The following is Mayor Lioneld Jordan’s report on the condition of the pension funds as read during the regular meeting of the Fayetteville City Council on Tuesday, Jan. 3, 2012.
In keeping with statutory requirements, I am presenting this report for 2011 on the local Police and Fire Retirement and Relief Funds for the City of Fayetteville. Both of these plans were closed, by law, in 1983 and there are no longer any active working members remaining. There are currently 44 police and 57 fire retirees and beneficiaries in the system.
At December 2011, projected expenses from the fire pension fund were approximately $1.5 million as compared to fund revenues of $900,000. Projected police pension fund expenses were approximately $1.6 million as compared to fund revenues in excess of $1.2 million. This is before adjusting investments to market value. However, on a cash flow basis, contributions are not covering expenses.
Actuarial valuations are the responsibility of the State of Arkansas Fire and Police Pension Review Board. The last evaluations completed were as of July, 2011 for the year ending Dec. 31, 2010. Based on those evaluations, the unfunded pension obligations of the Police and Fire Funds were $6.1 million and $8.3 million, respectively, and have grown considerably from prior years. The unfunded actuarial accrued liabilities for these funds were approximately $13.2 million for police and $15 million for fire. In the annual reports issued by the Arkansas Pension Review Board, neither the fire or police pension funds were found to be actuarially sound pursuant to established financial tests. Again, this actuarial valuation is for the 2010 fiscal year, not 2011.
As many of you may remember on Oct. 18, 2010, representatives of the Pension Review Board came to Fayetteville to present a special report on the Fire Pension Fund. Both Fire Pension Board members and City Council members attended the meeting when this report was presented. During that presentation, the PRB Board Actuary indicated that the fund runs a 90-percent risk of ruin within the next 5 to 10 years. The Fire Pension Board was, therefore, told of the current status of the fund in 2011. The Fire Pension Board has been aware of the unstable state of the fund and has been discussing the situation and possible options for almost two years, but has not decided on a plan of action by the majority of the pension board.
The primary option which has been discussed is the possible reduction of current benefits. The City Clerk and I have moved and had numerous votes to reduce benefits, but all votes to do so up to this point in time have failed. However, the pension board has been advised by the attorney general that there is no specific enabling legislation to reduce benefits and legal issues might prevent that option. All other options presented would require substantial financial contributions by the City. However, the City Attorney has advised the Pension Board that the City has no direct obligation to fund the pension plan, other than a 0.4-mil dedicated levy for each, plus state insurance turnback.
In 2011, operating conditions of the Fire Pension Fund have been relatively the same so no improvement has been made. However, the asset value of the fund has fallen to under $5 million which makes it subject to further investment restrictions. These restrictions no longer allow investments in individual securities. Investments will be limited to cash, cash equivalents, government bonds and no-load mutual funds. This means overall returns in the future are likely to be less than previously experienced which could bring about reduction of the fund even earlier unless the pension board does something.
As recently as December the PRB has continued to classify the Fire Pension Fund as “projected insolvent.”
The Police Pension Fund is also consider actuarially unsound, but not in immediate danger of becoming insolvent. The Police Pension Board is also aware of the Police Pension Fund status and has been considering options that would guarantee longterm solvency.
I will continue to closely monitor these funds in the future and keep you apprised of any new developments.