published Monday, January 17th, 2011

Retirement fund costs City of Chattanooga additional millions

by Cliff Hightower


• $13.4 million: Revised annual cost for post-retirement benefits.

• $8.7 million: Amount city budgeted in 2010-11 general fund for post-retirement benefits.

• $11.7 million: Amount city now expects to pay from general fund for benefits.

Source: Chattanooga

A trust fund set up to help pay city employees' benefits after they retire will cost taxpayers $2.5 million to $3 million more per year than the initial estimate of $9 million, the city's chief financial officer said.

"It's a budget problem I didn't anticipate originally," Daisy Madison said.

City officials said they have money to plug the hole this year, but future years could be a problem.

Last year, the City Council agreed to fund fully the post-retirement plan, which allows retirees to stay on the city's medical plan, at $14 million. The initial estimate was almost $15.5 million a year, but the council cut retirement benefits to all new employees to save up to $2.5 million annually, city officials said.

Some funding comes from agencies with separate budgets whose employees are covered, and the rest comes from the city's general fund.

Madison said a new actuarial study that came out after the budget was passed in June differed from the 2007-08 study on which the initial estimates were based.

The overall cost of the program went down, she said, but the share of funding coming from the general fund was larger.

The reason?

"There are more employees using it," she said.

The largest group of employees using post-retirement benefits include sworn personnel, such as fire and police, who can retire earlier and live longer, she said. For example, the police and fire pension in the original study was thought to be about 15 percent of the city's payroll costs but ended at 23 percent, she said.

Dan Johnson, chief of staff for Mayor Ron Littlefield, said money has been found to plug the post-retirement plan gap.

"It's going to be covered by positions we did not fill over the last six months," he said.

Still, that could mean "future pressures" on the city's budget, he said.

Madison said she did not know how much money would be needed for the post-retirement benefits in 2011-12. The city must figure out how to fund the additional $2.5 million to $3 million costs because raiding from a pot used for new hires is not sustainable, officials said.

Mayor Ron Littlefield said other areas can be cut, and he doesn't anticipate any kind of tax increase next fiscal year to make up the difference.

"We'll factor all this into the budget proposals," he said. "We've had a great benefits program, and we're paying for it."

Councilwoman Carol Berz, chairwoman of the Budget, Finance and Personnel Committee, said last week the council will begin looking at the new budget in February. She said she plans to talk with Madison before then.

The amount of money needed next year for post-retirement benefits is worrisome, she said.

"We haven't even gotten into how big of a hit we could take," she said.

Before it was reformed, the benefits package for city employees was more generous than others across the state, according to a study by consultant Sherrill Morgan for the Tennessee Personnel Management Association.

Under the old system, employees got lifetime benefits. With reform, benefits end when retirees become eligible for Medicare. Only 26 percent of Tennessee cities offer lifetime benefits, the study said.

Federal accounting changes enacted in 2004 prompted Chattanooga to set up the trust fund to pay for post-retirement benefits. The Government Accounting Standards Board adopted a rule that requires governments to disclose their projected liability for all unfunded retiree programs.

Should the city pay for employees' medical care after retirement?
  • yes 69%
  • no 31%

669 total votes.

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Salsa said...

More mismanagement by the Littlefield administration. They always have some lame excuses. Did they lose the tape on this one too or maybe the dog ate their homework.

January 17, 2011 at 12:15 a.m.
dendod said...

Now because of the additional city employees not being hired, we are going to have less people like Missy Crutchfield sitting around on Face Book and filing her nails all day. Break My Heart. Ron Littlefoot is a total failure.

January 17, 2011 at 8:05 a.m.
nucanuck said...

Public sector benefits and retirement policies are out of line with private sector and out of line with the new American reality.

Defined benefit and early exit programs shoud be ended as should post employment health until age 65 and medicare is your option. Join the real world.

Implied in this article is a big tax increase in coming years.

January 17, 2011 at 10:23 a.m.
jpo3136 said...

Do we not know how old employees are? Do we not know how many people of that birth year survived to be 65?

Unemployed at 65 is not "retirement." It's unemployment.

Retirement does not occur at age 65. It occurs when a person is among the last 20% of the survivors of his birth year. This is when Social Security is funded. That's retirement.

Not working at age 65, when more than 20% of the population of that age is surviving, is called, "Unemployment."

