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VOL. 129 | NO. 45 | Thursday, March 6, 2014

Council Looks to Pinpoint Pension Numbers

By Bill Dries

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The Tuesday, March 4, discussion Memphis City Council members had with Tennessee Comptroller Justin Wilson, Tennessee Treasurer David Lillard and consultants from four actuarial firms centered on the city’s pension liability.

And the talk of salary growth, the discount rate and amortization rates lived up to its billing as a technical and complex four hours.

“I want to know the time, not how the watch is made,” Kemp Conrad said early in the discussion for which council members cleared most other items from their normal council day committee sessions.

The idea was to try to reconcile conflicting numbers from actuaries for Memphis Mayor A C Wharton Jr.’s administration and actuaries for the municipal unions, or at least get an idea of the reasoning behind the different numbers toward later deciding which numbers are closer to right.


“I was thinking yes or no,” council member Harold Collins said after he got a more detailed answer to a determined attempt to hone in on a more direct response. “But again, that’s catfish in the water.”

The discussions showed the specific numbers aren’t as far apart as originally believed but that there is still a gap.

“A specific number, I would say no,” Council Chairman Jim Strickland said. “We knew walking in that the yearly ARC (Annual Required Contribution) was $60 million to $100 million and the overall liability was $300 million to $700 million. But I came away from all of the discussion thinking that the true numbers are somewhere in between.”


The council’s next step is for its actuary consultant, Segal Consulting of Atlanta, to come up with some options and recommendations for the council to discuss and possibly act on. Strickland anticipates a report within the next month.

He remains convinced a two-year ramp-up to the ARC from its current $20 million is preferable to the five-year plan Wharton has proposed or the six-year requirement in state legislation that has passed the Senate in Nashville and is on its way to the House.

“I believe if we push the decision past the next election, the citizens of Memphis are looking at a huge property tax hike,” Strickland said. “The more we push it down the road, it increases the total unfundedness of the plan and increases the yearly contribution.”

Meanwhile, the council’s discussion with Wilson and Lillard was about the state’s role and not an attempt by them to reconcile the competing numbers.

“State law is not going to tell you, ‘This is your ARC,’” said Lillard, a former Shelby County commissioner. “I’ll just observe that … the city is not paying the ARC, regardless of which set of numbers you use.”

Lillard described the state’s role as “setting some very outside parameters” and not “micromanaging.”

The state’s role could include the city participating in the state’s hybrid pension system, as several cities do, or in the state’s 401(k) program.

That kind of solution would not mean a shared risk for others already in the plan. The state’s role would be to manage the plan for the city. But the liability the city would have remains separate and remains with the city.

Wanda Halbert was among the council members listening closely as Lillard and Wilson outlined what happens in that case if the city does not make its annual required contribution.

“If you’re not meeting the ARC 100 percent, they can take the sales tax of the city,” Halbert said. “We need to understand what exactly could be the implications of that.”

The way Wilson put it was, “It’s in your interest to make that payment.”

The city’s dilemma began when the economy, which had been producing what are now considered spectacular returns on investments for municipal governments across the country, crashed just as spectacularly.

“That’s when the city didn’t react,” said city finance director Brian Collins. “Right now, given what happened in 2009 and what didn’t happen, at a minimum we’ve got to triple what we put in.”

The city’s inaction coincided with a drift in leadership at City Hall as Memphis Mayor Willie Herenton left office in July 2009, Myron Lowery became interim mayor and Wharton was elected that October.

After Herenton’s 17 years in office, Wharton made some changes, but none to what the city had been contributing.

Collins, who has been finance director for a year and a half, told the council that “at a minimum, the near-term budgeting issues are really substantial” and more discussions are to come.

“We want to get all of the cards face up on the table,” he said. “We have to have something that is fair to employees and equitable across the community because everything is knitted together. We are trying to find a middle ground.”

PROPERTY SALES 124 481 17,865
MORTGAGES 127 530 20,565
BUILDING PERMITS 195 891 36,836
BANKRUPTCIES 52 262 11,426