City Council To Vote Tuesday Night On Fire And Police Pension Changes

Saturday, February 22, 2014

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

4

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

8

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.

9

(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

__________________________________

CHAIRPERSON, CITY COUNCIL

APPROVED: ____ DISAPPROVED: ____

__________________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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