Lexington shorted police and fire pension fund by $700,000

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Lexington has shorted its police and fire pension fund by more than $700,000 over the past three years, the board that oversees the pension learned Wednesday.

Finance commissioner Bill O’Mara told the of the city’s contribution into the fund over the past two fiscal years showed that an error in calculating what portions of police and fire salary are considered part of their pension resulted in a $195,000 shortfall.

The city has agreed to put an additional $204,300 into the pension fund to correct the error. The nearly $10,000 above the shortfall is the estimated amount the money would have earned if it had been invested one or two years ago.

The shortfall is in addition to more than $500,000 that the city had agreed to give the fund in November 2013 but never did because of an accounting glitch. That $500,000 has since been deposited into the pension board’s account, city officials said in September. It was at the board’s September meeting that the board learned that the money was never transferred.

The shortfall in the city’s contribution, now $700,000, would never have been discovered if it wasn’t for Lexington Police Sgt. Larry Kinnard, a board member. Kinnard had asked the city for a detailed breakdown of its contributions into the fund several months ago.

Police and fire employees contribute a portion of their salaries into the fund. The city also contributes to the fund. The $200,000 mistake was traced to a change the city made to its accounting software programs after the implementation of the Affordable Care Act in 2015. Only certain portions of police and fire workers’ salaries are counted toward their pensions. For example, overtime pay is exempt from pension calculations.

O’Mara said Wednesday that city officials have identified the error and have put in additional checks and balances to ensure that pension pay is calculated correctly. Four departments are involved with payroll: accounting, human relations, payroll and information technology.

“We have concentrated on making sure that calculations are correct and communication gaps between the divisions were shored up,” O’Mara said. “We have additional operational reviews.”

O’Mara said the city has agreed to give the pension board additional information at each of its meetings to show the city’s contribution.

Kinnard said he was disappointed that the city had made two large accounting errors, but he applauded O’Mara for taking the concerns seriously and promptly addressing the shortfall.

“Although it is very concerning that it took some questions getting asked that resulted in finding out that $700,000 that was supposed to be in the pension fund had not been put in, at this point I am pleased that (the city) has already taken steps to identity” the problem and has put in place safeguards to make sure it doesn’t happen again, Kinnard said.

O’Mara said after Wednesday’s meeting that the $204,300 has not been transferred but will be soon. That additional money will come from the general fund. There is money available to make the transfer. If the money runs short before the end of the current fiscal year — June 30 — the city might have to return to council to ask for additional money.

O’Mara said other city employee pension contributions weren’t affected. Police and fire salaries are unique because their total salaries are not part of pension calculations.

Kinnard is chairing a subcommittee that is exploring whether the police and fire pension should separate from the city. Currently, the city manages the pension’s accounts. The possibilities of separating from the city or seeking an audit of the pension fund remains on the table, Kinnard said after Wednesday’s meeting. The pension’s current payroll — what it pays to retirees and disabled police and firefighters — is roughly $5 million a month. The fund has assets of a little more than $636 million.