Lexington reaches pension deal – sets model for state to follow
From Business Lexington:
City reaches consensus on pension reform
Lexington’s police and fire pension, which has a $296 million unfunded liability, would be comprehensively reformed and set on a sustainable path under a consensus plan agreed to late last night by Mayor Jim Gray, representatives from the police and fire unions and two representatives from the pension board.
Introduced by the city’s pension consultant, PFM, at a Pension Task Force meeting today, the plan would immediately cut the city’s unfunded liability by approximately 45%. The plan includes lower annual cost-of-living adjustments, increased contributions from active and future employees and a remodeled new-hire plan. The city has agreed to increase its payments to the Policemen’s and Firefighters’ Retirement Fund by $9 million a year and bind itself to paying down the unfunded liability over 30 years. PFM is a national public sector financial advisory firm.
Under this agreement, Lexington would not need to issue the $34 million bond that narrowly passed the Urban County Council last year. That bond was to cover the city’s minimum required payment of $29 million to the pension fund this year.
Under the new plan, the city’s annual payments would be $20 million per year, up from the $11 million per year it had been contributing supplemented by pension-obligation bonds. The new payment schedule and methodology shifts the city’s payment plan from interest-only to paying down the principal. Paying down the unfunded liability over 30 years without the benefit changes would have cost the city $34 million a year.
The plan will be put to a vote by the police and fire unions. To be implemented, it would need to be adopted by the state legislature during the current session.
“This is a comprehensive, honest and responsible way to put our police and fire pension system on an affordable, sustainable path while preserving a dignified retirement for our police officers and firefighters,” Gray said. “Across the country, cities and states are wrestling with pension reform. Only in Lexington will you find a solution reached by consensus, through shared sacrifice. This could not have happened were it not for the hard work of police and fire representatives, including Rob Sarrantonio, Mike Sweeney, Chris Bartley, Drew Short and Larry Kinnard.”
“This was not easy, but in the end we have a plan that finally puts our pension fund on sound footing, ensuring that it will continue to support the retirements of Lexington’s police officers and firefighters for decades to come,” said Captain Chris Bartley, IAFF President Local 526. “It still needs to be ratified by the unions and adopted in Frankfort. But if that happens, Lexington will be a stronger city for it. Today is not a day for joy, as there is a lot of pain to go around. But it is a day to be proud.”
For specific details on the proposed reforms, click here.