A pension fund providing additional benefits for Baton Rouge police officers is "significantly underfunded," auditors wrote in a review of city-parish finances released Monday morning.
The Metro Council will likely have to commit to injecting $2.5 million annually for the next eight to 10 years to balance the scales, East Baton Rouge Finance Director Marsha Hanlon said.
In 2000, most officers switched from a city-parish retirement plan to one managed by the state. However, police were contractually guaranteed to some benefits not covered by the new system. The city-parish established the Police Guarantee Trust to fill in the gaps.
The timing was inauspicious. Right after the trust was established, it lost money when the dot-com bubble burst, and then the 2008 recession wiped out about 20 percent of its investments, said city-parish retirement administrator Jeff Yates.
Now, the trust has only 53 percent of the money required to cover the projected retirement benefits for the enrolled officers and their families, according to the audit, prepared by the firm Postlethwaite & Netterville.
Authorities estimate the trust, over the rest of its life, will pay $41.8 million to the program's 347 active and retired officers and their families. However, the trust is currently valued at only $21.2 million, according to a city-parish report issued earlier this year.
The trust was initially seeded with money from the officers' city-parish retirement accounts. When it was created, the trust was fully funded, but after the financial setbacks, it will require an infusion from the city-parish. The local government has transferred some money — notably about $400,000 a few years ago — but it's become apparent a more concerted effort will be required, Hanlon said.
The city-parish's report recommends investing $2.5 million into the trust in 2017. Hanlon and Yates said similar payments would likely be required each year for as long as a decade, though they'll have to monitor the performance of their investments to see exactly how much the city-parish will have to pump in.
Authorities also have to set more reasonable expectations of the trust's performance. Leaders had projected they could get about 8 percent annual growth, but 7.25 percent is probably more realistic, Hanlon said.
Though the trust is underfunded, no one is presently at risk of losing their benefits, the finance director noted.
The city-parish wants to raise the value of the trust from 53 percent total funding to at least 80 percent, which Yates said would put it in a healthy position to address benefits. That would make it financially stronger than the general city-parish employee retirement fund, which is worth 68 percent of the estimated required value.
The police trust is a bit easier to address since — while it's worth millions of dollars — that's a comparatively small amount in the grand scheme of things, Hanlon noted.
"It is an issue and we need to look at some different things," she said. "If you pay out more than you earn, you're never going to pull out of the hole."