Pension reforms led in 2013 by Mayor Jim Gray and police and fire representatives continue to save taxpayers millions, and improve the health of the fund and the city.
At a time when cities and states nationwide are struggling with underfunded pensions and rising costs, Todd Green, a representative of Cavanaugh and Macdonald, an actuarial firm that works with governmental pensions across the country, released an evaluation of the Lexington Police and Fire pension fund today.
“Because of this reform and others our city’s finances are back on track,” Mayor Jim Gray said. “We have turned budget deficits into surpluses. We’ve had budget surpluses over the past four years, allowing us to make important investments in our community, like public safety improvements.”
The pension reforms ensure the fund will continue to support the retirements of Lexington’s police officers and firefighters for decades to come.
The reforms have also decreased the amount the city has to pay into the fund each year.
“Our pension cost increases were unsustainable, threatening the city’s financial health and the retirements of our police officers and firefighters,” Mayor Jim Gray said. “Now the pension is affordable for the city, and secure for the retirees. Our reform has been heralded as the most effective pension reform in the country.”
Gray compared the change to shifting from paying on an interest only credit card to a standard mortgage. “We know we will pay this off, in fact, we’re ahead of schedule by eight years according to the study released today,” Gray said. “That’s a win for taxpayers. We’re saving tens of millions of dollars through this reform.”
There are two main ways to measure the health of a pension fund, and both show the reforms have been effective:
First: Reduction in unfunded liability. Because of the reform, unfunded liability in the fund – the difference between what the pension fund will be required to pay out to retirees over the next 30 years, and the cash it is expected to have – has dropped by about $125 million. Before the reforms were put in place the unfunded liability was estimated at $296 million. Now it is projected at $171.1 million.
Second: Improvement in the funded ratio. The fund is now 78.4% funded. Last year it was 76.2% funded. Pre-reform, the fund was 62.8% funded, which is considered dangerously low.