Texarkana police pension at risk: Review board estimates insolvency within 10 years

Originally published in the Texarkana Gazette and writeforarkansas.org on June 20, 2011.

 The Texarkana, Ark., Police Pension Plan is expected to run out of money within a decade, according to state estimates.

The retirement plan is one of nine pensions statewide that is “projected insolvent,” meaning assets are predicted to be exhausted within 10 years, according to the Arkansas Fire and Police Pension Review Board.

“It’s actually a product of several factors, primarily a contribution shortfall,” said David Clark, Review Board executive director, of Texarkana’s police pension. “There are not enough contributions coming into the plan.”


The funding shortfall is a long-standing problem. Capt. Glenn Greenwell, secretary of the Texarkana Police Pension Plan board of trustees, said the plan has been actuarially unsound for as long as he can remember. In other words, assets and contributions fall short of promised benefits.

According to an assessment of the plan through 2009, the most recent available, the fund’s health peaked in 1995, when 76.9 percent of benefits were funded. Since then, the plan’s well-being has steadily eroded.

Between 1995 and 2008, the unfunded actuarial liability (the total funding shortfall over the life of the plan) increased from $1.9 million to $8.7 million, with only 44.5 percent of benefits projected to be covered.

The recession deepened the hole, causing a 17-percent loss in 2008 and pushing the amount of unfunded benefits to $12.2 million.

Each year, the pension plan pays out about $1.3 million in benefits to about 50 former officers and their spouses. Its total assets by Dec. 31, 2009, were $5.4 million.

According to the assessment, the city would need to contribute $2.8 million per year to return the plan to actuarial soundness in five years. The city’s actual contribution was $536,228 in 2009, less than a fifth of what was needed.

City Manager Harold Boldt places the pension problems on lax regulations by the state. Instead of regular actuarial valuations, the state required the less-meticulous cash-flow studies, which painted an overly optimistic picture of the fund’s health and prompted the pension board to enact benefit increases that later proved unsustainable, Boldt said.

“They would tell the city, ‘Yeah, you can give this benefit. It shouldn’t have impact on the fund. You should have enough assets to cover liabilities,’” Boldt said. “Then you go many years and find out that these cash-flow studies were really worthless and gave a false sense of comfort to these local plans.”

Part of the blame, however, can be traced to 1981, when the state Legislature created the Arkansas Local Police and Fire Retirement System, or LOPFI. The measure mandated that after Jan. 1, 1983, all new officers enroll in the new plan. That effectively orphaned local pensions, Greenwell said, cutting them off from new members and new funding.

The looming shortfall was masked for more than two decades by several factors, said Steve Young, a retired Little Rock police officer and pension board member. He edits a Website devoted to providing news affecting local pension plans in Arkansas.

Member salary increases led to a corresponding growth in pension contributions. Cities were required for the first time under the law to contribute 6 percent of members’ salaries; and the addition of the Deferred Retirement Option Plan in 1993 encouraged officers to extend their careers and pension contributions.

But, after 1983, mounting funding shortfalls were inevitable.

“I don’t know if that was (the legislators’) intention or not, but whether it was or not, the effect is still the same,” Young said.

For Texarkana’s police fund, the problem became particularly acute after the 2008 financial crisis. At the time, the pension plan had one contributing member, who has since retired.

The lack of any member contributions makes it unlikely that the plan will recover on its own.

“We want it to grow,” Greenwell said. “The problem is, it’s a closed plan.”

Despite the grim figures, state and local officials remain optimistic.

“Everybody’s concerned about this, but the sky is not falling,” Greenwell said. “There’s not any danger of us not paying our pension benefits.”

Of the nine plans that were projected insolvent by the Pension Review Board, follow-up studies indicate that all except Arkadelphia’s fire pension are expected to last significantly longer than 10 years, Clark said. Another 136 local plans have consolidated with LOPFI in recent years, effectively guaranteeing retirees’ benefits.

Though the cost for Texarkana and other underfunded plans to join LOPFI is prohibitively high, Boldt said things on the local level are on the right track.

A bill passed earlier this year by the state Legislature to shore up local pension funds will add about $80,000 to Texarkana’s police plan, and the city and Police Department have committed money to the fund. Boldt and Clark think that, combined with sound investment management, the additional revenue should be enough to rebuild Texarkana’a police pension over the next several years.

“This is going to be a lengthy process,” Clark said. “No one is going to dig out of the ‘08 (losses) overnight.”

Nor should municipalities expect state help beyond the insurance premium taxes they already receive.

“Ultimately, it’s going to flow back to the employers, who will need to step up and bring in additional contributions,” Clark said.

That’s not necessarily what plan members want to hear, particularly in the wake of a bill passed this session that doubled vehicle title fees to funnel an estimated $4.6 million per year to the floundering Arkansas State Police Retirement System.

“Not that I am criticizing the governor, but I think it was unfair to prop up that fund and not have done more for the … police around the state,” Boldt said. “We’re all in a pickle right now.”

It will take years before the plan regains anything close to actuarial soundness, but Texarkana and its Police Department are committed to making sure the roughly 50 former officers and surviving spouses on the plan continue to receive their benefits.

“They will get their pension checks,” Boldt said.