City, county consider paying off retirement plan debt

By David Showers
This article was published January 12, 2018 at 4:00 a.m.

An unfunded pension liability that's grown during the more than 10 years Hot Springs and Garland County have tried to pay it down has both considering a lump-sum payment to retire the debt in full.

The Hot Springs District Court pension fund brought a $695,645 liability to the Arkansas Public Employees Retirement System when it joined in 2005. The city's Finance Department said seven people, including three court clerks, were plan participants when APERS absorbed it subsequent to the Legislature's 2003 passage of a statute that created the District Judge's Retirement System.

Despite making annual payments since then, the city and county have seen the obligation grow to $722,449 as of last month. The city and county share district court expenses per an interlocal agreement and are each responsible for half of the unfunded liability.

It stems from the unfunded obligation APERS assumed when it took over the plan, as the 2003 law removed the plan from local administration. Paying off the liability was a condition for folding the plan into the state retirement system.

"When a retirement system joins APERS, they give us their liability," said Jay Wills, the state pension fund's deputy director. "Our actuaries compute the cost to the retirement system for bringing in the those obligations that already exist under the old retirement plan.

"It's simply making the entity generating the liability pay it off as a condition of joining, so it won't be an additional drag on the system."

The annual payments, including the $70,122 due for 2017, are part of a 30-year payment plan, with APERS applying a 7.15-percent interest rate based on a rate of return set by its board of directors and determined annually by an independent actuary.

Wills said the size of the obligation is a function of the annual actuarial assessment that determines the rate needed to keep the pension system solvent based on investment forecasts and life expectancies of plan members and beneficiaries.

"It will always fluctuate up and down simply depending on what the fund's actual investment experience is and what the actuary tells us we need to do to make sure everyone gets paid," he said, noting that APERS pays out annual benefits of more than $500 million.

That uncertainty was behind the city Finance Department's recommendation for a lump-sum payment at Tuesday's Hot Springs Board of Directors agenda meeting. The board added consideration of the payment to the consent agenda of its Tuesday night business meeting.

"Every year the actuaries look at it again," Finance Director/Treasurer Dorethea Yates told the board. "They look at all the assumptions. They may change the interest rate. The stock market may do this, and it may do that. The number is a moving target.

"It might be in our best interest, since this is one of our smaller retirement unfunded liabilities, that we look at the practicality of paying this off."

Yates said retiring the debt in full in lieu of annual debt service payments would save the city and county more than $500,000 over the next 18 years.

She said the General Fund could be used to pay the city's half without dropping it below the 16-percent of expenses the city code requires it to maintain for reserve purposes. The city expected to conclude 2017 with a $5.2 million General Fund balance but projected a $1.1 million deficit for the 2018 budget year.

The Garland County Quorum Court at its January meeting Monday night discussed using interest income generated by the Ouachita Memorial Hospital Sale Fund to pay the county's half.

According to information provided by the county's Finance Department, the OMH fund finished 2017 with an $8.1 million cash balance.

Wills said the 6-percent employee contribution is set by statute. The employer contribution, which represents the obligation assumed by taxpayers, is set by APERS' board. The rate, currently at 14.5 percent, moves in inverse proportion to the performance of APERS' investments, Wills said, going up when investments underperform and down when they exceed expectations.

More than a third of the $10.8 million the Police Fund's 2018 budget allocated for personnel expenses goes to the Arkansas Local Police and Fire Retirement System, and more than half of the over $8 million the Fire Fund budget allocated for personnel goes to LOPFI.

A large percentage of the taxpayer-supported contribution is amortizing the unfunded obligation the city's police and fire retirement plans had when they joined LOPFI. The amortization schedule will retire the debt in 19 years.

Local on 01/12/2018
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