Fayette County

Lexington police and fire pension funded at 78.4 percent, up from previous years


The financial health of the Lexington police and fire pension fund continues to improve nearly three years after pension reform was passed.

An actuarial report released Wednesday showed the funding ratio — the amount of money it has compared with the amount of money it needs — at 78.4 percent. That’s a bump from 76.2 percent from 2014 and 72.3 percent from the previous year.

Todd Green, of the actuarial firm Cavanaugh and MacDonald, told the police and fire pension boardWednesday that the unfunded liability was $171 million on July 1. That’s down $9 million from the previous year’s unfunded liability of $180 million.

The unfunded liability is the additional amount the fund needs to pay all current and future beneficiaries.

Before pension reform was implemented in 2013, the unfunded liability was nearly $300 million.

The city’s funded ratio of 78.4 percent is the highest it has been in at least 14 years, Green said.

Cities and states have struggled in the past five years to right their pension funds after years of underfunding combined with a drop in investment returns caused many funds to lose value.

The Lexington police and fire pension fund is now one of the healthiest in the state. The Kentucky Retirement System — which covers state employees — has a funded position of 17 percent, a recent actuarial report showed.

Three years ago, the Urban County Council and the state legislature passed pension reforms that included asking current and future police and fire employees to contribute more money into the fund. The city agreed to increase its payments by $9 million a year and pledged to pay down the unfunded liability over 30 years.

The funded ratio of 78.4 percent is the highest it has been in 14 years.

All police and fire employees pay 12 percent of their salary into the fund.

During Wednesday’s meeting, the board also approved the amount the city must pay into the fund. It currently contributes approximately $22.6 million. The actuarial report showed that it must contribute approximately 34.9 percent of total police and fire payroll of $62 million. That means a slight increase of approximately $620,000, said Bill O’Mara, the city’s finance commissioner and a pension board member.

“The city has budgeted for a potential increase,” O’Mara said. City officials will not have to return to the council to ask for an additional appropriation to cover the increase in the contribution, he said.

The police and fire pension fund has 1,116 retirees and pays $52 million annually in benefits. It currently has 1,111 active-duty members. 2015 is the first year that the fund had more retirees than active-duty members.

Mayor Jim Gray said Wednesday the changes the city made to fire and police pension have worked.

“Our pension cost increases were unsustainable, threatening the city’s financial health and the retirements of our police officers and firefighters,” Gray said. “Now the pension is affordable for the city, and secure for the retirees. Our reform has been heralded as the most effective pension reform in the country.”

Beth Musgrave: 859-231-3205, @HLCityhall