Moody's supports pension reforms

Moody's supports pension reforms

April 5th, 2014 by Joy Lukachick Smith in Local Regional News

A national credit ratings firm praised Chattanooga for reforms to its Fire and Police Pension Fund that cut rising costs and reduced the fund's unfunded liability by $86 million.

"The reforms were achieved through a collaborative effort between the city, police and fire employee groups, community members and the board of the Fire and Police Pension Fund," states the Weekly Credit Outlook for Public Finance by Moody's Investors Service.

The reforms will increase employee contributions by about 40 percent, cut retirees' cost-of-living adjustments and tighten retirement eligibility requirements; those measures will save the city an estimated $227 million over the next 25 years.

Mayor Andy Berke said the Moody's Report validates the efforts to rein in the pension fund.

"This was difficult work, but after several months our Pension Task Force was able to put the pension plan on a sustainable path in a fiscally responsible way. That means taxpayers will save a total of $227 million and, at the same time, we will ensure the fund is financially healthy for retirees in coming years," he said in a statement.

Berke named the 18-member task force in July 2013. After months of work, the task force came up with reforms approved by the City Council in March.

The Moody's report notes that the reforms represent a "credit positive" for the city, which has a Aa1 bond rating. Moody's "credit positive" declaration "does not connote a rating or outlook change," but does indicate the impact of a "distinct event or development," the report states.

Moody's notes the city may face legal challenges to the reforms, "in part because Tennessee law prohibits changes to vested accrued benefits." However, the city's pension fund attorneys counter that state courts "have never established [cost-of-living adjustments] as vested financial benefits," the report states.