Lax disability rules for police and fire pensions cost Lexington big bucks

Embattled Lexington fire Chief Robert Hendricks already draws a service pension from his first career as a Lexington firefighter, from which he retired in 1997.

He wants more.

Hendricks, whom the mayor asked to resign in February from his $148,379-a-year job because of “lack of leadership,” sought a disability pension in May for ailments that have not been made public.

A disability pension could bring the 57-year-old Hendricks at least $100,000 tax-free annually for the rest of his life, plus annual cost-of-living raises, health insurance and in-state college tuition for children.

Hendricks’ request is common in a city where disability pensions are more generous and easier to win than elsewhere.

During the past five years, 38 percent of the 119 Lexington police officers and firefighters who retired were awarded disability pensions. That compared to 3 percent for Kentucky State Police and 7 percent for Louisville hazardous-duty workers, including police officers and firefighters.

Awarding such pensions is not cheap. A city employee who makes $60,000 a year can draw more than $2.2 million if he quits working at age 35 and lives for 50 more years.

Multiply that cost by the 291 people currently collecting disability pensions, and it’s a big reason the city’s police and fire pension fund is $221 million short of what it’s expected to need.

Lexington’s annual spending on police and fire services, including bonds to fortify the troubled pension fund, has doubled since 2000, to $123 million. Police and fire now get close to half the city budget, up from 33 percent a decade ago. That reduces money available for parks and recreation, streets, social programs and the arts.

There are several reasons for the spending increase, including the start of collective bargaining with police and fire unions in 2005. That boosted salaries — pay to a police officer with 10 years of experience rose from $43,449 in 2005 to $54,608 in 2011 — and, consequently, pensions, which are based on salaries.

The pension system’s massive unfunded liability also plays a role. While the private sector shifts the burden of retirement saving to workers through limited defined-contribution plans, Lexington struggles to honor lifetime pledges to 895 police and fire retirees. The cost is $35 million a year and rising fast.

City officials say the problem is aggravated by workers who retire earlier than expected on disability. Rather than pay part of their salaries toward their pensions for the traditional 20 years and then collect for the rest of their lives, which critics say is hardly sustainable in itself, disability pensioners might pay for only five or 10 years, Urban County Councilman Doug Martin said.

The city cannot afford for more than one in three retirees to take disability pensions, Martin said.

“It’s a broken system,” he said. “Our disability system is a sham. It’s draining the retirement fund for other public workers who have paid into it and who have earned their benefits, and it’s costing taxpayers a fortune.”

At 100 percent

Lexington makes it too easy to consider a police officer or firefighter disabled, according to a city task force, led by lawyer Bill Lear, that offered several proposals for reform in 2009.

Among other things, the task force said the city’s police and fire pension fund should adopt disability standards similar to those at the Kentucky Retirement Systems in Frankfort.

The rest of the city’s employees — and the state’s other police officers and firefighters — are enrolled in KRS for their pensions. Lexington alone runs a separate fund for its police and fire employees.

In Lexington, there is a single job description for all police officers and another for firefighters. They require that everyone in the departments be capable of the most strenuous tasks — chasing and tackling criminal suspects or charging up ladders into burning buildings. If employees get hurt and no longer can do everything on the checklist, they’re of no further use.

“You have to be 100 percent. In other words, if you can’t do the job that a 21-year-old full, healthy, young officer can do” the city rates you as disabled, said Mike Sweeney, president of the Fraternal Order of Police Bluegrass Lodge No. 4.

By contrast, KRS allows employers to make “reasonable accommodations” to help injured workers “return to a job of like duties.” A firefighter with bad knees might be reassigned to answer calls at an E-911 center, for example. Handing someone a disability pension is the final option, not the first.

If Lexington tried moving to a more flexible system, union leaders said they would cooperate. While early retirement might sound attractive, it can be tragic for people who enjoy their careers, union leaders said.

Chris Bartley, president of the Lexington Professional Firefighters Local 526, told of a firefighter whose future with the city is uncertain because of a shoulder injury. The injury occurred about 10 months ago, but the firefighter waited until recently to have reconstructive surgery.

“He tried to work through the pain,” Bartley said.

Healing from surgery could take him up to a year, he said. Officers and firefighters must return to full capacity within one year of the injury, not the treatment. So this firefighter probably will be forced onto a disability pension, he said.

