published Wednesday, July 24th, 2013

Pay it forward: Perhaps city effort will lead to pension reinvention

  • photo
    Police Chief Bobby Dodd answers questions during a news conference Monday in City Hall regarding a pension task force and officers’ take home cars.
    Photo by Shawn Paik /Chattanooga Times Free Press.


• $37,524 — Average yearly benefits paid to the city’s 733 police and fire retirees and beneficiaries.

• $11.8 million — City contribution in 2012 to the fire and police pension fund.

• $13.3 million — Recommended city contribution in 2013 to the fire and police fund without reforms.

• $218 million — Assets in the pension fund, or 63.4 percent of what actuaries is needed to fully fund the plan.

• 818 — Active police and fire department employees eligible for future benefits.

• 36 — Percent of payroll paid into the retirement fund by the city.

• 8-9 — Percent of payroll paid by each employee (and there are 818 active polio and fire department employees participating), depending upon when hired and plan benefit.

• 69 — Percent of the average final three years of pay provided in retirement benefits.

• 3 — Percent of annual cost of living increases given beneficiaries.

Source: Chattanooga Fire and Police Pension Fund

Understanding the intricacies of pension funding is eye-crossing business.

But in this increasingly expensive world, pensions and retirement planning are important for current and would-be pensioners as well as taxpayers.

So it is good news that Chattanooga Mayor Andy Berke is creating a task force and hiring an outside consultant for $90,500 plus expenses to look for ways to reform and replenish the city employee retirement plan that now faces a $125 million shortfall in the Chattanooga Fire and Police Pension Fund.

"We have work to do," Berke told Times Free Press Business Editor Dave Flessner, and he's not kidding. "Without looking at ways to reform the fund, the city's contribution is expected to be $14.4 million this year after being at about $6 million a few years ago. Increases are expected to continue."

The city does not pay Social Security tax on fire and police pensioners, so it is not as though the city is paying twice for a worker's retirement. Nonetheless, the cost of funding a projected $125 million shortfall can't be discounted.

Here's some context: Last year when the long-dreaded sewer and stormwater consent decree was announced against Chattanooga by the U.S. Environmental Protection Agency and the U.S. Justice Department, that hand-wringing total was $250 million for mandatory fixes. The city's 2013 operating budget was about $209 million.

But rendering services like police protection and fire protection are among the most important things cities do for their residents, and pensions for the men and women doing these high-stress, high-danger jobs must be considered part of the not-too-glorious pay for what undeniably is a young person's work: chasing down gun-wielding criminals and rescuing people, pets and property from burning buildings.

Yes, it's true that nowadays only government workers tend to still have "defined-benefit" pensions. And yes, it's true that the rest of us are somewhat jealous of the fact that government workers do have guaranteed pensions. Most private companies have opted out of the defined-benefit pension business in favor of 401(k) "defined-contribution" plans which shift retirement costs and investment risks unto workers. And far too many workers pulled away from making 401(k) savings contributions out of fear and confusion as they watched the market's downturn gobble their hard-earned allocations.

That makes it all the more important for cities such as Chattanooga to find a successful way to fund pensions: Perhaps they may lead the way to find solutions for the ticklish problem of paying for an aging society in ever-more-expensive world.

The idea has been that an employer and all employees pay a portion of the pension-seed money that then is invested in the stock market and other bond programs to grow the fund that will sustain us when we grow too old to work.

But when the stock market tanked, many government pensions, like 401(k)s, lost the gains they had made. Couple that with the myriad of private companies that rushed to unload their pensions to 401(k)s, and don't forget the corporations that soaked up pension funds and then bankrupted.

The end result is far too many aging Americans with no significant means to finance their retirement years. A fallout of that is an increase in the labor force of older people who can't afford not to work.

The dominoes don't just fall on older workers but also their families and younger workers waiting in the wings for jobs or better jobs.

The whole inefficient retirement system becomes a drag on productivity, creates managerial headaches, and, as retirement decisions are increasingly linked to stock market fluctuations, has a destabilizing effect on the economy, according to the Economic Policy Institute.

At their cores, pension plans are part of a worker's pay, with a clear and mandatory method of helping workers save and leverage their own money, too. For the vast majority of Americans, that seems a better plan than less-structured 401(k)s that once were touted as tax and profit savers.

