Pension reform bill signed into law, saves city millions of dollars
LEXINGTON, Ky. (March 22, 2013)– A pension reform plan for Lexington’s fire and police unions was a “great compromise,” according to Rep. Ruth Ann Palumbo, D-Lexington, who sponsored the bill.
Neither the city nor the police and fire union leadership liked the agreement, but it was one both were able to accept, she said Friday as Gov. Steve Beshear ceremonially signed the bill at Mayor Jim Gray’s office.
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House Bill 430 puts Lexington’s police and fire pension system, which has a $296 million unfunded liability, on a sustainable path. The plan — negotiated by the mayor, representatives from the police and fire unions and representatives from the city’s pension board and recommended by the city’s pension consultant — immediately cuts the unfunded liability nearly in half. It also includes lower annual cost-of-living adjustments, increased contributions from active and future employees and a remodeled new-hire plan.
The city 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.
The police and fire pension system was the city’s biggest financial challenge, Gray said. He commended the police and fire unions for their hard work in working out a compromise.
“The men and women of the police and fire pension system, active and retired, have shown both their commitment and sacrifice by voting for and accepting the concessions made in order to sustain this pension, not only for themselves but also for our future retirees,” said Mike Sweeney, president of the Lexington Fraternal Order of Police. “They need to be commended as do all of the drafters of this plan from both sides.”
Sweeney thanked the 76 percent of union members who voted in support of the plan.
The police and fire unions did not create the problem, said Capt. Chris Bartley, president of Local 526, International Association of Fire Fighters, but they had to help find a solution for it.
“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 Capt. Chris Bartley, president of Local 526, International Association of Fire Fighters.
“This shows that when given a chance, labor and management can work out issues,” he said.
With the compromise, Lexington does 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. Members of the police and fire unions voted to approve the plan.
“Let me be clear about this,” Gray said. “No more bonding to cover our pension.”
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.
“With this legislation the pensions of the brave men and women in our police and fire departments will become sound,” Palumbo said. “These public servants put their lives on the line every day to protect us and deserve a secure retirement plan.”