VOL. 130 | NO. 130 | Tuesday, July 7, 2015
Memphis' Cost for Non-Pension Benefits Still Controversial
By Bill Dries
The amounts are roughly the same at about $1 billion, but there’s a difference between City Hall’s liability for pension and non-pension benefits, including health insurance, for city of Memphis employees.
The state of Tennessee now requires the city to full fund the pension liability by 2020, and it will likely require the same of the other post-employment benefits, or OPEB, liability.
“I lost that fight,” said former city finance director Marlin Mosby, who advised city government on such financial considerations during his time at the Memphis office of Public Financial Management, a national benefits consulting firm.
“I argued that it is a current expenditure,” Mosby said of OPEB and its liability. “That it should not be considered a pension-type liability because it is not contractual and it can be changed.”
Mosby commented after the taping of the WKNO-TV program “Behind the Headlines” that featured the second half of a discussion about Memphis’ financial crisis among former city finance directors, chief administrative officers and consultants to city government.
Episodes of “Behind the Headlines,” hosted by The Daily News publisher Eric Barnes, can be seen on The Daily News Video page, video.memphisdailynews.com.
Mosby likened the city’s OPEB cost to Coca-Cola’s cost to buy sugar, an essential ingredient.
“Is there future liability for sugar on their balance sheet?” he asked. “The answer to that is hell no. So why is it any different? This is a cost we are going to incur every year. Why is it a liability that we have to accumulate and show as a liability on our books?”
Rick Masson, chief administrative officer under former Memphis Mayor Willie Herenton, said the liabilities should have had some provision to grandfather in earlier amounts left on the books.
“The way I thought it should have been implemented was whatever was on the books at that point in time should have been somewhat grandfathered in, in some fashion,” he said during the program. “And then any additional benefit packages that were added to the retirees that that council, that administration, was responsible for – they should have to fund that.”
On health insurance and other non-pension benefits, accounting rules changed nationally in 2008, which reversed the practice of paying the liability as it came due or as the benefits were used.
“But the accounting industry has settled it,” Mosby said. “It is now settled. The state is absolutely going to force people to do it.”
The difference of opinion surfaced in June during city government’s budget season.
Segal Consulting, the Atlanta-based benefits consulting firm hired by the Memphis City Council, argued that the city could undertake a more gradual move toward health insurance changes and keep retirees younger than 65 on the city’s health insurance plan. Eric Atwater of Segal argued specifically that the health insurance liability isn’t one the city is currently required to fully fund.
City finance director Brian Collins countered that it soon would be and the city shouldn’t delay a ramp-up to meet that liability and the pension liability. The city is also applying savings from ending pre-65 retirees’ coverage at the end of the calendar year 2015 toward paying the pension liability.
Ultimately the council agreed with Mayor A C Wharton’s administration and did not extend the health insurance coverage for those retirees past the end of 2015.
The cost of pensions and other employee benefits didn’t create the crisis, but the panel said it made the situation worse.
“I think it’s much broader than that, and it’s more fundamental in the way our revenue base is built,” Mosby said. “But it is the point that when they stopped funding it at the level that they needed to fund it at – it is the hole that they dug themselves into. And it is very difficult now to get out of.”
Masson said the basic assumption that benefits would make up for the relatively low pay of government jobs compared to the private sector began to shift with the rise of municipal unions.
Tom Jones, a consultant to Memphis city government and other governments across the country, argues that some city jobs pay more than the private sector but many are still lower.
“It seems like somehow in the midst of all of this someone would look at how do you stabilize or balance those jobs,” Jones said. “If you are going to cut pension benefits, what salaries do we need to become more competitive?”