What Happened?
Police and fire union leaders recently agreed with Chattanooga officials on a strategy on how to cut pensions and reduce unfunded liabilities. After months of unsuccessful negotiations, the unions and officials launched a task force to develop a plan to lower the financial burden on taxpayers.
The Goal
The situation in Chattanooga was getting worse by the day. Just like many other cities across the country, Chattanooga is struggling to pay its share of public employee pensions amid budget cuts and demand for capital investment elsewhere in the community. This past year came to a close with twice as many officers and firefighters entering into retirement than normal, which has placed even more strain on the pension fund.
Because traditional negotiations were failing to find a middle ground between the demands of union leaders and city officials, a task force was created to weigh the options and propose a solution. The task fore was created specifically to cut down the city’s $150 million unfunded liability to the fire and police pension fund. However, all the plans developed by the task force failed to meet the demands of one side or the other.
Finally, representatives from either side met with the expectations of finding a solution or leaving it in the hands of the voters to decide how to handle the fund. The fire and police union leaders laid out what benefits they could not budge on, while city officials explained their bottom line as well. After a 13-hour meeting between representatives from each camp a proposal was finally drafted and awaits approval from the Chattanooga pension board and city council.
Plan Breakdown
The plan that managed to garner the bare minimum of support from either side aims to reduce Chattanooga’s annual contribution to the fire and police pension fund by $4 million to $5 million each year. Over the next 26 years, the proposed changes are expected to save the city more than $200 million. To achieve these savings, the proposal calls for:
- The minimum retirement age for non-vested police and fire union members be raised to 50, while new hires must wait until 55
- Employee contribution toward the pension fund be increased from 8 percent to 11 percent, or 9 percent to 12 percent, over the next 3 years
- Place the cost-of-living adjustments for retirees at a 1.5 percent average
- Employees will be able to take their last 3 years of pay after 25 years in one lump sum, known as the DROP, but that benefit will not include interest
- Employees can opt to stay 3 extra years without losing the DROP benefit
- Beneficiaries of those killed in the line of duty will receive 100 percent of benefits
One item the unions would not negotiate was the refusal to force offices and firefighters with 10 or more years vested in the retirement plan to work past the 25-year mark when they were promised they could retire.
Similar Qualms
Other cities and states around the country are engaging in pension negotiations resembling Chattanooga’s situation. New Jersey recently passed a bill to align Jersey City’s pension system with that of the overall state system. The goal is to save local taxpayers millions annual by increasing employee contributions and cutting benefits. In Illinois, a recent pension reform measure has stirred up some lawsuits from labor interest groups claiming the changes were unconstitutional.
Pension Problems
Gov1 has kept an eye on a variety of pension reforms enacted after municipalities realized the financial consequence of maintaining the status quo.