Retirement fund costs City of Chattanooga additional millions

Retirement fund costs City of Chattanooga additional millions

January 17th, 2011 by Cliff Hightower in News


• $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.

POLL: Should the city pay for employees' medical care after retirement?