Question 1: I am not a vested employee with the Pension however this group is the most affected by any change to the pension. How can we justify taking a essentially 3% cut in pay and keep hearing the new Pension is in line with other cities our size however the pay disparity is painfully obvious which is used to offset the Pension differences with our cities. This being said our pension is the main attraction for future hires to this city how can we accept this new plan when in a few years when the city will come to the same percentage of contributions that it does not want to make now and want to make deeper cuts again.
Response 1:
We agree our pension benefit is a vital tool for the City’s efforts to recruit and retain the best and brightest people to serve as Firefighters and Police Officers. While change is never easy, the status quo is not a realistic option to address the pension issues facing our community.
With that said, the Pension Task Force has submitted a series of recommendation that they believe will improve the funding status of the Plan and ensure the longevity of pension benefit going forward. Based on the analysis from our actuary, these recommendations will dramatically improve the Plan’s funding status and decreases the unfunded liability – both of which will decrease the City’ annual required pension contribution. While no one can predict what will happen in the future, members of the Task Force has stated that they hope these reforms will ensure future changes are not necessary.
Question 2: Is it possible to opt out of the pension entirely? If so how is that accomplished, if not why not?
Response 2:
All active Chattanooga Firefighters and Police Officers are required by law to be a contributing member of the Chattanooga Fire and Police Pension Fund since they are not in Social Security. In the long run, a defined benefit, such as ours, provides a secure benefit for life that cannot be matched through personal investments with the same contribution from the employee.
Question 3: This is a retired firefighter, and my question is the proposed line of duty benefit to be changed to 100%. Does that include injured in the line of duty which is at 60%?
Response 3:
The proposed line of duty benefit is for In-Line of Duty Deaths only. There is a difference between in-line of duty death and job-related death. For example, in line of duty death would include a police officer being shot and killed or a firefighter dying while fighting a fire. Any type of In-Line of Duty Deaths would receive 100% of the member’s Final Average Salary (FAS) for the spouse, and this benefit would be issued at the Board’s discretion. Job-related deaths, such as a heart attack brought on by the stress of the job whether on duty or off, are not covered by this benefit. These job-related deaths would still receive the current rate of 60% FAS for the spouse. As for the 60% job-related disability, the disability benefit will not change in anyway.
Question 4: What are the numbers on the cola 2%1.5%1% who gets what?
Response 4:
No retired member or beneficiary will receive a COLA that is more than 2%. Each year, our actuary will adjust the salary ranges that determine which COLA a member will receive to ensure that the overall average COLA benefit does not exceed 1.5%. Based on preliminary numbers, we expect the lower-end pension earners to receive a 2% COLA while the high-end pension earner will receive a 1% COLA. The vast majority of members will likely receive between a 1% and 2% COLA. Based on our preliminary analysis, the Board believes the average COLA benefit for a retired member will be approximately $45 based on the following breakdown:
Below $27,000 – $28,000 2% COLA
Above $54,000 – $55,000 1% COLA
Everyone else 1.5% average COLA
Question 5: What happen to 562 people who have questions?
Response 5:
The Board strives to answer questions that members may have. Questions may be submitted via Facebook or email at [email protected]. Educational sessions have been scheduled for Wednesday, February 19, 2014 at 9 a.m.-11 a.m. and 2:00 p.m.-4 p.m. The Board has also allocated time allotted to address questions as part of its regular board meeting at 9 a.m. on Thursday, Feb. 20. As part of this meeting, the Board has also scheduled a vote on the final recommendations from the Pension Task Force.
Again, the Board has allotted time to address questions; however, this time will be more limited to 30 minutes with preference given to those who have formally requested to appear before the Board and who have not done so during prior meetings. To submit a request, members must submit their names to address the Board no later than 4 p.m. on Tuesday, February 18, 2014 as per Board policy.
