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VOL. 129 | NO. 90 | Thursday, May 8, 2014

Council Mulls Pension Liability Numbers

By Bill Dries

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The leaders of the city’s police and fire unions watched closely Tuesday, May 7, at City Hall as new numbers on the city’s pension liability from a new group of actuaries appeared to reset the ongoing discussion about city finances.

City Council Chairman Jim Strickland and council member Harold Collins are among those still mulling what new, lower estimates of the city’s pension liability mean for financial decisions to come.

(Daily News File/Lance Murphey)

Segal Consulting of Atlanta, the actuary firm hired by the Memphis City Council to help the council navigate the city’s unfunded pension liability, told the council 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 are significantly different from the estimates of 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.

While some of the union leaders were in a mood to say, “I told you so,” others said they hoped the effect of the new numbers would be a compromise on the measures to fund the liability of whatever size.

“I think it’s what we’ve been saying all along,” said Memphis Fire Fighters Association President Thomas Malone. “All of these actual numbers will actually be lower when we use the real up-to-date numbers. … I see no reason to change at all.”

Memphis Police Association President Michael Williams described the new numbers as “somewhere in the middle” of the administration’s estimate and that of the two public safety unions, which have been the most vocal opponents of the administration’s proposed solutions so far.

“There are ways we can actually move forward and ensure that the employees still have what they need and make sure the city is in the financial situation that they need,” Williams said. “Things have to change moving forward. We understand that. We are just saying don’t make it so drastic.”

A ramp-up over several years to increase the annual required contribution involves diverting to the liability tens of millions of dollars the city now spends on other things.

Wharton’s call to switch all new hires and unvested city employees with less 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.

But Joyner added, “The more you pay now, the less you pay down the road,” a consistent piece of advice the council has received from all of the actuaries involved even if they disagree on the size of the unfunded liability.

Council member Harold Collins, who proposed hiring the actuary firm, said based on Tuesday’s report he’s not likely to support the defined contributions switch.

“This is probably the fourth time that the administration has given some numbers that have not been reliable. There’s a serious credibility issue as far as we’re concerned,” he added. “We could have several plans for our first responders and public safety and our general employees – something we haven’t heard from the administration. It’s been, ‘No, we got to change to this particular plan and if we don’t change all hell is going to break loose.’ That’s not what we heard today.”

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

The report also questions the mortality rate used by PwC, with Segal using 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 PwC actuaries to try to reconcile the different dollar figures and then offer the council a final view with recommendations, if the council specifically asks for recommendations from Segal based on the reconciliation.

For that reason, council chairman Jim Strickland gave a cautious review to the report.

“We’ve got more work to do on this to research all of the points that they brought up,” he said. “It means we have to come up with less money to cover our pension liability. So it makes it easier. Not easy – but easier.”

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