VOL. 128 | NO. 186 | Tuesday, September 24, 2013
City Leaders Outline Pension Crisis Talks
By Bill Dries
There still isn’t an agreement on the numbers. But the administration of Memphis Mayor A C Wharton Jr. met late last week with leaders of the unions representing city employees about the conclusion in a consultant’s report that the city’s pension fund liability is unsustainable to the tune of hundreds of millions of dollars.
Before the meeting, city Chief Administrative Officer George Little, Memphis City Council member Kemp Conrad and Memphis Firefighters Association president Thomas Malone discussed the latest issue for city finances on the WKNO-TV program “Behind The Headlines.”
Little said the administration goes into the process committed to not changing retirement benefits for current retirees. He added that at the outset the city doesn’t see employee contributions or the city’s contributions growing either, but indicated that could be discussed in talks.
And Little said there is a cost if the city does nothing.
“We’re talking about net additional expenditures or net additional revenues or some combination thereof. And that means jobs. That means taxes,” he said.
“There is a cost to doing nothing within the actual system. If there’s no other takeaway from this, what we’ve got to look at is minimizing the burden on the taxpayers while maximizing the benefit for our employees. But there will be a cost regardless of the choice.”
The program can be seen on The Daily News Video page, video.memphisdailynews.com.
Malone said the numbers in the PricewaterhouseCoopers report will be reviewed by the unions, who are hiring their own consultant. And for now, he’s tentative on what the path should be and the goal should be.
Malone also said on the program, hosted by Daily News publisher Eric Barnes, that he doesn’t agree with the report that the fund is unsustainable.
“We changed the mortality rate the last two years, which inflated the unfunded liability by over $30 million,” he said. “The only thing that’s wrong right now that we can see … is the city simply has underfunded it.”
“This report is nothing new. This has been out there for four or five years now. It’s just the next report. We have a whole conference room full of them down at City Hall.”
City Council member
To Conrad, there shouldn’t be any argument about the numbers, only a discussion about how to solve the problem.
“This report is nothing new. This has been out there for four or five years now,” he said. “It’s just the next report. We have a whole conference room full of them down at City Hall. It’s a challenge that gets worse every year when we don’t address the problem.”
For now, Conrad described himself as agnostic on the option of switching from a defined benefits plan to defined contributions by current city employees – either only those who are unvested, or those who are vested as well as unvested.
“One thing that is good about a defined contribution plan, I think, is the portability,” Conrad added. “I think it forces us to be a better employer.”
“I think Councilman Conrad’s in the ballpark. He’s just not at the bat yet,” Malone replied.
Little and Malone are concerned that portability for employees in a sector that traditionally doesn’t change jobs as often as those in the private sector could mean the city spends a lot of money training firefighters and others only to have those employees quit and go to work for another city offering a bonus.
“We want to be able to attract and retain employees,” Little said as he talked of the possibility that state leaders could force the city to fund its unfunded liability at a specific level that is higher than the current yearly percentage of 6 percent.
The dollar amount could be $60 million to $80 million extra per year, which he and Conrad agree is the shortfall that concerns state officials looking at pension liabilities in Memphis and other municipalities across the state.
“One of the challenges, even if we choose to do nothing, is how to fill that gap, because the state of Tennessee has demonstrated that they are willing to step in with municipalities,” Little said. “Conceivably they could come to us and say, ‘Memphis, make your annual contribution,’ and that could impact taxes, service levels – and that could affect our current employees if we’re forced to fully fund.”
Conrad said the obligation could come from other quarters of Nashville.