By Daniel Connolly,
February 24, 2014

A bill that would force local governments in Tennessee to make full payments to their pension funds each year is scheduled to go before committees in the state legislature this week, and a proposed change may have increased its likelihood of success.

The bill’s sponsor, Senate Majority Leader Mark Norris, R-Collierville, made an amendment that would give cities more chances to come into compliance, a concession to Memphis Mayor A C Wharton’s administration, which asked for greater flexibility.

“We certainly are comfortable and supportive of that amendment,” said Memphis chief administrative officer George Little. “It removes some of the uncertainty from our end if in fact unforeseen circumstances present themselves.”

Little said city officials had been concerned about unpredictable events that could disrupt plans to increase pension payments, such as a natural disaster or stock market downturn.

The bill would require cities to pay their Annual Required Contribution, or ARC (pronounced like “park”). The ARC is the amount of money that financial experts estimate the government must contribute each year to cover future obligations to retirees.

The Memphis government has consistently paid less than experts recommended. It’s one factor that’s led to a big gap between what the city will owe its retirees and the amount it holds in the pension trust fund. The city’s experts estimated the gap at $682 million as of July 1, though the Memphis Fire Fighters Association hired an expert who used different assumptions and estimated the gap at $301 million.

The bill’s key backers include state Treasurer David Lillard and Norris. Their proposed bill would give local governments that haven’t paid the ARC five years to steadily increase their funding until they do so. The five-year clock starts after June 30, 2015, so they would actually have six years.

In response to the concerns from Wharton’s administration, Norris introduced an amendment that would allow cities that failed to meet the funding milestones to submit a plan of correction to the state treasurer that would allow them to pay 100 percent of the ARC by June 30, 2020. It’s the same ultimate deadline, but it protects the city if it falls short during the in-between years.

“We’re not trying to be heavy-handed, but we’re trying to create a system that will instill the necessary discipline to make sure that they meet their commitments in the final analysis,” Norris said Monday.

The bill was placed on the calendar for Tuesday’s Senate Finance, Ways and Means Committee. And in the state House, it was placed on the calendar for Wednesday’s state government subcommittee.

Comments are closed.