The City Council is set to vote Tuesday night on a series of changes to the Fire and Police Pension Fund designed to make the program less costly to taxpayers and to keep it financially stable.
A public hearing by the council will be Tuesday at 4 p.m. at City Hall.
The ordinance says it is "to enact certain reasonable reforms necessary to ensure the financial stability and actuarial integrity of the Chattanooga Fire and Police Pension Fund.
The changes were approved earlier this week by the Fire and Police Pension Board.
They were worked out with the help of a consulting firm.
The ordinance says:
WHEREAS, the Chattanooga Fire and Police Pension Fund exists to provide financial
benefits to members of the Chattanooga Fire and Police Departments and their designated
beneficiaries after the qualified retirement, disability, or death of the member; and
WHEREAS, the City and the Board of Directors of the Fund have determined that, based
on the current benefit structure and expected funding levels identified in the
Board’s own
January 1, 2013 actuarial valuation report and subsequent evaluations, the unfunded liabilities of
the Fund pose a financial risk to the Fund and to its long-term ability to pay benefits; and
WHEREAS, the Mayor of Chattanooga created a task force composed of citizens and
active and retired members of the Chattanooga Fire and Police Departments, including leaders of
employee organizations, as well as representatives from the Fund to develop recommendations
for reasonable reforms to ensure the long-term fiscal and actuarial integrity of the Fund and its
ability to meet benefits payable, the ability of the Chattanooga Fire and Police Departments to
recruit and retain a talented workforce, and the City’s fiscal health and ability to
deliver quality
services while being fair and responsible
to the City’s taxpayers without affecting benefits
payable as of the effective date of this ordinance; and
WHEREAS, the task force has reported to the Mayor of Chattanooga its consensus
recommendations for reforms to the Fund that achieve these goals without reducing benefits
payable to, or any vested financial benefits accrued by, any member or beneficiary; and
WHEREAS, the actuary for the Fund has acknowledged that the task force’s consensus
recommendations are consistent with sound actuarial principles and assumptions; and
WHEREAS, the Mayor of Chattanooga has accepted
the task force’s consensus
recommendations for reforms and the Board has recommended to the City Council of the City of
Chattanooga that those reforms be implemented,
Be it ordained by the City Council of the City of Chattanooga,
Section 1.
That Section 2-402 of the Chattanooga City Code is amended by striking the
text in its entirety and inserting the following language in its place:
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(a) Beginning on the effective date of this ordinance and continuing until June
30, 2015, each Member will be assessed a contribution to the Fund in an amount, fixed
by majority vote of the Board, not less than nine percent (9%) of the Member’s Base
Salary. However, each Member eligible for and who has elected to participate in the
DROP provided for in Section 2-422 will be assessed a contribution to the Fund in an
amount, fixed by majority vote of the Board, not less than ten percent (10%) of the
Member’s Base Salary.
(b) Beginning July 1, 2015, and continuing until June 30, 2016, each Member
will be assessed a contribution to the Fund in an amount, fixed by majority vote of the
Board, not less than ten percent (10%) of the Member’s Base Salary. However, each
Member eligible for and electing to participate in the DROP provided for in Section 2-
422 will be assessed a contribution to the Fund in an amount, fixed by majority vote of
the Board, not
less than eleven percent (11%) of the Member’s Base Salary.
(c) Beginning July 1, 2016, and continuing thereafter, each Member will be
assessed a contribution to the Fund in an amount, fixed by majority vote of the Board, not
less than eleven percent (11%) of the Member’s Base Salary. However, each Member
eligible for and electing to participate in the DROP provided for in Section 2-422 will be
assessed a contribution to the Fund in an amount, fixed by majority vote of the Board, not
less than twelve percent (12%) of the Member’s Base Salary.
(d) Notwithstanding the provisions of subsection (a), (b), and (c), a Member hired
prior to July 1, 1999, whose Average Base Salary as of that date was less than $41,138
and whose Average Base Salary as of July 1, 2007, was less than $41,138, will be
assessed a sum, beginning July 1, 2007 and continuing thereafter, to be fixed by a
majority vote of the Board, which will not be less than eight percent (8%) of that
Member’s Base Salary,
and in no event will be less than eight percent (8%) of $41,138,
annually.
