Lexington shorted its police and fire pension fund $3.6 million over a decade
The city of Lexington failed to repay its police and fire pension fund for retiree healthcare benefits for more than a decade and has agreed to give the pension fund $3.6 million to correct the oversight.
It’s not the first time the city has failed to pay the police and fire pension fund. Now, the pension fund is looking at an independent audit to make sure the city has paid all of the money it owes, city officials said this week.
John Maxwell, director of human resources for the city of Lexington, told the Lexington Policemen’s and Firefighters’ Retirement Fund at its Wednesday board meeting that the city will ask the Lexington-Fayette Urban County Council to approve the payment to the fund in coming weeks.
The city was supposed to pay for supplemental insurance for those retirees eligible for Medicare — sometimes referred to as Medicare Part B, an insurance plan that covers costs Medicare does not. Retirees were paid the benefit. But starting in 2010, the cost of those Medicare Part B payments was deducted from the pension fund instead of from the city’s general fund.
O’Mara said the error occurred after the city switched to a new financial accounting software in 2010.
The $3.6 million includes the missed payments and interest, said Finance Commissioner Bill O’Mara.
“Retirees received the benefit that was promised,” O’Mara said.
The city will tap an insurance reserve fund that currently has $4 million in it to pay the pension fund, O’Mara said. The city and the council has socked away money in that reserve fund over the years in anticipation of unexpected health insurance costs.
On Wednesday Mayor Linda Gorton told the pension board, which consists of active and retired police and fire personnel and city officials, that at its March 11 meeting the board will talk more about the issue and possibly hire an independent auditor.
The cost of the audit will likely be split between the fund and the city, Gorton said.
It’s not clear how much such an audit would cost.
Retired Lexington Police officer Tommy Puckett, a long-time board member, credited Gorton for being forthcoming about the error. Gorton called the pension board members and told them about the error prior to Wednesday’s meeting. Previous mayors have not been as transparent, he said.
“I’ve wanted to do an audit forever,” Puckett said. “In the last three years we have had three major mistakes.”
Puckett, who has spent more than 24 years on the board, said in his memory there has never been a full, independent audit of the pension fund.
In 2016, the city had to give the fund a total of $1.2 million for two different contribution errors.
In September 2016, the city had to give the fund an additional $500,000 after it failed to deposit an additional $400,000 it was supposed to deposit into the fund in 2013. The $500,000 included the $400,000 plus interest. That error would not have been discovered if it wasn’t for Lexington Police Sgt. Larry Kinnard, a board member, who had asked repeatedly for a breakdown of city contributions to the fund.
Two months later, the city had to give the fund $700,000 to cover another error in calculating what portions of police and fire salary are considered part of their pension.
Police and fire deposit 12 percent of their salary into the pension fund. The amount the city contributes can fluctuate each year.
The city implemented a reform of its pension system that passed in 2013. The unfunded liability — the amount it needs to pay all current and future beneficiaries — is now at $262 million, according to its most recent actuarial report. It had more than $756 million in assets as of July 1. The fund had 1,261 beneficiaries as of July 1.
This story was originally published February 13, 2020 at 11:08 AM.
