The Murfreesboro City Council voted unanimously to approve two amendments to the Murfreesboro Electric Department (MED) Pension Committee’s plan document during their special joint meeting last week.
The first amendment would correct typos made within the plan document, and the second would serve as a “self-correction” to rectify past administration methods that did not align with the document’s language.
“As a result of that past administration, benefits were calculated in a manner that was inconsistent with the requirements of the plan,” said City Attorney Adam Tucker, who pointed out that all of the plan miscalculations were to the benefit of employees.
Councilman Rick LaLance pointed out that this “benefit of employees” is simultaneously at the “detriment of the ratepayer.”
The misinterpretation of the document creates a legal issue with the Internal Revenue Service’s requirements for a tax-exempt “qualified plan.”
The amendments up for approval were recommended for the city’s pension plan to maintain its qualified status. City staff reached out to Cowden Associates, Inc., an actuarial and consulting firm, for guidance about correcting the administrative issues.
Tucker said the two options brought to the table were to “claw back” $460,000 from beneficiaries and reduce benefits going forward or amend the plan language to match the past administrative practice.
The latter was the recommendation.
City Human Resources Director Pam Russell provided a timeline of events from the transition of MED to Middle Tennessee Electric Membership Corp. Russell said there was a meeting last year to sort through employee files and review the pension process.
“Time was also of the essence because seven active employees were eligible to retire on July 1, 2020,” said Russell.
HR Benefits Administrator Chris McFarlane worked with committee member Lori Williams, MED Certified Public Accountant (CPA), and P.D. Mynatt, MED Controller and Chief Financial Officer (CFO), to go over how the plan was to be administered. McFarlane was responsible for calculations of pension applicants, according to Russell.
The first deviation from the plan document was made in 2006, according to HR and Cowden’s findings. Misinterpretations of the plan document became apparent again around mid-2017.
Mayor Shane McFarland asked Mynatt why there was a change in plan administration for the individual employee who retired in 2006, and Mynatt said there had been no change.
“The plan has always been administered the same way from day one,” said Mynatt, “It predates me.”
LaLance asked for further clarification on the start of the 2019-2020 plan year and if the employee raises from Jan. 1, 2020 were included in the salary for the five highest consecutive earning years. An employee must work 1,000 hours within the plan year, starting July 1 and ending June 30, to receive High-Five eligibility for that year.
“The deviation occurs when you allow someone to get credit for a full plan year when they only maybe worked one day or a week or used benefit hours for one day,” McFarlane explained.
City Manager Craig Tindall said the plan states that the salary from the first day of the plan year is to be used in this High-Five calculation.
Tucker clarified this statement by listing the High-Five dates included for employees employed with MED on June 30, 2020 without the amendment in place. These dates are July 1, 2019, July 1, 2018, July 1, 2017, July 1 2016 and July 1, 2015.
The mayor went on to point out inconsistencies in how the plan was administered in relation to cash payouts for sick and vacation time.
One employee who retired in 2018 received a $77,000 cash payout without having worked 1,000 hours in the plan year, but another employee who retired the following year wasn’t given this option.
“Any which way you look at it, no matter how it was done in the 80s or 90s, it ain’t right,” said McFarland.
Tucker pointed out a pattern that was found in the plan with more employees choosing to retire in the first half of a plan year (second half of a calendar year) starting in mid-2017, when the opposite was true for previous years.
Williams said she wasn’t sure of the cause of this trend in retirement times but emphasized that it was the actuary, Michael Guyton, who calculated benefits not MED management or individual employees.
The awarded amount of benefits, based on employee start dates, retirement dates and High-Five years, was eventually signed off by management and the pension participant.
Williams said she had not read the plan document or the audits at the time.
LaLance suggested going outside the plan document and the amendment in order to write checks to the 36 pension plan participants who were not paid the same as the seven employees who had their benefits miscalculated.
He wants the Jan. 1, 2020 to June 30, 2020, period to be included.
“We would then calculate for each of those 36 people what the present value of that difference in their High-Five would be, and write them a check,” said LaLance. “I think that’s the only way you can fix it.”
McFarland said he thinks the check suggestion would be “almost like rewarding a bad mistake that was made.”
He said he’d be willing to put this discussion on “rank and file” but will not vote in favor of management receiving a cut of this money.
The MED Pension Committee will continue to oversee the pension plan following the approval of these two plan document amendments.