(e) The contribution amounts set forth in this Section 2-402 will be deducted and
withheld from the salary of each Member during the time that the Member is employed
by the Chattanooga Fire or Police Department. The city officer responsible for
disbursing salary payments to Members will make the appropriate deductions and
withholdings of contribution amounts and will pay all such amounts to the Fund at the
time deducted and withheld to be kept by its trustee in accordance with the provisions of
Section 2-400 of the Chattanooga City Code.
Section 2.
That Section 2-410(b)(3) of the Chattanooga City Code is amended by
striking the text following the term “November 3, 1992,” and inserting the following language in
its place: “and
made no election of benefits under Section 2-418, the surviving spouse will
receive the benefit paid under Option D of Section 2-
418.”
That the first sentence of Section 2-
410(c) is amended by inserting the phrase “an amount equal
to” immediately before the
term “$500.00 per month” and by inserting the phrase “, increased by
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all
appropriate cost of living adjustments under this Division from and after July 1, 1999,”
immediately after the term
“$500.00 per month.”
Section 3.
That Section 2-411 of the Chattanooga City Code is amended by inserting a
new subsection (a) providing as follows:
(a) Minimum Age and Service Requirements for Service Retirement Pension.
(1) Any Member who has completed ten (10) or more years of Active
Service with the Chattanooga Fire or Police Department as of the effective date of
this ordinance may, at his or her election, retire upon completing twenty-five (25)
years of Active Service with the Chattanooga Fire or Police Department and,
upon notifying the Board of his or her election pursuant to this subsection, will be
entitled to receive the annual Service Retirement Pension provided in subsection
(b) to be distributed in twelve (12) equal payments as benefits become payable
each month.
(2) Any Member who has completed fewer than ten (10) years of Active
Service with the Chattanooga Fire or Police Department as of the effective date of
this ordinance, including, for purposes of this subsection, any person who is a fire
or police academy cadet as of the effective date of this ordinance and
subsequently becomes a Member, may, at his or her election, retire upon (i)
completing twenty-five (25) years of Active Service with the Chattanooga Fire or
Police Department and attaining the age of fifty (50) years or (ii) completing
twenty-eight (28) years of Active Service with the Chattanooga Fire or Police
Department and, upon notifying the Board of his or her election pursuant to (i) or
(ii) of this subsection, will be entitled to receive the annual Service Retirement
Pension provided in subsection (b) to be distributed in twelve (12) equal payments
as benefits become payable each month.
(3) Any Member hired by the Chattanooga Fire or Police Department
after the effective date of this ordinance (except current fire and police academy
cadets covered under subsection (a)(2)) may, at his or her election, retire upon (i)
completing twenty-five (25) years of Active Service with the Chattanooga Fire or
Police Department and attaining the age of fifty-five (55) years or (ii) completing
thirty (30) years of Active Service with the Chattanooga Fire or Police
Department and, upon notifying the Board of his or her election pursuant to (i) or
(ii) of this subsection, will be entitled to receive an annual Service Retirement
Pension. The total annual pension for the Member will be an amount equal to
two-and-one-half percent (2.5%) of the average Base Salary paid to the Member
during his or her three (3) highest-earning years of Active Service in the
Chattanooga Fire or Police Department multiplied by the Member’s years of
Active Service up to a maximum annual payment equal to no more than seventyfive
percent (75%) of the average Base Salary paid to the Member during his or
her three (3) highest-earning years of Active Service in the Chattanooga Fire or
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Police Department. The annual pension will be distributed in twelve (12) equal
payments as benefits become payable each month.
(4) Notwithstanding the foregoing, the age and service requirements of
paragraphs (1), (2), and (3) of this subsection (a) must comply with the rules and
regulations of the Internal Revenue Service relating to normal retirement as they
may change from time to time. If the age and service requirements do not comply
with these rules and regulations, then they will change automatically to comply.
That current subsection (a) of Section 2-411 of the Chattanooga City Code will become new
subsection (b) and is amended by striking all language following the second sentence, beginning
with the word “Notwithstanding.”
