VOL. 129 | NO. 206 | Wednesday, October 22, 2014
Hybrid Pension Plan Resets Council Debate on Benefits
By Bill Dries
If it wasn’t apparent before, it became apparent Tuesday, Oct. 21, that the city’s effort to change the pension system of city employees is back at square one.
The council was already scheduled Tuesday to hear from Segal Consulting, the actuary firm the council hired at the outset of its discussion about pension changes proposed by Memphis Mayor A C Wharton Jr.
Earlier this year, Wharton proposed a shift of city new hires and employees with less than 10 years of service to a defined contribution plan similar to a 401-k plan from the present defined benefits system.
But Friday, Oct. 17, Wharton scrapped that proposal for a hybrid plan for those same employees in which they would contribute 2 percent of their income to a market-based plan and 6 percent to a defined contribution plan known as a 401-a plan.
The city would match the 2 percent employee contribution with between 3 to 16 percent, a sliding scale that goes up with the more years of service an employee has. The city would match the 6 percent in the 401a with 1.5 percent of the employees salary.
Actuaries with Segal will return to City Hall Nov. 25 for a work session with council that includes Segal’s opinions and analysis of Wharton’s new hybrid plan as well as other options.
They will also review the proposal by council member Myron Lowery to apply the hybrid plan to city employees hired on Jan. 1, 2016 or after and not any current city employees.
The Segal actuaries told council members Tuesday that their preliminary estimate is that Lowery’s plan would cost the city $5 million in terms of the annual amount it would contribute in savings toward the unfunded pension liability.
The city changed its health insurance plan for employees and retirees and is considering the pension changes because actuaries have told city leaders the city’s liabilities in both plans are unsustainable as they are currently structured.
In the case of the unfunded pension liability, the city has five fiscal years to fully fund the pension liability under a state law approved by the Tennessee legislature.
Wharton’s hybrid plan appeared to have reset the positions of several council members. Some on the council now indicate they favor only including city new hires in 2016 in the pension changes. Other indicated they might favor including new hires and those with five years or less of service.
Still others favor Wharton’s framework for new hires and those who are considered unvested in the pension plan – those employees with less than 10 years of service.
And some want to explore a separate pension plan for public safety employees as well as moving all other city employees to Social Security coverage.
The administration dropped the set of ordinances that constituted its original set of pension changes from Tuesday’s council agenda. That means the two ordinances covering the hybrid plan will start all over in the legislative process with the first of three readings scheduled for the first council meeting in November and a final vote at the first council meeting in December at the earliest.
Wharton did not attend the executive session devoted to the proposal. But Chief Administrative Officer George Little said the administration has time for the process since the pension changes wouldn’t take effect until 2016.