Police and Fire Pension Funds Face Insolvency

by Mark Friedman  on Monday, Sep. 17, 2012 12:00 am  

In less than 10 years, seven firefighter pension plans across Arkansas are projected to be insolvent, possibly leaving taxpayers on the hook to pay millions of dollars to fund the generous benefits promised to firefighters years ago.

Other police and firefighter pension funds might soon find themselves facing the same financial crisis, according to an Aug. 22 report by the actuarial consulting firm Osborn Carreiro & Associates Inc. of Little Rock, done for the Arkansas Fire & Police Pension Review Board, which oversees the plans.

At the end of 2011, the unfunded liability stood at $311.89 million for the 144 police and fire pension funds that are locally administered. The seven fire pension funds that are projected to be insolvent in 10 years are Arkadelphia, Benton, DeWitt, Fayetteville, Pine Bluff, Russellville and the Pulaski County Fire District 5, which covers Sherwood.

“The obligation is beyond our ability to handle, to be frank,” said Pine Bluff Finance Director Steve Miller. The Pine Bluff fire and police pension funds had $36.8 million in unfunded liabilities at the end of 2011. “And I think there are other cities that feel the same way,” Miller said.

In words underlined for em-phasis, the Osborn report said that 101 plans in Arkansas “will likely require more contributions in order to pay promised benefits.”

Several cities said they don’t have the money to cover the pension costs.

In 2011, 144 police and fire pension plans in Arkansas paid out $40.6 million in benefits to 2,999 members, but the cities paid only $23.96 million into their pension systems. In 2010, $40.7 million in benefits were paid out to 3,102 members with the cities paying only $23.2 million into the pension funds.

The cities’ responses to the looming disaster range from turning to residents for more money, denying that the problem is as bad as the report indicates or hoping that their investments improve to wipe away the unfunded liability.

The top question is, what will happen if a pension fund becomes insolvent?

Don Zimmerman, the executive director of the Arkansas Municipal League, said there’s no clear answer to that question. Officials in some cities, however, said that they think that once the funds are gone, the benefits end.

David Clark, the executive director of the Arkansas PRB, said the “employer could ultimately be responsible for the payments if the funds become insolvent,” which is his interpretation of attorney general opinions issued in 2009. “It should be noted, though, that this matter may end up needing to be resolved in court,” he said.

Zimmerman said he hopes the state Legislature can provide some additional money for the pension funds.

 

 

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