Request By:
John Michael Starks, Chairman
Paducah Police and Fire Fighters Retirement Fund
Paducah Fire Department
301 Washington Street
P.O. Box 2267
Paducah, Kentucky 42002-2267
Opinion
Opinion By: Frederic J. Cowan, Attorney General; James M. Ringo, Assistant Attorney General
This is in response to your letter on behalf of the Paducah Police and Fire Fighters Retirement Fund (hereafter referred to as "Local Fund") concerning the legality of transferring certain funds from the Local Fund to the County Employees' Retirement System (hereafter referred to as "CERS").
In your letter you state that 131 police and firefighters elected to transfer from the Local Fund to the CERS pursuant to House Bill 398, passed by the 1988 General Assembly.
Since Paducah elected the alternate participation plan, as set forth in KRS 78.530(3), employee contributions made by the transferring police and firefighters to the Local Fund were required to be transferred to the CERS and credited to the individual's account. KRS 78.531(2). These employee contributions were transferred in November, 1988.
In addition to this, House Bill 398 required the city to pay for the prior service years of the police and firefighters who transferred to the CERS. You state that the cost to the city, in paying for these prior service years, was $4,781.270.
The city, through the Mayor and Board of Commissioners, has requested the Board of Trustees of the Local Fund to transmit the $4,781.270 to the CERS to pay for the prior service years of those transferring.
You ask this office whether the Board of Trustees would be in violation of any statute should it transfer the funds from the Local Fund to the CERS, as requested by the city.
We assume that the Local Fund is established and operating under the provisions of KRS 95.851 and KRS 95.991.
The Board of Trustees of the Local Board is responsible for the direction and operation of the affairs and business of the fund and holds title to all assets of the fund. KRS 95.851(4) and KRS 95.869(1).
The purpose of the Local Fund is to provide for retirement annuities and disability benefits to members of the police and fire departments, as well as their spouses and dependents, and to encourage qualified personnel to enter and remain in the service of such departments. KRS 95.853.
Pursuant to KRS 95.868, the city is required to make contributions to the fund on an actuarially funded basis toward the annuities and benefits of the members of the Local Fund.
Neither House Bill 398 nor other statutes specifically address whether funds contributed by the city to the Local Fund may be transferred to the CERS to follow the employees' contributions transferred to CERS pursuant to KRS 78.531(2). Thus, we must look at other relevant pension statutes pertaining to the Local Fund, CERS and the city to see if an answer is provided.
In construing pension statutes the following guidance is offered:
One line of authority holds that statutes providing for pensions ought to be construed liberally in favor of the persons intended to be benefitted thereby, but the better rule is to construe such statutes in light of the general plan evidenced by the enactment including protection of the solvency of the fund and protection of the municipality and its taxpayers.
Sands and Libonat, Local Government Law, § 1034 (1989). (Emphasis added. Footnotes omitted.)
The city's contributions to the Local Fund were made on an actuarially funded basis toward the benefit of the members of the retirement program. KRS 95.868. This included the 131 transferring members.
KRS 78.530(3)(a) requires the city, which elected the alternate participation plan, to purchase, on behalf of the transferring employees, the current service credit for employment years from July 1, 1958 up to the participation date of the city in the CERS.
If the city's contributions to the Local Fund, under KRS 95.868, do not follow the transferring police and firefighters and the City is required to purchase the prior service years, under KRS 78.530(3)(a), then the city will have to contribute public funds twice toward the same employment service to provide pension annuities and benefits to the transferring members.
We believe that the Legislature could not have intended the city to pay for this employment service twice as such would be an inappropriate use of public funds and unfair to the taxpayers.
Because there is no specific statute or court case addressing what may be done with the city's previous contributions to the Local Fund relating to the transferring employees, the question may ultimately have to be resolved by the courts or the legislature.
Despite this absence of legislative or judicial direction, it is the opinion of this office that the Board of Trustees may transfer funds from the Local Fund to the CERS to pay for prior service years of those who transferred. However, such transfer must be made with the approval of the Board of Trustees of the Local Fund, which must determine whether the amount requested to be transferred to the CERS can be done without negatively affecting the actuarial soundness of the Local Fund.
Since the city's contributions to the Local Fund were actuarially calculated to meet annuity and benefit levels of the system, funds should be available to follow the transferring employees without negatively impacting the soundness of the Local Fund. However, this is left to the Board of Trustees to determine.
In addition, regarding the soundness of the Local Fund, KRS 65.156(3) requires the City to contribute annually to the Local Fund, for the benefit of the retirees of the system and the active participants who remain with the system an amount equal to that which would be required pursuant to the funding standards of KRS 95.868, plus so much of the principal amount of any unfunded prior service liability as the actuary states is necessary to maintain cash flow adequate to pay retiree and beneficiary payments until financial obligations to all retirees and beneficiaries are fully satisfied.
Based on the foregoing, this office believes that the Board of Trustees may transfer funds related to the city's previous contributions, to follow the transferring employees' contributions so long as such does not affect the actuarial soundness of the Local Fund.