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Firefighter and Police pension costs of $850K a year will be added to city budget

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Jan. 10–In his sobering State of the City address last week, Mayor Tom Watson ticked off a list of budget challenges facing the city, including one very big one: The city’s closed Police and Firefighters Pension Fund.

The pension fund, which pays retirement benefits to police officers and firefighters who retired before 1990, has run out of money. That means beginning in July, the city will have to pay hundreds of thousands of dollars every year to cover those payments.

“… Our Police and Firefighters Pension Fund, a local legacy pension that is no longer open to our current employees, but still pays retirement costs for those who retired before 1990, is unsound,” Watson said. “This pension fund will require the city to subsidize that account beginning next year with estimated annual payments of $850,000.”

The mayor did not misspeak. The new cost to the city is $850,000 every year to pay pension benefits to 44 pensioners — 23 retirees and 21 widows — covered under the plan.

“This is a new expense to the general fund starting fiscal year 2017-18 (July 1),” said Angela Hamric, the city’s director of finance and support services. “Prior to that, the city’s Police and Fire Pension Fund made the payments.”

The work to avoid draining the city’s general fund balance has already begun. City Manager Bill Parrish said last week that he has been directed “to turn over every rock and look behind every seat cushion in a quest for further efficiencies to rein in and slow down this budget train.”

A City Commission work session is scheduled for noon Tuesday, Jan. 10, with the city’s finances the prime topic, according to Watson.

When the Police and Firefighters Pension Fund was established, $14 million was available for future benefit payments, Hamric said. But the fund is now exhausted, and the city must shoulder its entire costs going forward, she said.

“Funds were set aside by the city for those who chose to stay in the city closed pension plan,” Hamric said. “This is a closed pension fund. All police and fire employees hired after Aug. 1, 1988, are required to participate in the state’s CERS (County Employees Retirement System) plan.”

Hamric said the pension fund is projected to run dry by the end of this current fiscal year. Interest earned by the fund on its holdings were never enough to cover benefits payments, she said, and 2017-18 will be the first year that the general fund will make the payments.

Watson pledged that the retirees will receive their pension payments.

“We have made promises to these former police officers and firefighters, and we are going to keep them,” Watson said in the State of the City address.

Retired police officer Lloyd Nash, who sits on the pension fund board, said pensioners knew that eventually the money in the fund would run out after all the members retired and stopped making payments into it. Then came the Great Recession.

“In 2008, we took a big hit, and we lost quite a bit of money,” Nash said. “When you’ve got 44 people drawing and nothing going in, we knew it would be depleted. The city has to pay it until death.”

Nash said state law obligates the city to pay the benefits of the pension plan. Widows of pensioners receive one-half of their husbands’ pensions until they pass away, he said.

The city has another closed pension plan for retired city employees and beneficiaries not employed in hazardous positions. That pension plan is fully funded with adequate reserves to pay all pensioners based on actuarial projections, Hamric said.

Steve Vied, 270-691-7297, svied@messenger-inquirer.com

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