Fort Smith Finance Director explains why old police, fire pension plan insolvency ‘is not an emergency’

Old Local Police and Fire (LOPFI) retirement pension plans that ended in 1983 have a new projected insolvency date of 2026 with an estimated unfunded liability of $18-20 million, according to Fort Smith Finance Director Jennifer Walker.

But given the topsy-turvy history of the old plans during the last several years, “This is not an emergency,” Walker emphasized, adding an extra contribution over the next 20 years of $750,000 annually would move Fort Smith “past the bell curve” to where the fund would “begin to right itself.”

Walker made those comments to the city’s Board of Directors at a study session on Tuesday (June 12), noting the LOPFI board makes projections based on a variety of actuarial data including national mortality tables. Using those actuarials as a guideline, the 200 old plans remaining (88 police, 112 fire) will eventually die off, or, as Walker put it, “stop receiving benefits” sometime in “2050 or 2060.”

“If we ran projections out to 2050 or 2060, you would see the plan start to right itself. So while the fund balance is going down each year, at some point that old pension plan liability runs out, and the plan fund balance starts to recover. Unfortunately, there are not enough funds to tide us over until the end of that curve.” That’s where the $18-20 million “pitfall” comes into play.

“You can dedicate revenues to it, make additional appropriations. But the only way to fix it is to add money.”

Walker said making an additional contribution was “something to keep in mind as we’re going into the budget cycle,” but observed “it’s important everyone understands we are meeting our plan obligations.”

“We have some new financial reporting standards that require us to report our unfunded liabilities on our financial statements, and I will go on record as saying I like it. I like being transparent, and I like for everyone to understand what that unfunded liability is, and what it’s going to take to get past it. It is not an emergency. We are not in a place where we are going to run out of money next week or next year. The plan is healthy. We have not missed any required payments. As far as our financial statements and the auditing of them, our LOPFI plan is solid.”

Walker explained when she first took over the finance director position in 2015, “I was saying you would need to add $2-3 million per year to make this fund fluid, and now it’s $750,000 per year, so that just demonstrates that over a few years, a lot can change and a lot will continue to change.”

The same holds true for the shifting insolvency date. When Directors André Good and Kevin Settle came onto the Board in 2009 and 2010, Settle said, “we were saying it would be 2016 and 2017” when the old plans became insolvent. Director Tracy Pennartz said she would be “more comfortable with a 10-year pad,” but observed she was much more comfortable with the current eight-year pad than she was with where the plans were at when she joined the Board in 2015.

“I’m more comfortable. I was nervous then when I saw what this was at the time,” Pennartz said, adding she now had “a lot of confidence” in the Finance Department’s ability “to keep us aware of what our responsibilities are with regard to the finance of it.”

Continuing to strive for additional annual contributions to keep the insolvency date at bay, Pennartz said, “is the right thing to do.” She also suggested the Board take up possible fixed funing for the plans at a future study session, observing the voter-approved 1/8-cent sales tax set to expire in 2022 should be discussed for possible “reconfiguration.”