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VOL. 129 | NO. 129 | Thursday, July 03, 2014

Different Pension Path Possible in Council Delay

By Bill Dries

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Memphis City Council members are looking at hybrid pension plans for city employees that could have separate terms for police officers and firefighters and enroll all other city employees in the Social Security plan.

The hybrid is one of several options explored by Segal Consulting of Atlanta, the actuary firm hired by the council to advise it on changes proposed by Memphis Mayor A C Wharton Jr.

And actuary Rocky Joyner, of Segal, indicated there are several important areas where the consultants disagree with the plan by Wharton to move city employees to a defined contributions plan similar to a 401(k) plan used in private sector retirement plans but without the Social Security coverage the private sector employees pay into and draw from when they retire.

“The hybrid is more similar to what you get in the private sector,” Joyner said Tuesday at the end of a three-hour session with council members. “You need to make sure you understand. Your folks are not in Social Security. … Our opinion – with having nothing as a long-term safety net – I think that’s a bad way to go.”

Based in part on that, the council decided Tuesday to put off a final vote until the first council meeting in October on the ordinances that would change city new hires and city employees with less than 10 years of service to a 100 percent defined contributions plan without Social Security.

The changes would take effect in a year, giving council members more comfort in delaying a vote.

BRIAN COLLINS

City Finance Director Brian Collins told the council that the administration believes change is necessary now to keep political will going to make necessary changes even if they don’t show any financial benefits for years and even if they are more expensive to the city in the short term than keeping the current defined contributions pension plans for all employees.

“If you always look short term, you will never solve the structural problem,” Collins told the council. “We are pressing for fundamental change. … While everybody is on this issue we should stay with it. If we don’t, our fear is we will let it drop again and leave it to the next generation.”

Collins said the administration’s fear is an economic downturn or disruption like the 2008 recession blamed for the city’s pension liability crisis. The difference is a new state law requiring all local governments to pay the full annual contribution each fiscal year after a six-year ramp-up period.

“The defined contributions plan, the virtue of it is it gives you stability,” he added.

HAROLD COLLINS

“It is illegal to run through a theater and yell fire,” council member Harold Collins replied, reflecting doubts among some on the council about the administration’s assumptions in the crisis.

The doubts weren’t enough for the council to approve a move by council member Wanda Halbert to suspend council rules to reconsider its final votes two weeks ago to approve changes in health insurance coverage for city employees and city retirees. Halbert’s motion to suspend the rules failed on a 6-6 tie vote.

The insurance plan savings go toward upping the annual required contribution on the pension.

Joyner and Atwater told the council the most immediate goal of the council in mending the city’s financial condition should be to up the amount the city pays in its annual required contribution toward the pension liability. It now stands at $20 million a year.

In the fiscal year that began Tuesday, July 1, the city will increase that by $28 million. The estimate of what the annual contribution should be is $78 million. But Joyner and Atwater said that number is likely to drop to $73 million in the fiscal year that follows.

“The urgency of making something happen now this summer, I’ve never understood,” Atwater said of the pension plan changes. “You don’t want to wait five years to make a change. … But you’ve got a lot of differences of opinion. You need to set some priorities. I’ve not heard that. What do you want your pension to be? How long do you want people to work?”

Meanwhile, a bid by council member Wanda Halbert to suspend the rules at Tuesday’s council session as a first step toward reconsidering health insurance plans approved by the council last month failed on a 6-6 tie vote.

The council also delayed to the first meeting in October a final vote on changes to the city’s Deferred Retirement Option Program.

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