some text
Chattanooga City Hall


Category / Current / Task force plan / Pension Board plan

Minimum retirement age / None / 55 / 50

Employee contribution / 8% / 12% / 9%

Cost of living adjustment / 3% / 1% / Market value

DROP / Yes / No / Yes

Savings to city / n/a / $400 million / $126 million

Source: City, task force and pension board


Scenario Costing Request


Pension administrators are balking at suggested changes that would significantly alter police officers' and firefighters' retirement plan while saving the city $400 million over the next 30 years.

With three weeks to go until Chattanooga Mayor Andy Berke's deadline for his 18-member pension task force to reach a consensus, contention is growing among officials, the Fire and Police Pension Board members and employees over cuts that some say could prompt more employees to leave their departments prematurely.

"It's a worst-case scenario," said police Sgt. Craig Joel, a pension board member. "My concern isn't just attracting new employees; it's also retaining current ones, myself included."

So far the task force is still mulling over scenarios. Once a proposal is presented, the Fire and Police Pension Board weighs in. If the board rejects the proposal, Berke would have to get approval from the City Council and then take the proposal to a referendum vote.

The latest proposal, given to the Police and Fire Pension Board actuary the Segal Co. in mid-November, looks at what would happen if the city were to raise employee contributions from 8 to 12 percent -- a 50 percent increase -- raise the minimum retirement age to 55, reduce the automatic 3 percent cost-of-living adjustment and eliminate the deferred retirement option plan, or DROP.

These changes would mimic a benefit package offered before 1999, when the city beefed up its plan in hopes of enticing older officers and firefighters to retire and to attract and retain new ones.

The pension board's actuary said turning back the clock to a pre-1999 benefit structure could create the same problems that existed when employees stayed on the job for as long as 40 years rather than take a big pay cut by retiring.

"We envision a return to the problems that necessitated the plan design changes in 1999," wrote Leon "Rocky" Joyner, an actuary for the Segal Co., in an evaluation of the scenario. "The Fire and Police departments will once again become top-heavy, with older, likely less able-bodied workers."

In response, Berke's chief of staff, Travis McDonough, chided Joyner in a memo to the task force for making such predictions and later explained it wasn't the actuary's place to predict what might happen.

"For the Pension Board's actuary to suggest that Mayor Berke's administration would allow such a situation to occur under any set of benefits is irresponsible and not credible," he wrote.

Consultant Vijay Kapoor with the PFM Group, which the city hired to study the pension, estimated based on Segal's recent report that the changes could save about half the city's annual contribution to the pension plan. That's $14 million now but is projected to rise barring changes to the plan.

It amounts to nearly $400 million from 2014 to 2044. The Fire and Police Pension Board has made a more conservative proposal that would save the city $126 million.

"[The recent scenario] would be a significant change in the benefit plan," Kapoor said. "But it also results in major cost savings."

Both Joel and pension board President Chris Willmore said they would vote against this option if it came before the board. Willmore said it would contradict Berke's mandate to the task force to create a plan that would retain and recruit employees and be responsible to taxpayers.

"This would make it difficult to retain people; it's not dignified to retirees and would create an inadequate work force," Willmore said. "I can't get behind something like that."

The city's DROP gives employees their retirement benefits from the last three years of work in a lump sum.

As an example, an employee who earns the average salary of $44,786 after 28 years could retire with a 25-year pension benefit of $30,790 annually and take the accrued pension benefit for the three extra years in a lump-sum payment of $92,376.

Taking that benefit away would prompt some employees to consider leaving, Joel said. This isn't a bonus, he said, but allows employees to pay off debts as they enter retirement.

Kapoor said eliminating the DROP would save 3 percent in payroll costs, or about $1.2 million year over year.

Meanwhile, the city recently attained a AAA credit rating. As a result, members of the pension board say, the city should be able to borrow to make up the shortfall in the pension fund.

Before the upgrade, Kapoor said state law wouldn't allow the city to borrow unless the city and county both had the AAA rating.

But McDonough said he hasn't seen a good enough reason to make such a move.

The task force still hasn't set a meeting for this month. McDonough said he expects members will ask for a deadline extension, which the mayor is willing to consider because the group has made progress.

Kapoor said the task force is split on whether to adopt the scenario suggested in November or whether to apply the pension board's cuts. Those cuts included a minimum retirement age of 50, a 1 percent increase in employee contributions and basing cost-of-living adjustments on market value instead of an automatic 3 percent bump.

Contact staff writer Joy Lukachick at or 423-757-6659.