VOL. 129 | NO. 207 | Thursday, October 23, 2014
Pension Reform Decision Back At Square One
By Bill Dries
It happened in the shadow of a change in the pension reform proposal Memphis Mayor A C Wharton Jr. had backed all through the summer and two of three council votes.
The new hybrid city employee pension proposal by Memphis Mayor A C Wharton Jr. went to the Memphis City Council for consideration this week. The council could consider other options and plans apart from Wharton’s second pension proposal this year.
(Daily News/Andrew J. Breig)
As the Memphis City Council got its first formal presentation Tuesday, Oct. 21, of Wharton’s new hybrid pension plan, it settled City Hall’s tumultuous discussion about changes to health insurance coverage for city employees and retirees.
The political spotlight now shifts to the pension changes and Wharton’s proposal has reset that discussion at its origins in terms of council support.
It may also mean the council mixes and matches options to effectively create its own plan that isn’t anything like Wharton’s hybrid proposal.
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. The two combined changes in some form are essential to righting the city’s financial condition.
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 scrapped the proposed defined contributions plan, similar to a 401(k) plan, last Friday and instead unveiled a hybrid pension plan for the same group of employees with a new set of ordinances.
In the hybrid plan those employees 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 401(a) with 1.5 percent of the employee’s salary.
Retirees and those with 10 years or more of service, who are vested in the pension plan would remain on the city’s current defined benefits pension plan.
“We’re going to change the paradigm quite a bit,” City Finance Director Brian Collins said as he presented the hybrid plan and a concept called “risk-sharing.”
It’s the middle ground between the extremes of defined contributions in which employees take much if not all of the risk and defined contributions in which city government has taken much if not all of the risk.
“There are very disagreeable features about both,” Collins said. In the hybrid, the risk is “shared,” he added.
“It is possible that someone on the council will propose something totally different from those plans. ... I think it’s too early to tell how likely it is.”
Chairman, City Council
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.
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 – vested or unvested.
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.
Segal actuaries Eric Atwater and Rocky Joyner didn’t come to City Hall this week with dollar figures and options.
Instead they came with questions about what the council wants the pension changes to accomplish and what dollar amounts they want to set as targets in the reforms.
“We want to figure out what’s our strike zone,” Atwater said.
The broad questions include “what are the desired level of savings (if any)?” and rates the three possibilities as “pebble”, “rock” or “boulder” with the boulder being savings of 25 percent or more.
Council members tagged the survey as “homework” and quickly identified the choice in the options to come as a balance between the needs of the city and taxpayers and the needs of employees.
“This is a balancing essentially,” said council member Shea Flinn. “It can’t just be what do you want. The outcome is looking for a balance.”
The “decision matrix” gauging how each council member rates a set of goals on a scale of 1-12 has 780 total points.
“This is like a balloon,” Atwater said. “You squeeze one side, the other comes out.”
At the end of the two-hour session, council chairman Jim Strickland indicated the council may choose to squeeze in different places than the mayor.
“Remember councilman Lowery’s proposal and the mayor’s proposal is the same in how the retirement system is set up. It’s just who does it apply to,” he said. “But, yes, it is possible that someone on the council will propose something totally different from those plans. … I think it’s too early to tell how likely it is. We don’t have any real numbers on any of the plans.”