ASP Officers Sue Over Pension Change

A group of Arkansas State Police officers has filed a lawsuit against the Arkansas State Police Retirement System over a change in its retirement program that could cost them about $40,000 each in lost revenue.

The officers are seeking class-action status for their case, which was filed in Pulaski County Circuit Court on Jan. 19.

The six officers who filed the lawsuit charge that when they agreed to enter the Arkansas State Police System’s Deferred Retirement Option Plan, known as DROP, the guaranteed rate of interest on their retirement account was 7.75 percent.

But in May 2009, the trustees of the pension fund voted to reduce the guaranteed rate to 3.25 percent, which became effective July 1, 2009, according to the lawsuit filed by C. Burt Newell of Hot Springs.

In 2009, the country was in the middle of the Great Recession and the value of stocks was plummeting. For the fiscal year that ended June 30, 2008, the Arkansas State Police Retirement System lost $27.4 million on its investments. The next year, it lost $50.9 million.

“They were getting killed,” Newell told Arkansas Business last week. He said the pension fund’s investments weren’t keeping up with the guaranteed rates it promised.

Newell said that the officers who applied to enter the DROP program had planned on getting the guaranteed rate of 7.75 percent. To get into the DROP program, the officers must have at least 30 years of service with the State Police.

When an officer enters the DROP program, he agrees to work for the State Police for the next five years but won’t receive a raise. In exchange, the retirement system will set aside the officer’s monthly pension amount in a DROP account, Newell said.

At the end of the five years, the officer could either receive the money in a lump sum or use it as an annuity, he said.

“The reason [the DROP] was created was it was so hard to find good people to serve,” Newell said. “Hours are bad, and you’re always in danger.” He said that when the State Police couldn’t entice officers to stay with higher pay, the agency sought to sway them with benefits.

But once an officer joins the DROP program, he can’t quit it, Newell said.

Newell said in the lawsuit that when the interest rate was changed, the pension fund breached the contract with the officers. He said the number of officers who were in the DROP at the time of the change could range from 45 to 75. Newell is seeking the money the officers would have received under the higher rate and an unspecified amount of damages.

An attorney representing the retirement system asked in court filings that the case be dismissed because the retirement system has sovereign immunity that protects it from lawsuits. Patricia Van Ausdall Bell, an assistant attorney general who is handling the case for the pension fund, referred calls for comment to the spokesman for the Arkansas Attorney General’s Office. A spokesman was unavailable for comment Wednesday.

Since the fiscal year that ended June 30, 2009, the ASPRS has seen its investment income recover. It received $18 million on its investments for the fiscal year that ended June 30, 2010, and had total revenue of $49.1 million. A year later, its investment income hit $46.85 million and the system had total revenue of $61 million.

But the pension fund still could be on shaky ground. Pension experts consider a pension plan to be in good financial health if it has an 80 percent funding ratio, which is the value of the assets divided by liabilities.

ASPRS’ funding ratio hit 95.7 percent for the fiscal year that ended June 30, 2000, and has been falling since. For the fiscal year that ended June 30, 2011, the fund ratio was 60.6 percent, an all-time low. It reported $208.05 million of the actuarial value of its assets and $343.21 million of actuarial accrued liability.

Gail Stone, executive secretary of the ASPRS, was unavailable for comment Wednesday.