Wednesday, December 17, 2014

Pension Reform Gets Council Approval

Posted By on Wed, Dec 17, 2014 at 9:41 AM

click to enlarge From left: Wharton, Halbert, Malone, Lowery
  • From left: Wharton, Halbert, Malone, Lowery

Memphis City Council members passed a new pension plan for some city employees Tuesday night, a move designed to save the city millions of dollars over the next few years and eventually make whole the city’s underfunded pension system.

Pension reform became an issue at Memphis City Hall when a report from PricewaterhouseCoopers (PwC) said the hole in the pension system was more than $700 million. The city stopped paying what it should to the system during the recession. These lower payments made the hole even bigger.

The issue came to a head when the state passed a new law this year mandating municipalities to pay the full amount of the required payment. The law goes into effect in five years.

The pension gap shrank since the first PwC report. It’t now at about $551 million. But filling that gap will take “several decades,” according to the city's finance director Brian Collins. That means the city will have to divert millions of dollars into the fund each year, money that could be used for parks, police, paving, and more.

The new pension plan approved Tuesday was proposed by council member Wanda Halbert. That plan is a compromise between the plan proposed by Memphis Mayor A C Wharton and the one proposed by council member Myron Lowery.

Both plans would have moved employees to a new, hybrid plan. The plan contains elements of a 401(k)-style plan widely used in private companies and a the standard, pension-style plan in place at city hall since 1948. The plan balances the risk for employee between moves of the stock market and the security of the city’s fund.

Wharton’s plan would have diverted employees with less than 10 years of service to the fund. Lowery’s plan would have only included new hires.

Halbert’s plan basically split the difference. It will divert employees with 7.5 years of service and less into the new plan.

The years-of-service threshold became the most contentious point in the months-long debate on pension reform at city hall. Experts hired by the city council said earlier this year that the threshold would barely move the needle on the problem in the long term.

Annual savings on all of the plans range from $5 million to $10 million. Savings on the prevailing plan, Halbert’s plan, are estimated at a bit more than $5 million annually.

Pension reform’s detractors were vocal at city hall Tuesday.

Memphis fire Fighters Association president Thomas Malone said reforms this year to health care benefits and now pensions has attracted fire departments from all over the U.S. to recruit in Memphis.

“It is getting ridiculous how we’re treating these employees,” Malone said at the council’s personnel committee meeting Tuesday morning.

Malone and others have long fought pension reform measures and on Tuesday Malone told council chairman Jim Strickland that he was ready to “throw my hands up and say to hell with it. I’ll just go see the man in the black robe again.”

Malone was implying he’d take the council’s pension reform actions to court, as he and other employee unions did over the council’s reforms to healthcare benefits earlier this year.

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