Police and Fire Pension Funds Face Insolvency

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

In May, the city of Pine Bluff asked voters to approve a millage increase to fund the troubled police and fire pension funds. Voters approved a 0.4-mill increase for both funds, but the extra $150,000 the tax generates won’t be sufficient to rescue the funds, said Steve Miller, the finance director.

At the end of 2010, Pine Bluff’s fire department pension had an unfunded liability of $20.5 million, and the police fund was $14.7 million. In 2011, the fire pension fund’s unfunded liability increased to $21.6 million, and the police’s unfunded liability was $15.2 million, for a combined total of $36.8 million.

The fire pension plan is paying $1 million more in benefits than it is collecting in revenue.

The fund had less than $10 million in assets at the end of 2011. “The state has projected it will be insolvent in under 10 years,” Miller said.

Smith, the Fayetteville city clerk, said her city’s pension fund board has changed its investment strategy in an attempt to generate more revenue. Smith said she thinks benefits should be reduced, but that’s unlikely to happen considering the number of the retirees on the local board.

“They’re not willing to reduce benefits at this time,” Smith said.

Smith said she didn’t know what the board would do if the investment strategy doesn’t work. One option might be asking Fayetteville citizens for more money.

The Fayetteville fire pension had an unfunded liability of $14.8 million at the end of 2011.

Smith said the interpretation from the city’s attorney is that the city wouldn’t be on the hook for the unfunded liability if the plan becomes insolvent.

“But if the cities are responsible to pay the unfunded liabilities, then that means probably a lot of cities’ employees would be laid off just to fund the increases that the pensioners have voted for themselves,” Smith said.

In Benton, the fire pension plan was facing a $5.15 million unfunded liability on Dec. 31.

The Benton City Council approved a one-time payment of $10,000 to the fund in 2012, “which is not very much compared to the status of their fund,” said Karen Scott, the finance director for the city.



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