By Daniel Connolly, Commercial Appeal
February 3, 2014

Memphis Mayor A C Wharton is trying to convince the City Council to greatly boost funding to the government employee pension plan.

Now the Tennessee Legislature is considering a state law that would require a big funding increase, and Wharton said the city needs some flexibility to deal with unforeseen events.

“You don’t want to be straitjacketed,” he said. Wharton said his administration is still analyzing the proposed law and preparing to meet with its primary backers, including State Treasurer David Lillard and Senate Majority Leader Mark Norris, R-Collierville.

The proposed law would require cities to pay their Annual Required Contribution, or ARC (rhymes with hark).

The ARC is the amount of money that financial experts known as actuaries tell the pension owner to contribute to the fund each year. Another term for the amount is “actuarially determined contribution.”

“This is designed to make sure that individuals’ retirement funds are there when they call on them in retirement,” Norris said. “You know, out of sight out of mind, but you don’t want to be out of sight, out of money. By the time it bites you, it’s too late.”

The financial crisis of 2008 greatly reduced the value of the Memphis pension fund’s investment holdings. Since then, the city has not come close to fully funding its ARC. For the current year, the ARC was $101.3 million and the city’s contribution was $20.1 million.

Wharton is urging the council to gradually increase its annual contribution to the pension fund to about $100 million five years from now. To pay for that increase, he’s recommending that the City Council adopt cost-saving measures such as replacing some sworn police officers with lower-paid civilians.

As of July 1, the city owed $682 million more to its retirees than it had in the fund, and the shortfall was expected to grow to $740 million by July 1, 2014.

Municipal labor unions contend that the funding shortfall is actually smaller. Regardless of the size of the gap, it’s clear that the resolution of the pension debate will influence city services for years to come, and could also impact property tax rates.

Norris’ bill gives governments like Memphis that haven’t been paying their ARC five years to steadily increase their funding until they do so. Because the five-year clock starts after June 30, 2015, they would actually have six years.

If the city did not pay its ARC, the state could withhold tax money and use it to cover the pension contribution. Norris’ proposed bill would also require local governments to follow six technical guidelines for calculating the ARC.

Wharton said the city is not opposed to fully funding the ARC. “The question is, among other questions, over what period of time? As everybody knows, it’s going to be a stretch and quite difficult to do it within five years and maintain other obligations at the same time.”

He also said leaders can’t control all events. The City Council has the power to change the plan he’s proposed. A natural disaster or an uptick in crime could force the city to change spending priorities.

Wharton said different interest groups in Memphis should work together on the problem. “This is one reason it’s to our advantage for everybody, the administration, labor, to get together and hammer out a sustainable plan that we can live with here, as opposed to leaving it with some entity outside city government to craft a plan,” Wharton said.

Lillard, the treasurer, said he and his staff drafted the bill that Norris is introducing. Last month the treasurer’s office produced a report that reviewed 31 public pension plans statewide that are not part of the Tennessee Consolidated Retirement System. Of those 31, only 13 paid less than their ARC in 2012.

If you count the 487 government entities that make up the statewide Tennessee Consolidated Retirement System, only 2 percent of all Tennessee local government pension plans paid less than 100 percent of their ARC, the report says.

Norris said he would ask a joint House and Senate group called the Council on Pensions and Insurance to make a recommendation on his proposed bill on Feb. 10. After that, the measure goes to House and Senate committees for review.

Pension Funding across Tennessee

The state treasurer’s office recently released a report on local government pension funding.

Of 31 governments on the list, 13 contributed less to their pension fund in 2012 than financial experts recommended. Among them are Memphis, Bartlett, Nashville, Murfreesboro and Dyersburg city and Dyersburg City Schools’ fund for non-teachers.

Eight of 31 governments met their recommended contribution for 2012. Among them are Shelby County; Memphis Light, Gas and Water; Germantown; and Knox County Board of Education.

Ten of 31 governments contributed more to the pension fund than required for 2012. Among them are Collierville, Knoxville, and Chattanooga fire and police.

These governments are separate from the 487 entities within the Tennessee Consolidated Retirement System, which are required by law to make the full annual contribution.


Comments are closed.