A proposed retirement plan cleared a major hurdle Thursday after receiving unanimous approval by the Chattanooga Fire and Police Pension Board.
The eight-member board voted for a plan that would preserve the structure of a defined benefit retirement for the foreseeable future. But it would reduce the cost-of-living adjustments retirees receive each year and increase employee contributions.
"This was not an easy vote, but it was a decision that needed to be made," said Chris Wilmore, pension board president.
The pension fund suffers from an unfunded liability of $194 million on a market basis. The proposal would reduce the shortfall by $62 million this year, data provided by the pension’s administrator shows.
Under the overhaul, the pension fund would continue providing a dignified retirement for its membership of about 1,500, Wilmore said.
He and five other public safety employees on the board essentially voted themselves a pay cut and a lower COLA when they retire, Wilmore said, which made their decision more difficult. The board also includes two civilian appointments made by the mayor.
Last summer, Mayor Andy Berke formed an 18-member task force to resolve structural problems in the pension fund. Currently, it only has enough money to cover about 54 percent of its obligations to members. The proposal would immediately boost the funded status to 64 percent. Over the next 25 years, it would save taxpayers $227 million.
Union leaders and city officials negotiated the deal in January at the EPB headquarters downtown. Other changes include a modified deferred retirement option plan and a new minimum retirement age.
The proposal goes next to the City Council, where the first vote is expected Feb. 25.
Many of the comments made before the board’s vote expressed tepid support for the decision. In the past few weeks, though, a group of retirees has been openly critical of the proposal, singling out the lower COLA as a "breach of contract."
Board member Mark Coffman, firefighter, would not be able to retire until he meets the proposal’s minimum age of 50. He said the changes would affect him more than almost everyone in the room, and his decision was not easy.
"I knew the task ahead was to maintain the solvency of this fund," he said. "No one wants to give up anything. But with the temperatures of funds across the country, hard decisions have to be made."
Seeing how the pension’s funded status had steadily decreased since 2000 gave firefighter Charles Thomason pause. He was initially skeptical of the mayor’s task force, but he told pension board members Thursday he thinks the proposed changes are reasonable.
"It just didn’t look like it was sustainable," he said. "When I talked to my union rep, he said that even if we fought it, changes would still have to be made. So why fight it?
"It was best to go ahead and get it over with," he said.
Board member Craig Joel, police officer, said opinion has begun to shift on this issue as employees and retirees are realizing that changes are needed to preserve the pension.
"At the end of the day, I think the shift is that passions have given way to facts," he said. "Even with a worst-case scenario referendum, there were going to be changes made. And those changes would have been made without any of our input whatsoever."
Board member Brent Goldberg, Chattanooga’s deputy chief operations officer, said the Berke administration knew from the beginning that this was an emotional issue for everyone. Three months ago, task force members began working together and acknowledged that there were problems with the pension plan, that it was not sustainable on its current path, he said.
"I think the reason we were able to have a vote like we did today is because of that joint effort to find a solution," he said.
Two union leaders who were part of the task force negotiations said that although their members aren’t gung-ho about the proposal, the majority understands why the changes are needed.
The task force looked at the pension fund from a range of perspectives, from retirees to current and future employees, said Jack Thompson, president of the Chattanooga Fire Fighters Association.
"We wanted to make sure that the fund was not only available for everybody who’s retired now, not only available for the people that are currently working, but for the people that are going to get hired tomorrow," he said.
The pension board’s unanimous vote is an indication of how hard the task force worked on the proposal, said Sean O’Brien, president of the Fraternal Order of Police. Every option was reviewed, he said, with the end result being a "balanced approach" that would sustain the fund long term.
"The majority of the [FOP] membership acknowledges that this solution is going to achieve the desired result, even though it’s painful," he said.
A group of retirees walked out after the vote. For several weeks, they have urged the pension board and the City Council to vote against the proposal.
Many of them are frustrated with a reduced COLA. When they retired, they said they were guaranteed a 3 percent annual adjustment to their pension checks to account for inflation. Under the proposal, the COLA would be reduced by about half.
The vote Thursday did not surprise retired police officer Johnny Frazier.
"We expected this," he said.
Frazier said before he retired in 1999, he opposed changes to the pension plan that were adopted during the Kinsey administration. After that decision, though, the city made promises to its employees.
"Now, they’re going to break their promise because they found it’s too expensive. That’s no reason not to keep your promise," he said.
An ad hoc group of 10 to 20 retirees may pursue legal action if the proposal is adopted, he said.
"I think this begs to go to court," he said.
Updated @ 1:19 p.m. on 2/20/14 to add more information.
Updated @ 3:10 p.m. on 2/20/14 to correct a misspelling: Coffman's last name is spelled with a "C," not with a "K," as originally reported.
Updated @ 8:13 a.m. on 2/21/14 to add more information.