Question 6: In my opinion there is a flaw in the structure of our pension. The main issue is that it does not reflect a true picture of our career. When you take the 3 highest paid years and average them to determine retirement, it causes an issue. When you pay in at a lower rank for 25+ years and then get promoted or appointed to a higher position, you only pay at that position for a few years yet you retire at the higher salary. I feel a broader view or snapshot of our careers should be used to determine retirement. Has this been suggested? And can it be looked at as part of the solution? I don’t know the optimum amount of time to use but it should be more than 3 years.
Response 6:
The Board did consider this option, which would actually reduce the pension benefits for everyone. However, the final average salary is considered to be a vested accrued benefit and cannot be legally changed for any member that has more than 10 years of service. Due to this fact, it would not provide any significant savings in the near future and would not address the Board’s concerns about the funding status of the Plan. While the Pension Task Force Fund did not recommend lowering the rate that vested members accrue as a pension benefit during their career, the final recommendations from the Pension Task Force did include a change that lowers the accrual rate for new hires to 2.5% per year of service, which can have a similar affect.
Question 7: If both actuarial studies show that the current proposed changes will “save” $227 million, and both studies state that $150 million is all that is needed to solidify the fund, why allow for deeper cuts than necessary?
Response 7:
These are two completely different numbers that have no connection to each other. The $227 million represents the estimated “savings” the City will see in lower pension contributions during the next 25 years. The $150 million represents the unfunded liability of the Plan on an actuarial basis and is actually a long-term liability, or “debt,” for the City.
To help clarify this confusion, here is a brief explanation showing how each number is calculated:
• The first number ($227 million) is the amount of projected savings the city will experience in their annual required pension contribution during the next 25 years if the Pension Task Force recommendations are approved and implemented. Basically, this number is the difference in how much the City is projected to pay in pension contributions during the next 25 years under the current plan ($627 million) versus how much the City is projected to pay in pension contributions during the next 25 years under the proposed plan ($400 million).
• The second number ($150 million) is the unfunded liability of the pension plan on an actuarial basis. This number is calculated by taking the difference of the total actuarial value of the assets in the Fund today from how much money is needed to pay all earned pension benefits as of Jan. 1, 2013. Using the Jan. 1, 2013 actuarial review, the unfunded liability of the Plan was 63.34% on an actuarial value basis and 51.83% on a market value basis. The difference between the actuarial value and market value is the amount of investment gains and losses that have not been recognized into the Fund’s market value due to the smoothing process to ensure the Fund’s value and costs are more stable.
Please note all of these numbers will change once the Fund’s actuary submits the final Jan. 1, 2014 actuarial analysis of the Fund. This report will show a different set of numbers because it includes the investment gains from last year, reflects any changes in the amount of pension payments since Jan. 1, 2013, and realizes another year of gains and losses from the smoothing process.
As we have said in the past, the Pension Board has a fiduciary obligation to make decisions that serve the best interests of the Fund and protect its future. For more than two years, the Board has been studying changes that would help address concerns about the low funding status of the Plan and its impact to the City’s pension contribution. The culmination of this work was presented to the Pension Task Force, which took the information into consideration as they developed its recommendations for the Pension Board.
With that said, our actuary did provide some preliminary numbers on the Pension Task Force
recommendations and this analysis shows the recommendations will improve the unfunded liability of the Plan by approximately 32% on an actuarial basis and 36% on a market basis.
We hope this clarified the confusion, and thanks for submitting the question.
Question 8: The Chattanooga F&P Pension Enlightener page reported that on talk radio this morning the Pension Board stated that the city had paid all their required annual contributions each year and had even paid a million dollars over their required contributions last year. If this is true then why have we been told for the past several years that one of the main reasons the pension fund has gotten in the shape it is in is because the city has not been paying their required annual contributions?
Response 8:
There may be some confusion in what was said or heard. A few years ago, the City did request that the Board change its smoothing method from 5 years to 10 years in order to help lower the City’s required pension contribution.
As part of this discussion, there was a concern expressed by certain members of the Pension Board that the current budget pressures may prevent the City from funding its required pension contribution unless the Board agreed to move to a 10-year smoothing method to reduce the City’s required pension contribution. While this decision allowed the City to continue paying its annual required pension contribution, it also increased the unfunded liability of the Plan.
