Request By:
Mr. Roger W. Rolfes
Mayor, City of Florence
P.O. Box 457
7431 U.S. Highway 42
Florence, Kentucky 41042
Opinion
Opinion By: Steven L. Beshear, Attorney General; Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising questions concerning the policemen's and firefighters' pension fund of the city of Florence, a city of the third class [KRS 81.010(3)]. Your letter fails to set forth the statutory provisions pursuant to which the pension system was organized and presently functions. After contacting your secretary and examining OAG 76-714, a copy of which is enclosed, it appears, however, that the applicable statutory provisions are KRS 95.621 to 95.629.
You state that in 1971 the city established a pension fund for members of the police department. The city's general fund was designated as being ultimately responsible for benefits and to ensure the fund's solvency, insurance policies were purchased to pay to the pension fund death and disability benefits in the event of covered losses.
The pension fund ordinance was revised in December of 1975 to include those members of the Florence Volunteer Fire Department who served as full time paid firefighters. Firefighting personnel were to be covered by the pension plan effective January 1, 1976 but a provision in the ordinance provided that the fire department was able to declare its employees members of the fund retroactive to April 1, 1974. Appropriate amounts were to be paid into the pension fund by the firefighters and the city to cover this earlier period of time.
The first question presented is as follows:
"Should the employee contributions be based upon regular salary including overtime and incentive pay for the Police Department as well as their educational incentive monies? This, of course, would also include incentive pay for members of the Fire Department in their instance."
In OAG 76-714, dealing with the city of Florence's pension fund for policemen and firefighters, it was noted that the firefighters included in the city's pension plan were members of a volunteer fire department, organized as a private corporation, rather than members of a city fire department. Members of such a volunteer fire department are not considered members of a city fire department even if the volunteer firefighters and the city have contracted for fire fighting services in the city. Members of a volunteer fire department organized as a private corporation cannot be included in the policemen's and firefighters' pension fund of a third class city. If the fire department to which you refer is the same from the standpoint of organization and operation as the one dealt with in OAG 76-714 then that opinion still represents our opinion as to the inability of those volunteer firemen to be part of the pension plan operated pursuant to KRS 95.621 to 95.629.
As to the city's police officers and their contributions to the pension fund, KRS 95.627(1)(a) provides in part that policemen shall contribute the same rate as social security from their salary. In connection with overtime pay, we direct your attention to OAG 78-485, copy enclosed, where we said that contributions to the pension fund should be based on the police officers' total wages which, of course, would include their overtime pay. We dealt with whether payments from the Kentucky Law Enforcement Foundation Program Fund (KRS 15.410 to 15.510) must be taken into account in computing pension and retirement contributions by city police officers in OAG 76-361 and OAG 75-375, copies enclosed. We concluded that such payments should be considered in calculating pension contributions by police officers and cited KRS 15.490(2) which states:
"Local units of government shall include the additional compensation paid to each police officer from the law enforcement foundation program fund as a part of the officer's salary in determining all payroll deductions."
Your second question is as follows:
"The statutes seem to require that benefits be computed based upon their last monthly pay prior to receiving said benefits. What is to be included in that last month's salary? Would this include overtime pay, incentive monies, or educational monies in the case of the police department? "
The basic provision concerning the payment of pension benefits under the plan pursuant to which your city operates is KRS 95.624(1) which states in part that the board may order monthly benefits paid to a police officer in an amount euqal to "fifty percent (50%) of his monthly salary at the time of retirement. " The word "salary" is defined in KRS 95.010(2)(i) as "any compensation received for services." Thus, in computing pension benefits as a percentage of salary, the police officer's salary is what he receives from all sources in connection with his duties performed as a police officer, at the time of retirement.
Your third question asks:
"As indicated, the pension fund is secured by insurance policies in which the pension fund is named beneficiary for both life insurance as well as disability insurance for members. The premiums for these insurance policies have been paid for from the pension fund. Is this a legal expenditure for the pension fund? And along those same lines, would it be a legal expenditure for the insurance premiums to be deducted from the pension tax collected prior to turning the proceeds from the tax over to the pension board and those premiums paid from that amount deducted?"
KRS 95.621(1) states in part that the provisions of KRS 95.620 shall apply to any city of the third class which has adopted KRS 95.621 to 95.629. KRS 95.620 provides in part, with certain exceptions not applicable here, that the policemen's pension fund in cities of the third class shall be held and distributed for the purpose of paying pensions and benefits, and for no other purpose. KRS 95.627(2) states that both the principal and interest of the pension fund shall be applicable to the payment of pensions in cities of the third class. See also OAG 76-714, at page two. dealing with expenditures by the pension fund's board of trustees.
In connection with investments by the pension fund's board of trustees, KRS 95.622(3) states:
"The board of trustees may draw the pension fund from the treasury and invest it, in whole or in part, in the name of the board or nomince name as provided by KRS 287.225, as the board deems most advantageous for the objects of the fund, in a local government pension investment fund created pursuant to KRS 95.895 or in any other securities in which trustees are permitted to invest trust funds under the laws of this state."
The provisions of KRS 95.622(3) are similar to those of KRS 95.600 which we considered in OAG 77-85, copy enclosed. KRS 386.020, 386.030 and 386.050 deal with investments authorized by trustees and KRS 386.020(1)(i) states that funds may be invested in:
"Life insurance, endowment and annuity contracts issued by legal reserve companies authorized to do business in this state, after obtaining the approval of the district court for such investment. Said fiduciary may select any optional settlement provided in a policy maturing by death or as an endowment."
We cannot determine whether the purchase of insurance by the local board of trustees satisfies the statutory requirements set forth above. We suggest you discuss this matter further with the city attorney. See KRS 95.623(3).
Another question concerns the legality of retroactive provisions for persons who desired to become participants in the pension fund when they were initailly employed but for some reason were not permitted to join.
A dispatcher who wanted to participate in the pension fund when initially employed was not permitted to do so although she was permitted to participate in the fund some months or years later. Your question is whether this person can be allowed credit under the pension system from that period of time when she was first employed but not permitted in the existing pension system to that time when she was permitted in the system, and would she be required to make contributions for that period of time.
KRS 95.010(2)(d) defines police department as including "all officers, policemen, and clerical or maintenance employees of the police department. " KRS 95.010(2)(e) defines member in part as "all officers, fire fighters, policemen, clerical or maintenance employes in the police or fire department. " Thus, a full time police dispatcher would be a member of the police department and a member of the pension fund. Full time members of the police department hired after the enactment of KRS 95.621 to 95.629 are required members of that pension system and cannot be excluded from participation in that system.
Since the police dispatcher in question was apparently improperly excluded from participation in the existing pension system when she was initially hired, she should be given credit for that period of time from when she was hired to when she was permitted to participate in the pension system. However, arrangements will have to be made for the payment on her behalf of the required sums for the time in question.
Your last question concerns employees who were employed prior to the establishment of a pension system and whether they can receive credit under the subsequently established pension system for the prior years of work for the police department.
The answer to this question is "no" and we direct your attention to OAG 69-654, copy enclosed, where we said in part that, "The general rule appears to be that in the absence of a clear expression of intention by the Legislature to the contrary, a retroactive effect will not be given to a pension statute or to an amendment thereof."