That new subsection (b) is further amended by striking the phrase “payable in twelve (12)
monthly installments” and inserting the phrase “to be distributed in twelve (12) equal payments
as benefits become payable
each month” in its place.
That current subsection (b) of Section 2-411 of the Chattanooga City Code is amended by
striking that subsection in its entirety.
That the first sentence of Section 2-411(c) of the Chattanooga City Code is amended inserting
the
phrase “, increased by all appropriate cost of living adjustments under this Division from and
after July 1, 1999,” immediately after the term “$500.00 per month.”
That the first sentence of Section 2-411(e) of the Chattanooga City Code is amended by striking
each occurrence of the phrase “the date of the passage of this amendment” and inserting the term
“July 1, 1999,” in its place.
That the second sentence of Section 2-411(e) of the Chattanooga City Code is amended by
striking that sentence in its ent
irety and inserting the following language in its place: “No
participant or beneficiary vested as of July 1, 1999, will receive an amount that would be less
than the amount payable to a participant or beneficiary with equivalent service retiring as of July
1, 1999.”
Section 4.
That Section 2-412(b) of the Chattanooga City Code is amended by inserting
the phrase “, increased by all appropriate cost of living adjustments under this Division from and
after July 1, 1999” after the second parenthesis and bef
ore the period in the second sentence of
the first paragraph, and by inserting the phrase “, increased by all appropriate cost of living
adjustments under this Division from and after July 1, 1999,” immediately after the term
“$500.00 per month” in the fir
st sentence of the second paragraph.
That Section 2-412 of the Chattanooga City Code is amended by inserting a new subsection (c)
providing as follows:
(c) Notwithstanding the provisions of subsection (b), if any Member employed
by the Chattanooga Fire or Police Department on or after April 1, 2011, is killed in the
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line of duty prior to retirement, the Member’s surviving spouse will be placed on an
annual pension calculated as one hundred percent (100%) of the average Base Salary paid
to the Member during his or her three (3) highest-earning years of Active Service in the
Chattanooga Fire or Police Department. This pension will be distributed in twelve (12)
equal payments as benefits become payable each month until the death of the Member’s
surviving spouse.
That current subsection (c) of Section 2-412 of the Chattanooga City Code will become new
subsection (d) and is amended by striking the
phrase “under the provision of this Section,” and
inserting the phrase “under the provisions of subsection (a),” in its place.
Section 5.
That Section 2-416(e) of the Chattanooga City Code is amended by striking
the text in its entirety. The City Council declares its intent to rescind the sunset provisions of
Section 2-416(e) of the Chattanooga City Code.
Section 6.
That Section 2-417 of the Chattanooga City Code is amended by striking the
text in its entirety and inserting the following language in its place:
(a) The annual pension to a Member retired before the effective date of this
ordinance, or to any qualified survivor or beneficiary of such Member will be increased
in the manner described in subsection (b) or (c), whichever is applicable, each January 1
after the twelfth monthly benefit payable.
(b) Any time the Fund is less than eighty percent (80%) funded on a market value
basis as determined by the Fund’s most recently completed annual actuarial valuation and
review, the total amount payable from the Fund to eligible recipients will be increased
effective each January 1, beginning as soon as practicable after January 1, 2015, by one
and one-half percent (1.5%). This increase will be allocated among eligible retired
Members receiving annual pensions and the qualified survivors or beneficiaries of such
Members
by the Board, after consultation with the Fund’s actuary, to provide higher cost
of living adjustments to those receiving lower monthly benefits payable. In no event,
however, will any annual pension be increased by greater than two percent (2%) or less
than one percent (1%) of the monthly benefit payable.
(c) Any time the Fund is at least eighty percent (80%) funded on a market value
basis
as determined by the Fund’s most recently completed annual actuarial valuation and
review, all cost of living adjustments beginning the following January 1 will correspond
to the Consumer Price Index up to a maximum cost of living adjustment of three percent
(3%), provided that the Fund, inclusive of this change, would not be less than eighty
percent (80%) funded on a market value basis.