This decision is no different that when someone decides to refinance a house for a longer period of time so the monthly mortgage payments are lower, but the net effect of this decision will increase the total payments for the loan.
Question 9: Is there a report available that shows how the actuaries came to the conclusion that “capping” the pension has such a small effect on the pension?
Response 9:
We have discussed this scenario with our actuary on several occasions, including several public Board meetings. In these meetings, the actuary said capping the pension benefit to the highest tested position would not generate the necessary savings that would help improve the funding status of the Plan. The Board did not request a formal presentation on this scenario as it would cost more to develop a formal analysis than the projected savings of the change (less than 1/10 of 1%).
Question 10: I am currently out of town and will not be able to attend the meeting scheduled for February 19th. I do have a question regarding Mayor Berke’s Pension Task Force recommendations; I retired in 1994 before the DROP. Have any considerations been made for those of us who retired before the DROP and did not get the large pay out when we left, as this yearly decrease from 3% cost of living to 1.6% will decrease our benefits. At our (all retirees prior to the DROP) age; we can no longer supplement our income. You and the Mayor need to consider this. Your response and consideration to this request is greatly appreciated.
Response 10:
We have shared this opinion with the members of the Pension Board. We would like to remind members that the DROP is an optional form of an earned benefit and those that elected it had to reduce their monthly benefit in order to receive it.
Question 11: When is the Jan. 1, 2014 actuary report due back? Why is the pension board in such a hurry to push this issue through?
Response 11:
The final, approved actuarial analysis will be finalized in the coming weeks. Once the report is ready, it will be submitted to the Pension Board and the City for review and discussion.
Question 12: Can you explain the Blackwell case and its impact to changing our pension?
Response 12:
Several people have asked questions about “Blackwell vs. The Quarterly County Court of Shelby County”, an opinion from the Tennessee Supreme Court, and its impact on the ongoing discussions regarding potential changes to the pension benefit for Chattanooga Firefighters and Police Officers. Last spring, our attorney reviewed this case and a companion opinion of the Tennessee Supreme Court, “Roberts vs. Tennessee Consolidated Retirement System,” and discussed them with the Board. Recently, the Board asked for a further discussion with our Attorney about these cases and a related Tennessee Attorney General’s opinion on pension reforms.
Our attorney warns us that court decisions, even decisions from the Tennessee Supreme Court, are based on the facts presented to the Court in that specific case, and any change in the facts of the case can result in a different decision by the Court.
However, the Tennessee Supreme Court in Blackwell did say that “reasonable modifications when necessary to protect or enhance the actuarial soundness of the plan” can be made, but they cannot be applied to the detriment of any vested employee. The question of when an employee becomes vested in a particular benefit is still an open question. Under the Roberts case, the Supreme Court said that participants are not currently vested in benefit accruals that will happen in the future, such as the Cost of Living Adjustment (COLA). For more information, please click link to read the Court’s decision in the Blackwell case and the Tennessee Attorney General’s Opinion at https://cfppf.org/blackwell-case/.
Question 13: My question is that over the past 10 years, most pensions of this size or larger have averaged over 10.2% annually, even with “2008”… Why has this pension struggled do much more than the industry average?
Response 13:
The Pension Board has addressed this question at recent Board meetings. In response to the significant losses the Plan experienced from the 2008 market collapse, the Board allocated the Fund’s investments in a more defensive manner to help mitigate future risk. If you study other Pension Funds throughout the country, you will see a similar change in how these Boards responded to the investment losses from 2008. Simply comparing the Fund to the S&P Index is not an apples-to-apples comparison, especially since the S&P does not make retirement benefit payments as we do every year. If we didn’t pay these benefits, the Fund would likely be 100% funded this year. Yes, recent stock market gains have helped the Fund recover some of the losses from the 2008. Unfortunately, the low interest rates that exist in the markets today have played a significant role in slowing the recovery of the Fund.
All Questions and Responses as of 021914
