Police, fire: OK city pension deal

Secures retirements, stabilizes city

January 24, 2013 

Beginning tonight, members of the police and fire unions in Lexington will vote on a proposed fix for their sorely ailing pension fund.

We recommend they accept the deal.

That vote won't be easy for many, perhaps most, of these sworn officers and retirees. They've pointed out loudly, and justly, that they've paid their share into the fund while the city hasn't.

But this is a deal that preserves a guaranteed retirement benefit in a time when hundreds of governments are walking away from that promise, and it won't bankrupt the city. The end game here is that a bankrupt city will not be able to guarantee retirement benefits.

Most of those involved in negotiations inherited rather than caused the problem and they deserve credit for reaching this true compromise: Mayor Jim Gray and his staff, the task force that worked for over a year to bring the issues into clear focus, the consultants who provided valuable insight and the negotiators for the fire and police unions who had to balance the interests and concerns of their constituencies with the economic realities they found.

This group accomplished what few have anywhere at any level of government in recent years: a compromise plan that no one can crow over but everyone can claim.

The deal, reached late last week after months of tough negotiations and years of study and debate, reduces the city's unfunded liability by about half, from almost $300 million to about $161 million.

This is accomplished through changes in several areas, including: length of service prior to benefit eligibilty and the minimum age for retirement, the pace of cost-of-living adjustments for retirees, disability retirement benefits and the multiplier that determines how much each year of service counts toward retirement benefits.

It's important to note, though, that the deal shields those who have made the greatest sacrifices and the most vulnerable service members and their families.

It preserves a 2 percent annual cost of living increase for retirees who receive less than $40,000 in pension benefits annually. (The COLA declines as benefits increase; the few who get $100,000 or more in pensions annually will not get any increase until 2016, and then only 1 percent.)

The death benefit for those killed in the line of duty rises from 60 percent to 75 percent of salary, while the combined benefit a member's surviving spouse and children can receive rises from 75 percent to 100 percent of final salary. The maximum disability rate remains at 75 percent of salary for those with a 20 percent or greater disability but declines for less serious disabilities.

These adjustments still leave a whopping bill to pay, but one that can be paid out of current revenues without any new taxes. The city commits — and under the agreement, this will be included in the final deal presented for legislative action in Frankfort — to paying a minimum of $20 million a year into the fund for 30 years until the pensions are 90 percent funded.

That's in addition to the $10.8 million the city now pays on the bonds that have already been sold to bolster the pension fund. Current and future police and fire employees will increase what they pay into the fund by one percent, from 11 to 12 percent of salary.

A couple of additional final notes:

This plan also includes an annual actuarial evaluation of the pension fund. That's important because all these numbers are based on many factors, including returns on fund investments and how long employees work and live after retirement.

Even small changes can make a huge difference over 30 years. So, critically, this plan also calls for an annual independent assessment of the value of the fund, allowing adjustments before things get too far out of whack.

Under the existing plan, even if the city had made its annual assessed contributions, the problem would never have been solved. The arrangement was essentially the same as refinancing a home mortgage every year rather than actually paying down the principal.

The proposed plan actually funds the pension, ensuring that current retirees and service people and those hired in the future will have what they've earned: a secure, dignified retirement.

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