Chattanooga is on its way to considering changes to how it will fund its police and fire pension plan, which offers an alternative retirement benefit to sworn personnel who cannot contribute to Social Security.
The 18 members of Mayor Andy Berke's pension task force gathered on The 4th Floor of The Public Library Monday night to begin discussion on the subject. The group, appointed by the mayor last month, was chaired by Berke Chief of Staff Travis McDonough.
McDonough opened the meeting by saying that the mayor's goal was for the stakeholders in the group to reach a consensus on changes.
He also offered a caveat.
"If the task force does not reach a consensus, we will ask PFM for a recommendation that will then be considered by the mayor and the City Council," McDonough said. "But our preference is consensus."
McDonough's reference was to Public Financial Management Inc., a Philadelphia-based consulting firm that was hired by Berke's office to bring "expertise, experience and success" to the process of reforming the pension plan—which has an estimated market value of $220 million.
Vijay Kapoor, director of workforce consulting for PFM, spoke for the majority of the meeting, briefing the task force on the city's situation regarding the pension, potential threats to its well-being and possibilities for action that could be taken to remedy the situation.
Kapoor began his presentation by stressing that his agency did not view challenges to the pension as a math problem in need of solving.
"Chattanooga officers do not pay Social Security or receive Social Security, so that means for future retirees, their main source of income will be this pension," Kapoor said. "So when we talk about these issues, we're not talking about them in an abstract way. We're talking about changing benefits for people's parents, for their sons and brothers. It impacts people's lives, and it's important to take seriously."
Kapoor then presented an hourlong overview of challenges facing pensions in both Chattanooga and the nation in an effort to provide the group with what he called an "educational opportunity." Kapoor rarely paused to take questions, only opening the floor to members of the task force and the audience after the presentation was complete.
The presentation included a basic overview of the city's pension inflows and outflows, which include employee and employer contributions, investment earnings and losses, and eventual expenses and benefit payments that go out to retirees. Based on projections for expected retirees, Kapoor said the fund had unfunded liabilities of $149.7 million—a total that amounts to roughly 71 percent of the city budget.
Based on valuations for the 2013 fiscal year, Kapoor said that figure meant the pension was 63.3 percent funded on an "actuarial basis."
"Chattanooga is not Detroit, but we have concerns," he said. "We think a comprehensive solution really is required to ensure long-term health."
Kapoor said the ultimate goal should be for the city's pension to be 100 percent funded but added that achieving the status could take years. In addition, Kapoor projected that the city's annual contribution to the fund could nearly double over the next 10 years, putting it at risk for having its credit rating lowered by agencies that have begun to pay more attention to unfunded liabilities in city pensions.
Members of the audience asked if representatives of the police and fire pension board would be allowed to give additional context to Kapoor's presentation, based on changes made to the fund prior to dates shown during Kapoor's presentation. McDonough replied by saying the mayor's office had tried to best put together a group representing all viewpoints, including two members who had served on the board previously.
Before ending his presentation, Kapoor offered a case study of recent changes made to the pension plan for Lexington, Ky., which also hired the consulting services of PFM. Kapoor said the changes in Lexington caused the pension's unfunded liability to decrease nearly by half.
"It's been very positive so far," he said. "I'm not trying to be 'Pollyanna' about this; I know it's a difficult thing. But it struck me as very positive."
Kapoor then asked members of the task force to call or email him with feedback for possible changes. He promised to keep responses in confidentiality and return to the group's next meeting Oct. 7 with a summary of recommendations given.
Following the presentation, task force members offered brief comments.
Fred Decosimo, principal with Decosimo & Co., said issues facing the pension may be more math-related than suggested.
"While it's not a 'math problem,' so many of the issues here are the result of the math and assumptions made," Decosimo said.
Police Chief Bobby Dodd recommended that as changes were assessed the group consider the potential effects of the six tiers of seniority that apply to officers in the police department.
Kurt Faires with Chambliss, Bahner & Stophel asked what a "worst-case scenario" for the fund would look like if the issue was "kicked down the road" by mayoral administrations in the years to come. Kapoor responded by saying that other cities had faced situations where funding levels for their pensions had dropped to less than 10 percent.
"Their costs got to a point where they couldn't afford it," he said.
Following the meeting, McDonough said he was confident that the group would be able to reach a consensus for changing the plan.
"I'm confident we can reach a consensus, and we have the right people on this task force to do that," he said. "And I think that with more education and more focus on the issue, we'll get to the right place."
Chris Willmore, president of the pension board, said he hoped his group would be granted the chance to give the task force their perspective.
"We would love the opportunity to present," he said. "We do this work day in and day out; we study and work hard. We've been working at this issue for many years, and we feel our input could be humongous."
Members of the 18-member task force are Dodd; Fire Chief Lamar Flint; Jim Appleberry, CFD (retired); David Brooks, CFD; Stephanie Crow, CapitalMark Bank; Decosimo; Faires; Tripp Farmer, HHM PLLC; Toby Hewitt, CPD, president of FOP; Terry Knowles, CFD, president of CFPPF; Less Lee, LeeSmith Inc.; Phillip McClain, CPD; Ken Neblette, CPD (retired); Chantele Roberson, BlueCross BlueShield of Tennessee; Jack Thompson, CFD, president of IAFF; Tim Tomisek, CPD, president of IBPO; and Ben Vance, Unum.
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