City Council Questions Pension Plan

By Bill Dries

Memphis Mayor A C Wharton Jr. plans to ask the Memphis City Council sometime in February or March to close the city’s defined benefits pension plan to new hires and those city employees with less than 10 years of service.


Those employees would be moved to a defined contribution plan that is similar to a 401(k) plan.

The retired city employees and those who are vested in the defined benefits plan with 10 years or more on the job would remain in the current plan.

If the council approves the move, it would take effect with the July 1 start of City Hall’s new fiscal year.

The timeline is part of the still-forming administration plan to deal with the city’s unfunded pension liability with annual payments of $100 million for 30 years.

Wharton estimates the city’s overall unfunded pension liability is more than $700 million.

Wharton distributed the broad outline of the forming plan last week to council members.

At their first public session Tuesday, Dec. 17, with Wharton and his administration on the plan, council members had more questions than comments. Some were about the administration’s use of the term “efficiencies” for measures the city would take to reach the $100 million annual contribution.

Most council members took it to mean budget cuts.

“Efficiencies can be a really pretty word,” council member Shea Flinn said. “I don’t want to see us start down this course and then have the budget have some efficiencies that maybe we aren’t going to get seven votes for. Then it’s all just tax increase, tax increase.”

Wharton and Chief Administrative Officer George Little said the administration is committed to not increasing city property taxes to meet the goal.


“We want to avoid a tax increase,” Little said. “Some of the items are fairly specific. Some of them are more general, like develop this or explore that. We’re focusing on the low-hanging fruit initially that we can really talk about.”

The concept drew immediate opposition from council member Kemp Conrad.

“The days of explore, we’re going to develop it, we are going to do it later – that time is long past. We are here because of a kick-the-can governing model. … It’s happened on all of our watches,” Conrad said. “Please don’t bring us anything that says we are going to explore this more. The time for that was years ago. We need more from the executive branch … to manage through this over the next five years. We’ve got to start saying no to stuff.”

Conrad advocated two budget seasons ago a fuller share of the city’s budget toward the $700 million unfunded liability.

Over five fiscal years starting next July 1, the city would grow its annual contribution toward the unfunded pension liability by approximately $15 million to reach the $100 million annual contribution level.

The city would maintain that $100 million contribution level for 30 years.

The goal of $100 million amounts to 16 percent of the city’s operating budget of $623 million.

“How long do we have to put $100 million in the bank to cover a $700 million liability?” asked council member Lee Harris. “Why is it 30 years?”

The answers to those questions are to come at future sessions with the experts the city is using to formulate the details of its proposal.

“How do we take half of our employees out of the mix and the liability remains the same?” Harris asked.

Council member Jim Strickland asked a related question about unvested city employees and new hires coming out of the plan that the vested employees and retirees are in.

“They won’t be putting money into the pension plan, so where does it come from?” he added.

The answers are to come in more sessions like Tuesday’s and in emails as well as discussions with the city’s municipal union leaders who don’t agree on the size of the liability.

State leaders who have warned about the increasing liability will also be consulted. That includes leaders in the Tennessee legislature who have indicated the state might mandate a plan if the mayor and council cannot agree on one.

The Memphis Fire Fighters Association puts the liability at less than half the $700 million figure quoted by the city.

“It’s got holes all in it,” union president Thomas Malone said of the administration’s estimates and dollar figures.

But the administration says its numbers are based on the actuarial value of the plan and the union’s experts based their estimate on the market value, which does not take into account losses to the plan’s value beyond any recovery that the market may have made.

According to city human resources director Quintin Robinson, 3,707 city employees are currently vested in the plan. Another 2,428 are unvested. And approximately 3,500 city retirees are currently receiving benefits from the city pension plan.