Despite voter approval of a millage increase in May for the Firemen’s Pension Fund, city officials will have to find ways to add more money to the fund or it will likely become insolvent, state pension officials said Tuesday.
And the longer the city waits to add money to the pension fund, the more it will cost to fix the problem, actuary Jody Carreiro told the Fire Pension Board, Mayor Carl A. Redus Jr. and city finance and legal staff. Carreiro’s latest study of the fund indicated that it is projected to be insolvent in 10 to 15 years.
Carreiro said that is an improvement by about two years over where the fund was before the May 22 approval of the 0.2 mill millage increase, which in 2013 will start adding about $75,000 annually to the fund. Additionally, changes in a state tax formula will add about $50,000 annually to the fund.
“So have we made progress? Yes. Have we made enough progress? No,” Carreiro said.
Former Fire Chief Eddie Lunsford said he and the other pension members knew that going into the campaign to get the millage passed. He and other members of the fund have said they felt it was necessary to bring the millage rate up to the maximum allowed by state law before seeking other sources of funding.
“We knew it was just a Band-Aid,” Lunsford said.
“The Band-Aid did have its effect, but we’re still pretty seriously injured here,” Carreiro said.
Carreiro presented the group with a report of the possible life of the fund now that it will have the additional $125,000 annually. The risk that the fund will spend all its money before the last member fireman or fireman’s spouse dies is more than 90 percent.
The report indicated that in the worst-case-scenario category (5 percent of cases), the fund would be depleted by mid-2019. The report indicated that in the average scenario, the fund would be depleted by mid-2023 (50 percent of cases). In the best-case-scenarios (5 percent of cases), the fund was not depleted.
Carreiro offered the group a set of options, although he acknowledged that all of them were likely too costly for the city to tackle immediately. Asked for his advice, Carreiro said city officials should add as much money as they can afford to the fund each year, even if it is as little as $50,000 or $100,000.
“If they can find a way to do some more money … and bring that down even a little, it would have a distinctive effect,” Carreiro said, offering to crunch the numbers to show how much money would be needed to get the city down to a less alarming chance of insolvency like 25 percent, for example.
Redus and city Finance Director Steve Miller said that ideally, the state would provide some assistance. Pine Bluff’s fireman and police pension funds are facing similar problems to many across the state and nation, and Miller argued that the state has set many of the laws and guidelines that have made them difficult to keep fully funded.
Redus also said he would like to see the pension fund roll over into the state-run Arkansas Local Police and Fire Retirement System in the year 2015 or 2016. Rolling over the fund into LOPFI would in the long run be the cheaper option for the city, but it would require the city to start making annual payments that would start at about $160,000 and increase year-by-year from there to $502,000 in 2027.
Carreiro said without joining LOPFI, the city would likely need to start adding $425,000 annually to keep the fund solvent for 15 years or $325,000 annually to keep the fund solvent for 30 years.
The total estimated cost for joining LOPFI would be $3.3 million. The total cost of contributing $425,000 annually for 15 years would be $5.1 million and the cost of contributing $325,000 annually for 30 years would be $6.4 million.
However, Carreiro likened the choices to a person being asked what brand of car they would like when they can’t afford a car at all. Again, he suggested the city contribute as much to the fund as possible while they work to a more permanent solution, arguing that every little bit would help.
After the meeting, Redus said letting the fund go insolvent is not an option because it would not be right for the pension members. Furthermore, Carreiro said that if the city lets the fund go insolvent, they will have to take over the pension payments themselves and face potential litigation.
Redus said the situation is also complicated by the fact that the city also has a pension fund for its police officers, which is not facing the same level of urgency as the fire pension fund, but is also underfunded. Voters also approved a 0.2 mill increase for the police pension fund on May 22. Carreiro said the same advice will likely apply to the police fund: That the city should start adding as much to it as they can afford.
Prior to a 1983 change in state law, local governments managed the pension funds for their uniformed public safety employees. Since 1983, new uniformed hires have been required to join the state-run LOPFI program.
Each year, the Arkansas Fire and Police Pension Review Board uses accountants and actuaries to assess whether the 144 locally run pension funds that remain operational in the state have the funds to sustain making pension payments to their members.
Between the two Pine Bluff funds, more than 150 police and fire retirees and their spouses are part of the pension programs.
Carreiro is a consultant actuary with Osborn, Carreiro and Associates Inc. of Little Rock who conducted the study at the request of the state pension monitoring agency the Arkansas Fire and Police Pension Review Board.
Tuesday’s meeting was a special joint meeting where the presence of the Pine Bluff City Council had been requested by the board, but none of the aldermen attended the meeting.