Actuary Estimates Lower Pension Liability Numbers

By Bill Dries

The actuary firm hired by the Memphis City Council to help the council navigate the city’s unfunded pension liability told the council Tuesday, May 6, that the city’s unfunded pension liability is $457 million and the city’s annual required contribution on the liability should be $69.3 million.

The numbers in the first report by Segal Consulting of Atlanta are significantly different from the estimates from Memphis Mayor A C Wharton Jr.’s administration and its actuary, PricewaterhouseCoopers.

The PwC estimate was an unfunded liability of $709 million and an annual required contribution of $100 million, which Wharton has proposed to meet through a ramp-up from the current $20 million ARC over five fiscal years.

The ramp-up involves diverting millions of dollars the city now spends on other things to the liability.

Wharton’s call to switch all new hires and unvested city employees with fewer than 10 years of service to a “defined contributions” plan, similar to a 401(k), also took a hit in the Segal report.

Rocky Joyner and Eric Atwater of Segal said such a switch likely wouldn’t show any effect on the liability for five, and possibly 10, years.

The Segal report also points to several options, including various plans that acknowledge differences in public safety employees and city employees in other types of jobs.

The report also questions the mortality rate used by PricewaterhouseCoopers. Segal’s report uses mortality numbers that cut about three years from the life expectancy of city employees – in line with current mortality numbers for the region they examined.

The next step is for Segal’s actuaries to meet again with PricewaterhouseCoopers actuaries to try to reconcile differences in the dollar figures. They will then offer the council a final view with recommendations, if the council specifically asks for recommendations from Segal based on the reconciliation.