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Potential change in county pension plan causes concerns

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Rutherford County Sheriff’s Capt. Derrell Cagle has logged 25 years with county government, and he’s worried that a move to change pension plans for new county employees could eventually affect his retirement fund too.

Cagle voiced his concerns last Tuesday to the Rutherford County Commission’s steering committee as it studied the county’s pension plan, which is part of the Tennessee Consolidated Retirement System, and looked at alternatives.

Commissioners are considering switching it from a plan in which new employees have a defined or definite benefit to one in which new fulltime workers would be placed in a defined contribution plan or a hybrid of the two.

Even though county officials stated several times that proposed changes would affect new employees only, Cagle said, “If they can change it today (for new employees), they can change it tomorrow (for all employees).”

Cagle explained that he has more than a quarter-century of work with county government and doesn’t want to run into the possibility that his pension plan could suddenly change. “That’s why I’m here,” he told the committee.

Clerk and Master John Bratcher, who is on the county’s pension plan, told the committee if it enacts a pension plan with less funding, “somewhere down the line there’s going to be less money in the program.”

Federal law won’t allow the county to change the pension plan for existing employees, according to Finance Director Lisa Nolen.

But Bratcher pointed out that lawmakers in Washington, D.C., are trying to change the rules for pension programs across the country, even though Tennessee’s retirement fund is in excellent shape.

“We have the soundest investment program in the country,” Bratcher said. “There’s really no need to do this. It’s not like Detroit, it’s not like Illinois. … It’s been well run by Republican and Democratic administrations both.”

A look at the numbers
Human Resources Director Sonya Stephenson told the committee and employees in the Courthouse meeting room that she presented the proposal, with five pension plan options, based on a request last spring by county commissioners.
Stephenson’s presentation showed the Tennessee Consolidated Retirement System, which has 210,493 members and $38 billion in assets, is ranked as a “solid performer” by the Pew Center on the states and has an Aaa rating, the highest possible from Moody’s, and an AA+ from Standard and Poor’s. Its investment return was 9.9 percent for fiscal 2013, and it is 92 percent funded, compared to 75 percent for the nation’s largest retirement systems.

Rutherford County’s pension costs $5.3 million for general employees and $16.7 million for school board employees. The rate paid for county general and school board classified employees, based on salaries, jumped from 7.46 percent in 1995 to 12.69 percent. At the same time, it has gone from 6.5 percent to 8.8 percent for county teachers and certified personnel, all of whom pay 5 percent toward the full rate of 13.8 percent, according to the county report.

In fiscal 2015, which starts July 1, state and local governments will be required to put net pension liabilities in their consolidated annual financial reports, rather than make them footnotes as currently required.

Stephenson’s report noted that the retirement plan could be more costly if investments don’t have at least a 7.5 percent rate of return. It also states that an increase in employees, investment “losses,” longer life spans and faulty assumptions about retirees known as “actuarial losses” could be detrimental to the pension fund.

Rutherford County has 989 fulltime employees, 579 of whom have less than 10 years of service and 28 of whom have 30 years with the county. About 185 are 55 or older.

The average salary for active, fulltime workers is $32,825, and under the current pension plan they would draw $1,292 a month. Current county retirees, who average age 70, draw $1,287 a month.

Where it’s headed
County Commissioner Gary Farley pointed out to other committee members that several years ago commissioners improved the pension plan to make up for lower wages, which improved the county’s ability to recruit and keep employees.

“Something’s going to have to be done to the payroll in the future to offset the benefit package,” if it receives less funding, Farley said.

Finance Director Nolen told committee members that the defined benefit system guarantees employees a certain amount when they retire but that defined contribution plans could yield greater returns but with more risk for the employee.

The state of Tennessee will go to a hybrid plan for new fulltime teachers, state and higher education employees July 1, as will Rutherford County Schools. The city of Murfreesboro has defined contribution plans with a five-year vesting plan. Murfreesboro City Schools teachers and certified employees will follow the state plan, while its classified employees will stay with their current plan.

“The question is: Are we going to make a similar move?” Nolen said after the meeting. Any changes would be negligible for the county budget for several years because it must fund the retirees and employees already in the system, she said.
Farley and Commissioner Steve Sandlin tried to persuade committee members Tuesday night not to change the pension plan. But others asked for more information, and the committee decided to discuss the matter again in April.

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