Police, fire pension obligations rise in ’19
A reduced rate of return on investments will increase the city’s 2019 contribution rate to public safety personnel pensions, the Arkansas Local Police and Fire Retirement System’s executive director said.
David Clark said employer contribution rates have increased as a result of the LOPFI Board of Directors reducing the expected rate of return on system investments from 7.75 percent to 7.50 percent in December.
The city’s police fund will pay $2,145,506, or 35.63 percent of the fund’s more than $6 million in pensionable wages, to LOPFI next year. Of that, 14.07 percent is paying down unfunded accrued liabilities from the pension plan that was closed in 1983.
The 21.56-percent employer contribution rate on the current plan is a 4.86-percent increase over this year.
The fire fund will pay $2,434,218, or 53.66 percent of the fund’s more than $4.5 million in pensionable wages, to LOPFI, with 31.41 percent of the obligation paying down unfunded accrued liabilities from the fire department’s closed pension plan.
The 22.25-percent employer contribution rate on the current plan is a 4.70 percent increase over this year. Clark said the LOPFI board has capped the contribution rate at 23.5 percent. Employees contribute 8.5 percent of their pensionable wages.
On Jan. 1, the city will have
19 years left on the 30-year amortization schedule that’s paying down unfunded liabilities from the closed police and fire pension plans. According to the city’s Comprehensive Annual Financial Report for
2017, the closed fire and police plans have $26.2 million and $8 million, respectively, in unfunded liabilities.
Cities can levy up to 1 mill for both police and fire pensions, but the Hot Springs Board of Directors has declined to impose pension millages
The liabilities are fluid, adjusting according to actuarial assumptions such as rate of return on LOPFI investments, life expectancy and the rate of disability retirements, Clark said, adding that system investments have to show strong returns before the LOPFI board can lower the 23.5-percent employer contribution cap.
He said local governments don’t pay the full rate, as
40-percent is defrayed by the tax the state collects on premiums for multi-peril and auto insurance policies issued by out-of-state carriers.
“If you take 60 percent of 20 percent, that becomes 12 percent,” he said. “Eight percent is funded by the premium tax, leaving them a net number of
12 to 15 percent.”
He said the city also offsets its pension obligation by not making the 6.25-percent employer contribution to Social Security for police officers and firefighters.
“So the LOPFI benefits are very important to them,” Clark said of the city’s public safety personnel.
Clark said the LOPFI plan is 76-percent funded. He was uncertain if the board would adjust the rate of return when it meets next month.
A 17-year amortization schedule is paying down the system’s differential in assets and liabilities, an imbalance Clark said occurs when actual returns fail to meet assumptions. He cited 2008 as a significant contributor to the imbalance, as the assumed 8-percent rate was upended by an actual rate of negative 25.24 percent.
“The market downturn resulted in a loss of assets the system is still trying to bring back up,” he said. “It puts pressure on employer rates when we don’t earn as much as we assume.”
The city board adopted
2019 budgets of $13,781,553 and
$9,528,373, respectively, for the police and fire funds. The police fund is subsidized by a $7,311,302 general fund transfer, and the fire fund will receive $5,493,202 from the general fund.
Both funds are supported by the city’s 0.50-percent public safety sales tax, which generates about $6.8 million annually. The police fund receives 60 percent of the proceeds, and the fire fund gets 40 percent. The funds will share a projected $1,132,250 in games-of-skill tax Oaklawn Racing and Gaming remits to the city, the finance department said. The other $1,132,250 in projected games-of-skill revenue will go to the general fund.