Judge Says City of Lexington Underfunded Police and Firefighters' Pensions

December 26, 2006 (PLANSPONSOR.com) - A ruling by a circuit court judge in Kentucky said that the city of Lexington underfunded its police and firefighters' pension fund, which could mean back payments of $20 million and a substantial hike in pension contributions to catch up.

According to the Lexington Herald-Leader, the battle surrounding how much the city contributes to the fund has been waging for years, but the lawsuit by five Lexington police officers was over pension contributions by the city during fiscal years 2003 through 2006.

An actuarial report released last month revealed that the funded position of the plan has dropped steadily during the past six years, helping to create a 2006 shortfall of $220 million, up from the $53.7 million deficit in 1999. The pension board is hoping to lessen that deficit by stepping up contributions, but the city has not cooperated.

Police and firefighters contribute 11% to the fund, but the plaintiffs argue that the city’s contributions are supposed be calculated on actuarial basis every two years – an amount that the pension board votes on and then hands over to the city as a recommendation. In this case, the city contributed far less than the rate recommended. The Herald-Leader reported that the city’s current contribution is 17% from the public-safety payroll.

The city argued that the pension board is only responsible for calculating part of the rate, but Judge Gary Payne ruled that the board of trustees sets the rate.