments from 50 percent to 90 percent of ending pay.
Jordan and Smith have consistently urged the board to decrease benefits to ensure the long-term viability of the fund, but pensioners have resisted the efforts. They point to a 2009 Arkansas attorney general's opinion, saying they are legally unable to reduce benefits. The issue hasn't been tested in court.
The plan Jody Carreiro, an actuary with Little Rock-based Osborn, Carreiro & Associates presented to the City Council during a special meeting Tuesday evening would hand over administration of the local firemen's pension fund to the Arkansas Local Police and Fire Retirement System, commonly referred to as LOPFI. LOPFI administers retirement accounts for hundreds of police officers and firefighters throughout Arkansas.
The move would dissolve the local pension board, which for years has failed to find a way out of its downward financial spiral.
An actuarial report in 2010 estimated the fund stood a 90 percent chance of financial ruin within five to 10 years. Carreiro revised that estimate Tuesday, saying the fund should have seven to eight years of life left under the worst case scenario.
At the end of 2014, it had assets of about $4.4 million and unfunded liabilities of more than $14.3 million.
The fund earns revenue each year from a 0.4-mill property tax, state turnback money from homeowners' insurance premiums and investment earnings. According to Carreiro, those revenue sources brought in about $1.1 million last year. The fund paid out more than $1.4 million in benefits to pensioners.
City Attorney Kit Williams and David Clark, executive director of the Arkansas Pension Review Board, have conflicting opinions on what happens if the fund runs dry.
Williams said Tuesday the city is under no obligation to pay pensioners anything beyond the 0.4-mill property tax. He cited a section of state law saying incoming revenue should be distributed on a prorated basis once a fund is depleted.
Clark argued the city is on the hook for pensioners' monthly checks at the same amount they're receiving today. By state law, everyone who works for a fire department for 20 or more years is entitled to a monthly pension equal to 50 percent of their ending salary.
Carreiro's plan would require 8 percent investment returns and 3 percent property tax gains each year to continue paying the pensioners their current rate without the city having to dip into the general fund.
Property taxes have grown by more than 3 percent on average over the past 10 years in Fayetteville, but that percentage growth was carried by sharply increasing property valuations prior to the economic downturn of 2008 and 2009. In the past five years, property taxes have increased about 1.5 percent each year on average.
Carreiro said Tuesday he was 80 percent confident his plan could be achieved without relying on additional taxpayer money.
"There's no guarantees," he said, but added, "This is by far the best thing."
Police Chief Greg Tabor gave Carreiro's plan a zero percent chance of success.
Tabor said he's worried that, by taking on new pension obligations, Fayetteville officials could be jeopardizing current employees' retirement savings and putting the city's general fund at risk.
"The general fund is pretty maxed out, tapped out," he said. "It just concerns me about future operations and future pay raises."
Tabor also noted Carreiro's firm was the same company whose projections were used to support past benefit increases.
"I'm sure those benefit increases were based on numbers he had in front of him at the time," he said. "My point is, we don't have a crystal ball.
"Obviously whatever numbers Jody used all those years ago, the numerous times he did that, those have not held true," Tabor added. "I don't think the plan would be insolvent today if those numbers had held true."
Paul Becker, city finance director, agreed Carreiro's actuarial assessments may be overly optimistic.
"As the chief financial officer, I am very concerned about whether we can continue to earn an 8 percent investment rate," Becker said. "Looking at the economy, I believe that that's fairly aggressive."
"What the council does have to understand," he added, "is that we are taking an investment risk. If, in fact, we send it to LOPFI and agree to pay for it, we are taking on an investment risk that we currently don't have."
Clark, the Pension Review Board director, said Tuesday that LOPFI's average annual returns over the life of the system, which today manages a roughly $1.7 billion investment portfolio, have been nearly 8.5 percent. LOPFI became operational in 1983. Clark noted, however, that performance in the past 10 years has been more in the 5.6 percent range.
Jordan, at a pension board meeting Wednesday morning, said he wouldn't be able to support the consolidation plan without more detail about what it would cost the city if investment growth doesn't reach 8 percent each year.
"I couldn't get a straight answer on how much it's going to cost," the mayor said.
Carreiro said Tuesday he didn't run projections for how much it would cost if the fund posts investment returns of, say, 5 or 6 percent. He did say the city wouldn't be on the hook for additional money if returns average 7 percent growth annually. That assumes property taxes grow by at least 3 percent each year and actuaries' mortality predictions hold true.
The pension board, by a 4-2 vote, recommended consolidating with LOPFI. All four pensioners on the board voted for the measure, and Jordan and Smith voted against, mirroring the body's typical divide.
City Council members are scheduled to consider the consolidation plan at their Tuesday meeting. The plan must be approved by the end of the month in order for LOPFI to start making local pension payments in January 2016.
Jordan didn't rule out supporting the consolidation plan after receiving more information from Carreiro's firm.
"If it can be shipped to LOPFI without any extra payment, I'm OK with it," the mayor said.
Alderman John La Tour indicated Tuesday he'd be willing to spend more taxpayer money on the pension fund no matter what the cost may be.
"We may not be legally obligated, but we are morally obligated," La Tour said. "I will not hang these firemen out to dry."
"We, the citizens of this city, benefited from their service," he added. "We owe it to them to pay those pensions."
NW News on 10/01/2015