(d) The cost of living adjustment for the annual pension to a Member retiring on
or after the effective date of this ordinance, or to any qualified survivor or beneficiary of
such Member, will be as follows:
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(1) The annual pension to a Member retiring on or after the effective date
of this ordinance, or to any qualified survivor or beneficiary of such Member, will
not be increased until the January 1 after the thirty-sixth monthly benefit payable,
at which time the annual pension will be increased in the manner described in
subsection (b) or (c), whichever is applicable, except as provided in subsection
(d)(2).
(2) If after the twelfth monthly benefit payable but before the thirty-sixth
monthly benefit payable to a Member retiring on or after the effective date of this
ordinance, or to any qualified survivor or beneficiary of such Member, the Fund is
at least seventy percent (70%) funded on a market value basis as determined by
the Fund’s
most recently completed annual actuarial valuation and review, the
annual pension will be increased, beginning the following January 1, in the
manner described in subsection (b) or (c), whichever is applicable, so long as the
increase would not cause the Fund to fall below seventy percent (70%) funded on
a market value basis. If the increase is applied, but the Fund subsequently falls
below seventy percent (70%) funded on a market value basis before the thirtysixth
monthly benefit payable, then the increase for these Members will be
discontinued until the January 1 following the first thirty-sixth monthly benefit
payable.
(e) For individuals eligible for cost of living adjustments effective January 1,
2015, and January 1, 2016, such cost of living adjustments will be dividend cost of living
adjustments and will not be compounded or placed into the base pension amount in
subsequent years. Nothing in this Section 2-417 should be construed to affect benefits
payable as of the effective date of this ordinance.
Section 7.
That Section 2-418 of the Chattanooga City Code is amended by inserting the
phrase “and eligible to retire on or before December 31, 2012,” immediately after the second
occur
rence of the term “November 3, 1992,” in the second paragraph of subsection 1, and by
striking the term “$500.00” in the second paragraph of subsection 1 and inserting the term
“$750.00
, increased by all appropriate cost of living adjustments under this Division,” in its
place.
Section 8.
That Section 2-419 of the Chattanooga City Code is amended by striking
paragraph 6 in its entirety and inserting the following language in its place:
6. The term “Service Retirement Pension” means the
annual pension that a
Member who has elected to retire upon meeting the applicable minimum age and service
requirements of Section 2-411(a) is entitled to receive and which will be distributed in
twelve (12) monthly benefits payable subject to adjustment as provided in Sections 2-
418, 2-422, and 2-423, if applicable.
That Section 2-419 of the Chattanooga City Code is amended by inserting the following
language after paragraph 8:
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9. The term “Consumer Price Index”
means the percent change in the Chained
Consumer Price Index for All Urban Consumers (C-CPI-U) as reported by the Bureau of
Labor Statistics of the United States Department of Labor for the twelve (12) months
ending the previous September.
Section 9.
That Section 2-422 of the Chattanooga City Code is amended by inserting a
new subsection (a) providing as follows:
(a) Only Members who have completed at least twenty-four (24) years of Active
Service with the Chattanooga Fire Department or Police Department as of the effective
date of this ordinance and filed a written election with the Board on or before December
31, 2008, agreeing to contribute an additional one percent (1%) of their Average Base
Salary to the Fund will be eligible for the Deferred Retirement Option Provision (DROP)
described in this Section 2-422 so long as the Member complies with the contribution
requirements of Section 2-402.
That current subsection (a) of Section 2-422 of the Chattanooga City Code will become new
subsection (b) and is amended by striking the word “and” between the terms “Fire Department”
and “Police Department” and inserting the word “or” in its place
.
That current subsection (b) of Section 2-422 of the Chattanooga City Code will become new
subsection (c), that current subsection (d) of Section 2-422 of the Chattanooga City Code will
become new subsection (e), and that current subsection (e) of Section 2-422 of the Chattanooga
City Code will become new subsection (f).
That current subsection (c) of Section 2-422 of the Chattanooga City Code will become new
subsection (d) and is amended by changing the two internal cross-
references from “subsection
(b), above” to “subsection (c), above.”
Section 10.
