BRADENTON, Fla. - Chattanooga, Tenn.'s, recently enacted public safety pension reforms, reducing the city's adjusted net liability by nearly $86 million, are a credit positive, according to Moody's Investors Service.
The reform measures reducing benefits, tightening retirement eligibility, and increasing employees' contributions will shrink the net liability to 174% from 207% of the city's operating revenues, said Moody's analyst Tom Aaron.
"Plan actuaries project the reforms will reduce the city's annual required contributions for public safety pensions by at least 35% each year going forward," Aaron said. "The 2014 savings are $6 million, about 2.5% of general fund revenues."
Prior to the changes, the city projected its contribution to the pension plan would grow by 7% annually. Moody's said costs will now grow at a more manageable 4.6%, and are estimated to save $220 million over 25 years, according to actuarial projections.
The market value funded ratio of the plan was 52% as of January 2013.
The reform measures were approved in March by the City Council after Mayor Andy Berke formed the 18-member Pension Task Force to recommend changes in the Chattanooga Fire and Police Pension Fund. Public Financial Management Inc., was hired to assist with the work.
Members of the task force included active or retired firefighters and police officers, two members of the pension board, and community leaders.
Among the reforms, new retirees will no longer be eligible for cost of living adjustments in their first three years of retirement until the pension fund reaches a 70% funded ratio. The city projects it will not reach the 70% level until 2025.
Employees contributed 8% or 9% of their salary toward the pension plan before the reforms. This will increase by 1% annually until reaching 11% or 12% depending when hired.
Employees with fewer than 10 years of service will not qualify for full retirement benefits until reaching age 50 with 25 years of service, or any age with 28 years of service. New employees cannot pull pension benefits until age 55 with 25 years or 30 years of service. No minimum retirement age existed previously.
According to Moody's, the city could still face litigation over the changes in part because Tennessee law prohibits changes to vested accrued benefits. The firm said Chattanooga's pension fund attorneys argue that Tennessee courts have never established COLAs as vested financial benefits.
