by Toby Sells
Number crunchers convened at Memphis City Hall Tuesday for what amounted to an all-day discussion on the city’s troubled pension program.
At the table were actuaries hired by Memphis Mayor A C Wharton’s administration, the Memphis City Council, and the Memphis Fire Fighters Association. All of them sat with council members Tuesday to get a more-accurate picture of the problem and to begin to formulate a fix.
The mayor’s actuary said the hole in the pension system is more than $700 million. The actuary from the firefighters said the hole is closer to $300 million. The city council’s actuary was just hired last month and has no final figures on the problem yet but will work with the other financial firms to present the council with options as they move through the process.
The gap in the pension plan began with the recession in 2008. The plan lost about $450 million from 2008 to 2009. When that happened, the Memphis City Council would have needed to put millions of more dollars into the fund than they had in the past to keep it whole. They didn’t. Council members approved budgets that held the payments at pre-recession levels and have done so even up to this current budget.
So far, Wharton’s administration has proposed a five-year, ramp-up plan to get the city’s annual pension payments on track. That will mean adding $15 million more to the plan this year. That figure goes up each year until the city is making $100 million in extra payments in five years.
“The best case scenario is a tripling of the amount of money we have to put into the pension plan,” said city finance director Brian Collins. “At the minimum, the near-term budgeting issues are really substantial.”
The council spent much of the morning listening to the methods used by the actuaries to arrive at their widely varying conclusions on the size of the gap in the budget fund.
The mayor’s actuary, from PricewaterhouseCoopers, said they used conservative figures pulled from the decades the firm has overseen the city’s fund. Key figures included an annual rate of return of 7.5 percent on the fund estimated to be worth around $2.2 billion. The firm also used put average annual pay increases to employees at 5 percent.
The firefighters’ union actuary, Pension Trustee Advisors, said their figures were only slightly less conservative but were still within accepted industry standards. Its report painted a far less negative picture of the pension situation, which the union has used to fight any cuts proposed to the city’s pension benefits. Their firm used annual rate of return at 7.9 percent and said annual pay raises average closer to 3.5 percent.
Those two differences accounted for most of the huge differences of opinion on the size of the pension fund gap. However, William Fornia with Pension Trustee Advisors, conceded that the mayor’s actuary could have had better information on pay and that could have widely skewed his initial estimate to the tune of about $225 million.
They also said Memphis is one of 31 local governments in Tennessee that operates outside the state retirement plan, the Tennessee Consolidate Retirement System. Of those 31governments, Memphis was one of 13 that weren’t paying 100 percent of the annual payments to their pension plans.
Lillard reminded them of a bill that passed the Tennessee Senate Monday evening that will require all Tennessee cities and counties to pay 100 percent of their annual pension payments. The bill will likely become law, Lillard said, and if it does, cities and counties will be given a one-year grace period for financial planning and then five years to ramp up to making their complete payments.
This needs to be addressed and now, not only for the financial integrity of the city but for the employees who have worked a long time for the city,” Wilson said.