That Section 2-423 of the Chattanooga City Code is amended by striking the
text in its entirety and inserting the following language in its place:
(a) Members who do not meet the requirements of Section 2-422(a) are eligible
only for the DROP described in this Section 2-423. A Member may elect to receive, and
may receive, only one DROP. Any Member not eligible for the DROP described in
Section 2-422 who, as of the effective date of this ordinance, filed a written election with
the Board on or before December 31, 2008, agreeing to contribute an additional one
percent (1%) of their Average Base Salary to the Fund will have the total amount of their
additional one percent (1%) contributions refunded to them as soon as practicable after
the effective date of this ordinance.
(b) Beginning on the effective date of this ordinance, a Member of the
Chattanooga Fire Department or Police Department currently employed in such capacity
with the City who serves at least twenty-five (25) years of Active Service, but no more
than thirty-three (33) years of Active Service (the DROP Period), may elect to receive the
DROP described in this Section 2-423. Any Member hired by the Chattanooga Fire or
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Police Department after the effective date of this ordinance who reaches the age and
service requirement for a normal retirement as noted in section 2-411(a)(3), but has
achieved no more than thirty-three (33) years of Active Service (the DROP Period), may
elect to receive the DROP described in this Section 2-423. The Service Retirement
Pension for a Member who has elected to receive the DROP described in this Section 2-
423 will be adjusted as follows: Upon retiring and providing written notice of retirement
to the Board
, the Member’s Service Retirement Pension will be calculated as provided in
Section 2-411, and further adjusted as provided in Section 2-418, if applicable, except
that, for purposes of the calculation under Section 2-
411, the Member’s Active Service
will be reduced by the number of months elected by the Member on his or her DROP
election form. The number of months elected by the Member may not exceed the lesser
of (i) the number of months of Active Service accumulated by the Member beginning on
the date the Member completes twenty-five (25) years of Active Service and ending on
the Member’s actual retirement date or (ii) thirty
-six (36) months.
(c) The DROP will be calculated by multiplying the number of months elected by
the Member as provided in subsection (b) by the Member’s Average Base Salary at the
time the Member first becomes eligible to elect to receive the DROP as provided in
subsection (b). The resulting dollar amount will be paid, in a single lump sum, from the
Fund as soon as practicable after the Member’s retirement.
No cost of living adjustment
or interest will be applied to or earned by the DROP payment.
(d) To elect to receive the DROP described in this Section 2-423, an eligible
Member must complete a written election form provided by the Board and file it with the
Board during the DROP Period. The right of a Member who elects to receive the DROP
described in this Section 2-423 will not accrue or vest until the Member retires.
(e)
A member’s right to participate in the DROP shall not be vested until the
member retires and elects to take the DROP. The DROP may be discontinued or
modified at any time.
Section 11.
That Section 2-424 of the Chattanooga City Code is amended by striking the
text in its entirety and inserting the following language in its place:
(a) Immediately upon the effective date of this ordinance and once every five
years thereafter, the Board will commission a full actuarial study of the financial impact
and cost neutrality of the DROPs on the Fund. The study will be performed by a third
party actuary (an actuary or actuarial firm holding membership in the Academy of
American Actuaries that does not serve as actuary for either the Board or the Fund),
which will prepare a report of the study and its findings. The study and report will be
submitted to the Mayor, the City Council, and the Board and will include an assessment
of whether the DROP provided for in Section 2-423 is cost neutral to the Fund. The first
report required by this subsection (a) is due as soon as practicable after the effective date
of this ordinance. In the event that a report indicates that the DROP provided for in
Section 2-423 is not cost neutral to the Fund, the Board will modify the DROP to ensure
its cost neutrality to the Fund.
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(b) The Board will submit to the Mayor and City Council quarterly performance
evaluations of the Fund.
Section 12.
That the specific intent of the City Council in passing this ordinance is to
create a structure for the Fund that ensures its long-term actuarial integrity and ability to pay
benefits while preserving the City’s fiscal health. This ordinance must be cons
trued to effectuate
this specific intent.
Section 13.
That this ordinance will take effect on July 1, 2014.
Passed on second and final reading: ______________, 2014
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CHAIRPERSON, CITY COUNCIL
APPROVED: ____ DISAPPROVED: ____
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