Thursday, April 24, 2014 · 3:38 p.m.

Chattanooga’s retirement plan for firefighters and police officers underwent big changes when voters approved a new benefits structure at the turn of the century.

Since then, the city’s fire and police pension fund has racked up an estimated shortfall of $150 million—an amount expected to increase by $50 million in five years. In addition to the 2008 market crash, other potential causes include the city’s annual required contribution to the fund and the cost of the benefits that went into place after the referendum.

The post-1999 benefits, which have remained in place with some modifications, are the focus of a recent analysis that looks at the financial impact of rolling them back.

The documents sent to task force members in November show big savings for city taxpayers but deep cuts to current and future retirees’ benefits.

The analysis requested by Vijay Kapoor, director of workforce consulting at Public Financial Management Inc., provides new data points for the pension task force to consider but does not necessarily reflect how the city’s retirement plan would be changed, he said.

"This was a scenario I requested to get a better understanding of what the cost would look like if the benefits were changed to be similar to what they were in 1999," he said.

The analysis, conducted by the pension fund’s actuary, and accompanying memorandums provide the clearest indication to date of which levers are being considered by the task force to move the fund closer to solvency while lowering the city’s long-term cost.

The changes reviewed would reduce the benefits of current and future retirees.

The deferred retirement option plan, or DROP, is eliminated. Some retirees receive the one-time benefit, an average of $99,000, upon retirement in exchange for a reduced monthly pension.

The cost-of-living adjustment is reduced to 1 percent. The current COLA is 3 percent per year, and it is used to counteract the effects of inflation on monthly pension benefits.

A minimum retirement age of 55 is reviewed. Chattanooga police officers and firefighters can currently retire at any age after 25 years of service.

Employee contributions are raised to 12 percent. Depending on when they were hired, employees currently contribute 8 or 9 percent of their base pay to the fund.

New employees’ monthly pensions would also be lower as a result of a reduced multiplier, which is used to calculate benefit levels.

Chattanooga’s fire and police pension fund has several revenue sources, most notably its investment portfolio, employee contributions and the city’s annual required contribution.

The changes in the recent analysis would lower the amount the city pays into the fund and increase the amount employees pay.

The city’s contribution is calculated annually as a percentage of fire and police payroll. If the pension plan stays on its current trajectory, the contribution level will reach 48 percent of payroll by 2038. With the listed changes, the city’s contribution would reach 23 percent of payroll.

Chattanooga is currently expected to contribute $724 million to the fund over a 30-year period.

Overall, the analysis shows a savings for the city of about $400 million during that period.

"I think it was a constructive exercise, and it has resulted in a lot of good discussion," said Travis McDonough, the mayor’s chief of staff and task force chair. "There’s a lot of activity going on to discuss that analysis, as well as other ideas to solve our problem."

Smaller groups of task force members met at least four times in the past month. McDonough has attended some of those meetings. Members have also discussed different ideas by email.

"There are countless options to tweak the plan," McDonough said. There have been lots of conversations about approaches to the COLA, years of service before retirement, and contributions by the city and employees.

Stakeholders agree that reforming the pension fund should include contributions from active and new employees and retirees, he said.

"They’re looking for ways to balance the changes that are fair to all of those groups," he said.

Rocky Joyner, vice president at The Segal Company, conducted the analysis. Segal has been the fire and police pension fund’s actuary since 1998.

In an attached memo to task force members, Joyner warns that a return to 1999-era benefit levels will result in a glut of older employees and few advancement opportunities for younger ones—one of the issues the current benefits structure was designed to resolve.

"Under the requested scenarios, we envision a return to the problems that necessitated the plan design changes of 1999," Joyner wrote. "That is, the fire and police departments will once again become top-heavy with older, likely less able-bodied workers."

With the changes outlined in the analysis, "a return to the pre-1999 state of the city’s sworn workforce is likely," he wrote.

Updated @ 10:45 a.m. on 12/5/13 to indicate that there have been at least four meetings in the past month, not just in November, as originally reported.

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