We need to stop deceiving people into thinking that unfunded unemployment is somehow retirement because someone got old. It's never been retirement, just by virtue of age. It's age and survivability, put together.

The reality has been, all along, that people are expected to work until they die. The mercy of retirement is for the paltry few who cannot move under their own power to provide for themselves.

It has always been that way. The Baby Boomer generation just didn't face facts. We've had people at beyond 20% survivability at 65 years old since the 1950s.

It's not the age, it's the survival rate, that makes retirement something other than unemployment.

We've had a lot of local employers pushing out old workers, calling it "retirement" and "early retirement" when it was obvious all along that those financial plans were unsustainable, unrealistic fictions. We're not doing workers any favors by not telling them the truth.

It's retirement if you are among the last 20% to survive. Otherwise, it's unemployment. That is how Social Security is funded. This fiction about generational funding was propaganda of convenience for those who wanted to bill the Social Security Administration for their vacation.

The shock and horror that workers face, when they retire and realize all this only because they ran out of money, is so strong that the humanitarian thing to do is to lead them properly by telling them the truth about the harsh future we've all faced all along. There is no retirement for 80% of us, unless you steal it from someone else.

The people who deserve it and who receive retirement are the last 20% of the survivors.

The problem with the cost projections is not in the dollar amounts, but in the reality denied in the definitions of the descriptions when we decide to claim someone is "retired."

January 17, 2011 at 10:45 a.m.
mymy said...

There has to be change: Search CA pensions or other states to see what a mess they are in and about to go bankrupt. I bet our Union President will try to bail them out on our backs. Wake up all : local and state governments before this happens to you. These governments should backrupt then renegotiate these pensions.

Best Kept Secret in America...

Most people in this country do not realize the catostrophic situation most states in this country are facing... bankruptcy brought on by the overwhelming financial burden of state employee benefits and pensions.

We as citizens MUST PAY ATTENTION AND TAKE ACTION in order to avert this tragedy, which will most certainly fall the younger workers accross America!!!

January 17, 2011 at 11:39 a.m.
nowfedup said...

Truth is that you can get more votes by glamor stuff, dressing up the town, tax breaks for business, then fully funding the retirement plans as the public likes that financial fable.' Then we might examine in same detail the retirement programs for the ELECTED and see what cuts, new guys get less, etc they put in there, which are probably zero change and great fully funded full up life time benefits. Anyone know if difference between workers and elected?

January 17, 2011 at 11:56 a.m.

I cant believe it. The ones who cuff you and put you in jail are the same ones that you are paying in retirement!

This system is so upside-down. What a joke. And Daisy Madison should have to fit the bill, as her mistake costs us hard working people who have no Social Security and pay our taxes so that cops can retire early...what a crock.

January 17, 2011 at 12:56 p.m.
mymy said...

The average Jack and Jill cannont continue to survive, raise and education a family while trying to save for retirement with government taxing heavily for outrageous government benefits and pensions plus other unnecessary spending. Something has to change.

January 17, 2011 at 2:34 p.m.
dazednconfused said...

Since these benefits have been promised to the employees for their years of service, they should be delivered. Public jobs have not always been the best paying jobs. As a result, an attractive benefit package has been necessary to attract quality employees. If we don't want the bottom of the barrel employees working for our governments, then we must find other places trim the fat. Like maybe art exhibits, or additional parks. Just a thought.

January 17, 2011 at 6:11 p.m.
fairandbalanced said...

How many mistakes does Daisy Madison have to make before she is replaced? Sworn fire and police personnel hired before 1986 did not pay any medicare premiums - per the City's rules. What are those employees supposed to do for medical care now that they are retired? Also, this story fails to mention that retired employees pay 50% more than current employees for their medical and dental coverage.

January 17, 2011 at 11:10 p.m.
Allison12 said...

First can we please reduce waste due to corruption.

January 17, 2011 at 11:16 p.m.
scoob69 said...

"I cant believe it. The ones who cuff you and put you in jail are the same ones that you are paying in retirement!

This system is so upside-down. What a joke. And Daisy Madison should have to fit the bill, as her mistake costs us hard working people who have no Social Security and pay our taxes so that cops can retire early...what a crock"


January 21, 2011 at 7:56 p.m.
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