The Lexington-Fayette Urban County Government is entitled to reduce cost-of-living adjustments in the pensions of retired police officers and firefighters, the U.S. 6th Circuit Court of Appeals ruled Monday.
In 2013, Lexington Mayor Jim Gray announced a breakthrough deal to address the $296 million unfunded liability in the city’s police and fire pension fund. One part of the deal — authorized later that year by the General Assembly — reduced annual cost-of-living adjustments when the fund has less than 85 percent of the money it’s expected to need to honor future obligations. The size of the reduction depends on the size of a retiree’s pension, with smaller cuts for retirees who get smaller pension checks.
Retired police officer Tommy Puckett and retired firefighter Roger Vance sued the city, arguing that the changes were an unconstitutional violation of the terms of their pension contracts. They appealed to the 6th Circuit in Cincinnati after losing in federal district court.
However, Puckett and Vance failed to provide evidence showing how they are legally entitled to keep the same pension benefits for the rest of their lives, Judge Eric L. Clay wrote for a three-judge panel.
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“We are, of course, sympathetic to plaintiffs in this case, who gave years of dedicated and honorable service to their communities,” Clay wrote in the opinion. “We also acknowledge the likelihood that they believed their COLAs would always be set at 2 to 5 percent per year. Nevertheless, they were required to plead facts showing a clear intent on the part of the Kentucky legislature to create contractual rights against the modification of a specific COLA formula.”
Most state and local government employees in Kentucky, including Lexington’s, get pensions from the Kentucky Retirement Systems, which faces its own funding shortfall of billions of dollars. However, Lexington — alone among the cities — has a separate pension fund for its police and fire employees, managed by a local pension board but ultimately controlled by the state legislature.