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Ky. city fire and police pension debt grows by $77M

Officials said the debt is largely due to a change in assumptions the plan uses to project how much money it will need

By Beth Musgraves
Lexington Herald Leader

LEXINGTON, Ky. — The unfunded pension liability for Lexington’s police and fire employees grew by nearly $77 million last year, but the pension system remains one of the best funded in Kentucky.

As of July 1, 2017, the city’s Policemen’s and Firefighters’ Retirement Fund had 72 percent of the money it is estimated to need in order to pay current and future retirees. That figure is down from 77.1 percent in 2016, largely due to a change in assumptions the plan uses to project how much money it will need, said Todd Green, a consultant with Cavanaugh Macdonald.

The company prepared an actuarial analysis of the pension fund that was presented to the police and fire pension board Wednesday. The analysis said the pension plan’s unfunded liability grew to $261.5 million last year, up from $184.6 million in 2016.

Pension experts consider pension funds healthy when they are at least 80 percent funded.

A study done by Cavanaugh Macdonald showed the plan’s assumptions didn’t match what actually happened over the last five years in terms of the rate of retirement, life span of retirees and rate of pay. For example, many retirees are living longer than the plan had previously assumed.

The pension board on Wednesday did not officially adopt the new assumptions, but instead opted to let the city phase in the increased contributions they are required to pay over two years. Without the changes, the pension’s funded position is 77.4 percent and its unfunded liability is $200 million.

The actuarial analysis determines how much the city must contribute to the fund.

The city will have to pay roughly 35.8 percent of payroll, or $25.9 million, in the current fiscal year. For the fiscal year that begins July 1, the city will pay 37.5 percent of total police and fire payroll.

Some on the board were hesitant to allow the city to increase its contribution over time. In 2013, police and fire employees agreed to contribute more into the fund -- 12 percent of their salaries --with the understanding the city would make its full contribution each year.

“Our police and firefighters are contributing their 12 percent... with the promise that the city would contribute its appropriate amount. I don’t want to go down the path again that we make it up later,” said Lt. Jonathan Bastian, a Lexington police officer and board member.

With or without the new assumptions, Lexington’s police and fire pension fund is one of the best funded systems in the state.

The pension funds overseen by the Kentucky Retirement Systems have an unfunded liability of $26.75 billion. Within KRS, the pension plan that serves most state workers is only 13.6 percent funded. The pension system that covers most city and county employees is somewhat better off at 52.8 percent.

Lexington’s police and fire pension plan has improved its financial position since pension reform was enacted in 2013. Before that, the unfunded liability was nearly $300 million.

It was 78.4 percent funded in 2015, the highest percentage in more than a decade.

The pension has 1,201 retirees and 1,144 active members and paid out $57 million in benefits in 2017. This is the first year retirees have outnumbered active numbers, the analysis showed.

Copyright 2018 Lexington Herald Leader

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