FAYETTEVILLE — An actuary for the Fayetteville Firemen’s Pension and Relief Fund said he thinks he’s come up with a way to provide benefits to retired firefighters at the current payout without costing city taxpayers more money.
But the plan relies on rosy financial projections several city officials say are untenable.
The pension stopped taking new beneficiaries in 1983. It’s the main retirement account for about 50 retired firefighters or their widows. According to city data, the pensioners receive up to $73,302 per year.
“We do not receive any Social Security benefits. This is our pension,” said Pete Reagan, chairman of the Firemen’s Pension and Relief Fund board. “This is what we live on when we leave employment.”
The firefighters’ pension benefits weren’t always at the same level as today. The pension board has voted over the years to increase annual payments from 50 percent to 90 percent of ending pay. The board currently is comprised of four pensioners, Mayor Lioneld Jordan and City Clerk Sondra Smith.
Jordan and Smith consistently have urged the board to decrease benefits to ensure the long-term viability of the fund, but pensioners have resisted. They point to a 2009 Arkansas attorney general’s opinion, saying they are legally unable to reduce benefits. The issue hasn’t been tested in court.
The plan Jody Carreiro, an actuary with Little Rock-based Osborn, Carreiro & Associates, presented to the City Council during a special meeting last week would hand over administration of the pension to the Arkansas Local Police and Fire Retirement System. It administers retirement accounts for hundreds of police officers and firefighters throughout Arkansas.
The move would dissolve the local pension board.
An actuarial report in 2010 estimated the fund stood a 90 percent chance of financial ruin within five to 10 years. Carreiro revised that estimate Tuesday, saying the fund should have seven to eight years of life left under the worst-case scenario.
At the end of 2014, it had assets of about $4.4 million and unfunded liabilities of more than $14.3 million.
The fund earns revenue each year from a 0.4-mill property tax, state turnback money from homeowners’ insurance premiums and investment earnings. Carreiro said those revenue sources brought in about $1.1 million last year. The fund paid out more than $1.4 million in benefits to pensioners.
City Attorney Kit Williams and David Clark, executive director of the Arkansas Pension Review Board, have conflicting opinions on what happens if the fund runs dry.
Williams said Tuesday the city is under no obligation to pay pensioners anything beyond the 0.4-mill property tax. He cited a section of state law saying incoming revenue should be distributed on a prorated basis once a fund is depleted.
Clark argued the city is on the hook for pensioners’ monthly checks at the same amount they’re receiving today. By state law, everyone who works for a fire department for 20 or more years is entitled to a monthly pension equal to 50 percent of his ending salary.
Carreiro’s plan would require 8 percent investment returns and 3 percent property tax gains each year to continue paying the pensioners their current rate without the city having to dip into the general fund.
Property taxes have grown by more than 3 percent on average over the past 10 years in Fayetteville, but that percentage growth was carried by sharply increasing property valuations before the economic downturn of 2008 and 2009. In the past five years, property taxes have increased about 1.5 percent each year on average.
Carreiro said he was 80 percent confident his plan could be achieved without relying on additional taxpayer money.
“There’s no guarantees,” he said, adding, “This is by far the best thing.”
Police Chief Greg Tabor gave Carreiro’s plan no chance of success.
Tabor said he’s worried that, by taking on new pension obligations, Fayetteville officials could jeopardize current employees’ retirement savings and put the city’s general fund at risk.
“The general fund is pretty maxed out, tapped out,” he said. “It just concerns me about future operations and future pay raises.”
Tabor also noted Carreiro’s firm had provided the projections that were used to support past benefit increases.
“I’m sure those benefit increases were based on numbers he had in front of him at the time,” he said. “My point is, we don’t have a crystal ball.
“Obviously whatever numbers Jody used all those years ago, the numerous times he did that, those have not held true,” Tabor added. “I don’t think the plan would be insolvent today if those numbers had held true.”
Paul Becker, the city finance director, agreed that Carreiro’s actuarial assessments may be overly optimistic.
“As the chief financial officer, I am very concerned about whether we can continue to earn an 8 percent investment rate,” Becker said. “Looking at the economy, I believe that that’s fairly aggressive.”
“What the council does have to understand is that we are taking an investment risk. If, in fact, we send it to LOPFI and agree to pay for it, we are taking on an investment risk that we currently don’t have,” he said, using an acronym for the state retirement system.
Clark, the review board director, said Tuesday that the Local Police and Fire Retirement System’s average annual returns over the life of the system, which today manages a roughly $1.7 billion investment portfolio, have been nearly 8.5 percent. The system became operational in 1983. Clark noted, however, that performance in the past 10 years has been more in the 5.6 percent range.
Jordan, at a pension board meeting Wednesday morning, said he wouldn’t support the consolidation plan without more detail about what it would cost the city if investment growth doesn’t reach 8 percent each year.
“I couldn’t get a straight answer on how much it’s going to cost,” the mayor said.
Carreiro said Tuesday he didn’t run projections for how much it would cost if the fund posted investment returns of 5 percent or 6 percent. He did say the city wouldn’t be on the hook for additional money if returns average 7 percent growth annually. That assumes property taxes grow by at least 3 percent each year and actuaries’ mortality predictions hold true.
The pension board, by a 4-2 vote, recommended consolidating with the Local Police and Fire Retirement System. All four pensioners on the board voted for the measure, and Jordan and Smith voted against it.
Aldermen are scheduled to consider the consolidation plan at their Tuesday meeting. The plan must be approved by the end of the month for the Local Police and Fire Retirement System to start making local pension payments in January.
Jordan didn’t rule out supporting the consolidation plan after receiving more information from Carreiro’s firm.
“If it can be shipped to LOPFI without any extra payment, I’m OK with it,” the mayor said.
Alderman John La Tour said Tuesday he’d be willing to spend more taxpayer money on the pension fund no matter the cost.
“We may not be legally obligated, but we are morally obligated,” La Tour said. “I will not hang these firemen out to dry. We, the citizens of this city, benefited from their service. We owe it to them to pay those pensions.”