Chattanooga police and firefighters put their lives on the line day in and day out.

Surely some smart thinkers can find a way to bridge these defined-benefit pension plans until markets recover long enough for the systems to function again as intended with tweaks here and there. Hopefully they can also light a way for other businesses — not just government.

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fairmon said...

One thing is evident the current system is not sustainable. There is an assumption that police and firemen cannot contribute beyond a young age which is a ridiculous justification for being able to retire in their 50's with a high percent of their income. There is sufficient need within the city government where they could work and contribute to a normal retirement age. Why does the city want to be exempt from social security? The only manageable way to know the cost is with defined benefits. Do taxpayers deserve to know what their future cost will be? Do taxpayers know what the total of all future unfunded liabilities is currently? A catastrophe in the making.

July 24, 2013 at 4:31 a.m.
soakya said...

I agree with fairmon, ditch the defined benefits and go to defined contributions like the rest of us. Sorry but your also going to have work more than 25 years like the rest of us.

That catastrophe is playing out in Detroit right now.

July 24, 2013 at 8:18 a.m.
aae1049 said...

Perhaps you should review the actuary for municipal police and fire. Police are exposed to pathogens, assaulted, and their personal safety in danger each day on the job. Fireman are exposed to pathogens, inhalation, and high injury on duty. In both professions, when injury on duty does occur it is more likely to be catastrophic. It is a fact that career emergency service workers do not live as long. The problem is most people do not understand that emergency service actuary is different from all city workers. The state of Tennessee recognizes the heart and lung impacts of their profession. I welcome you to run into fires, and violence. It is a job of high risk. Of course, Pam Sohn left that part out.

Local government are a pack of cowards that think it is OK to give $1.1 million in annual gifts to the Chamber of Commerce from our property taxes, and $9 million in local bond issues to their developer insiders, but funding the pension and paying a livable wage is not a priority.

July 24, 2013 at 11 p.m.
Unknown said...

I respect each of the comments that you three have expressed. It is your right to do so. I assume each of you are city tax payers. Just wanted to give you some insight to my job as a firefighter. First of all We are here for you 7 days a week 24hrs a day and yes we don't take holidays off because we are dedicated to protecting you and your families. I have been a firefighter for over 16 years and have given my all for each of you. I don't do it for the low pay that comes with the job I do. I do it because I care. My pension is all I have and that's it. I scraped by to feed my kids and wife through my career. I never once asked for government assistance. I am 39 and already have a heart condition that is directly related to the stressful job and the toxic substance I have come in contact with over these 16 years. My knees are shot and shoulders from a collapse I was in. Do you know what it like to hear a kid scream as you pull up to a house fire and then go in to bring them to safety? The temperature is 1000 degrees the sweat inside your turnout gear turns to steam and your cooking from within. Your searching in complete darkness inside a structure that you have no clue where anything is. And then know you failed. The fire claimed the life we fought to save. To come out mad and then you can't fight back the tears because you had to recover the little lifeless body. As I have gotten older it gets harder to do things with all the abuse my body has taken. Soil you think we look for a hand out your wrong. I would give my life for you any day anytime and I don't even know you. I missed a lot of my kids growing up ,first days at school,birthdays,christmas and all of the other very important things one holds close so I could be there for you and your family. I don't hear any argument over the city buying realestate or needless spending and giving raises to the mayors staff at 38% pay increase. All I have is my pension and I don't think you want a 60 year old firefighter to try and rescue your family in a hurry. It's not that we don't want to do it. Our mind says we can but our body say no. AND IF YOU DON'T KNOW THE AVERAGE LIFE OF A FIREFIGHTER IS ONLY 58 years old. So before you try and judge me come and work a rotation so you will see. I really thought our citizens respected us but according to the first two comments that's not case. Next time you call 911 for an emergency just tell us we are pieces of crap as we are trying our best to save the life of the person you love. I will never be ashamed of my profession. So this is why 50 years old was set by the taxpayers. Or the taxpayers will be paying for firefighters who die on the job. I give my all for you and this is what we get in return. Give me my pension so I can live out my last few years in peace with my family since I didn't get too through the rest of my career.

August 7, 2013 at 6:14 p.m.
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