“It’s ridiculous,” Bartley said. “Here you have a guy who loves his job and wants to keep it.”

Rival groups

Everyone involved agrees the system is broken. They disagree on who broke it and how. Fixing it would require unprecedented cooperation among four groups that historically distrust one another:

■ The Policemen’s and Firefighters’ Retirement Fund board of trustees, which awards pensions and is dominated by active and retired police and fire employees.

■ The Kentucky General Assembly, which created the city’s police and fire pension fund when Lexington and Fayette County merged and continues to control its rules and benefits.

■ Politically influential police and fire unions that have lobbied the legislature successfully for at least 10 laws that sweetened their retirement benefits.

■ The Urban County Government, which funds the pension plan.

For years, the city failed to pay what legally was required into the pension fund. Officers and firefighters sued for bigger payments. They won a Fayette Circuit Court ruling in 2006 that the city could not get overturned on appeal.

Now the cash-strapped city borrows money to partially make up the difference. Two bonds issued since 2009 for a total of $106 million cost taxpayers $8.7 million a year in debt service. A third bond for $31 million is expected to be issued in coming months.

Police and fire employees blame the Urban County Government for the unfunded liability. Money owed to future pensioners went to more popular city programs, they said. The pension fund had $485 million in assets invested at the end of March, just 58 percent of what it is expected to need.

“They knew it was a problem for years and they didn’t do anything,” said Tommy Puckett, a former patrol officer who represents police retirees on the pension board.

Also, the plan’s long-term success depends on an 8 percent return on market investments that is hardly ever met. During the past 10 years, the actual return was 5 percent.

“The plan is currently severely underfunded,” according to a draft study of the pension fund issued in March by Callan and Associates, a San Francisco investment consulting firm hired by the city.

City officials said the police and fire pension system simply is becoming unaffordable.

There might need to be long-term changes to the city’s pension system, such as imposing stricter rules in disability cases and shifting new employees to a defined-contributions retirement plan, said Geoff Reed, a senior advisor to Mayor Jim Gray.

“We obviously can’t keep adding people to a pension system that is bankrupting the city,” Reed said. “That’s the road we’re heading down.”

By law, any pension changes must happen in the legislature. The debate in Frankfort has been shaped by the police and fire unions, who lobby, give campaign donations and are championed by state Sens. Tom Buford, R-Nicholasville, and Kathy Stein, D-Lexington, among others.

“Politically, we are at a terrible disadvantage to move any legislation on pensions without the cooperation of police and fire,” Reed said.

Stein said she wouldn’t oppose the legislature studying “why our benefits here are more liberal than elsewhere.” But she said she’s not inclined to allow an assault on public employee unions.

“There is an agenda here, and it’s not too hidden anymore, to go after our public workers and attack them for being unworthy of the salaries and benefits they receive,” Stein said. “The fact is, a lot of our public workers have just in the last 20 or 30 years gotten to where they need to be financially.”

A stacked board?

Twelve people sit on the board that awards police and fire pensions. Eight are police or fire department representatives. So people applying to the board for benefits are friends and colleagues.

According to the 2009 city task force, the pension board rejected only three of 135 disability pension requests that it received during the preceding decade. In Frankfort, KRS approved just 25 percent of the disability pension requests it received.

The city’s disability benefits “are much better” than KRS’ and “easier to qualify for,” the task force concluded.

Although the pension board reviews the current status of disability pensioners to see who is working new jobs and where, it almost never yanks a pension as a result. Disability pensioners can return to work without losing any benefits if their new duties aren’t too similar to the jobs they said they couldn’t do anymore.

During the past five years, the board ruled against only one disability pensioner — police retiree John Lamb, who chose to give back his pension rather than quit a job working with federal prison inmates.

The pension board established a formal review process earlier this year to handle complaints from the public about fraud by disability pensioners. None has been processed, city officials said.

In 2006, the city almost got a bill passed in the General Assembly that would have authorized the pension board to hire a private investigator to look into disability fraud. But Buford, the state senator, said he killed that proposal at the request of the police and fire unions.

“We get complaints all the time. We hear about this guy who was supposed to have a bad back but now he’s a roofer and he’s carrying loads of shingle,” said Puckett, the pension board member who represents police retirees.

“Honestly, I don’t want to catch anybody,” he said. “I don’t want to take anybody’s pension. I don’t want to think anyone’s defrauding us. But you’ve got to have a contingency plan.”

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