The city's finance department told the Hot Springs Board of Directors Tuesday night that payments servicing the debt on the closed Hot Springs District Court pension plan are not in arrears despite the continued growth of the liability.
The contradiction stems from changes in actuarial assumptions about life expectancies of plan members and their beneficiaries and the rate of return the Arkansas Public Employees Retirement System needs from its investments to maintain solvency, Finance Director Dorethea Yates told the board.
The $695,646 unfunded liability APERS assumed when it took over administration of the district court plan in 2005 grew to $722,449 as of last month. It's an obligation borne by the city and Garland County, as both share district court expenses per an interlocal agreement.
Yates told the board last week that the plan had seven members, including three court clerks, when APERS absorbed it subsequent to the Legislature's 2003 passage of the statute that created the state-run District Judge's Retirement System. The $197,991 payment to APERS in January 2005 from the balance in a special fund the city used to pay retirement benefits reduced what had been an $893,636 unfunded liability.
The obligation continued to grow despite the annual payment made on the 30-year promissory note the city issued APERS in exchange for assuming the plan's unfunded liability, prompting the board to adopt a budget resolution Tuesday night transferring $319,750 from the General Fund to the Garland County District Court Fund to pay off the city's half of the debt.
The transfer will be added to the $68,500 the city's 2018 budget appropriated to the District Court Fund's unfunded retirement line item.
The Garland County Quorum Court is expected to follow suit at its next meeting, using interest income from the Ouachita Memorial Hospital Sale Fund to retire its share of the note.
Yates told the board APERS has offered assurances that the lump sum payment will satisfy the obligation in full, even if actuarial projections change. While the payment retires the indebtedness, Yates said it also forgoes the city's chances of benefiting from the possibility of the obligation being less than the aggregate of the city's remaining debt service payments.
"It's my understanding that once we pay off this liability, we would not be responsible," she said. "If one (of the plan members) were to become deceased a lot earlier than expected, the actual amount would not be as much as we thought it would be. If there's extra money, you won't get it back. If there's extra money on the back end, you won't pay it."
Yates told the board the lump sum payment will save the city and county $500,000 in interest expenses over the next 18 years, which is the remaining term on the 30-year note.
Jay Wills, APERS' deputy director, said APERS' board of directors sets the 7.15-percent interest rate applied to the note based on an independent actuary's annual assessment of the state pension fund. The rate represents the return APERS needs from its investments to pay more than $500 million in annual benefits, Wills said.
APERS' board presumes the money it's loaned the city would get a 7.15-percent return if it were invested, so the percentage is applied to the principal on the unfunded liability.
The Finance Department said paying the city's half from the General Fund won't put its balance below the 16 percent of expenses the city code requires it to maintain for reserve purposes. The city budgeted $24,705,568 in 2018 General Fund expenses.
It expects to conclude 2017 with a $5.2 million balance but projected an almost $1.2 million deficit for the 2018 budget year.Local on 01/18/2018
Print Headline: City pays off its share of pension plan debt