Police and Fire Pension Funds Face Insolvency

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

With that increase, firefighters in the system received about 75 percent to 80 percent of their final salary instead of 50 percent, Miller said.

Other cities were generous as well with benefits. In Fayetteville, retirement benefits in the local police and fire fund were bumped up to close to 100 percent of the officers’ final pay, said Sondra Smith, Fayetteville’s city clerk.

To pay for the benefits, the Fayetteville boards that oversaw the funds were counting on the retirees not living as long, she said. However, once a retiree dies, benefits are paid out to the surviving spouse.

“It’s something you can’t count on because you have no idea when people are going to [die],” Smith said.

Clark, the Pension Review Board executive, noted that the board has actuarial studies that local pension boards can use to predict death rates.

Smith said she had concerns about the funds back in 2003, but there wasn’t much she could do about those worries. “It’s hard for the city to do anything about it, because there’s only two people from the city that sit on the board,” she said. “The rest of the board is retirees. And so the city can’t get anything passed.”

Smith said she thinks the arrangement is a conflict of interest because the retirees end up voting for their own increases. Once pension increases are approved at the local level, it goes to the Pension Review Board for approval. City councils don’t get a say in the matter of increases in pension benefits.

“I don’t think it was a generous benefit package” that has put the systems in a financial crisis, said Clark, of the PRB. “Although some of these local plans have … generous structures, most of them are at half salary with no cost-of-living adjustment. It’s not like anybody is becoming wealthy off their retirement benefits.”

He said the flaw in the system was that the kind of contributions that are actuarially required for full funding have never been set aside.

The cities were required only to match the contributions from the firefighters or police officers.

“They’re not required by law to put anything over and above that amount,” Clark said. “So often they have not, year after year, and obviously we have now what we’re faced with: that is pension funds that are severely underfunded because they haven’t had the contributions coming in that they needed.”

For the cities to dig themselves out of the financial pit will require additional streams of income for the pension funds, he said.

 

 

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