Lewisburg's City Council has been considering a major change to the retirement benefits for city employees.
Instead of withdrawing money from an investment fund that could pay a lump sum when an employee retires, the retiree could benefit from a system that pays a monthly pension check.
Two representatives from the Tennessee Consolidated Retirement System (TCRS) met with the Council on April 21 to explain how that system works for teachers and other state-paid employees who receive monthly pension payments, and how municipal employees might join the system.
Shifting to the TCRS from a system with 401(k) accounts with invested money (that could later be converted to an annuity to pay monthly benefits) is a complicated process and, according to City Treasurer Connie Edde, the change probably won't be advantageous for long-term employees who've been thinking about retiring in a couple of years.
While that may be affected by current conditions in the stock market, it's also a result of the TCRS policy against treating beneficiaries differently, according to discussion late last month.
"The biggest majority of our employees are in the fixed account," Edde said of decisions made by employees to invest their 401(k) money in a conservative fund that grows slowly, but is secure, compared to 401(k) money that's placed in speculative investments such as various stock funds.
Most of the city employees, therefore, have secure 401(k)s, so they've not suffered losses from a stock market that shrank by a third or more since September. Nevertheless, their asset isn't as big as what a TCRS member has.
So the state retirement counselors presented a series of charts indicating adjustments that are needed in contributions to 401(k) accounts to bring Lewisburg employees up to the participation level of others with TCRS benefits.
Edde had proposed a "one time" contribution by the city to "make whole" the city employees joining the TCRS. The system representatives explained that can't be done by the city. It has to be done by the employees' contributions.
But suppose the next investment company failure like AIG turns out to be ING North America Insurance Corporation, which is the firm that has been handling Lewisburg employees' 401(k) accounts? The question worries Edde, she said Tuesday. City employees' funds were with AETNA, but it was bought by ING.
TCRS is one of the most solvent and reliable retirement systems in the nation, she said, but that's largely because its reserves for payment of benefits are over-funded with collateral, and that's going to require additional funding for city employees who join the system.
The charts presented to the City Council were a result of a study by the TCRS and they remain relevant for six months.
The amount of benefits paid monthly to a city retiree who bought into the TCRS would depend on how long they'd worked for the city and how much money they'd deposited with TCRS.
Discussion showed that 75-80 percent of the employees wouldn't be able to immediately bring their contribution to the TCRS level with a transfer of just their 401(k) fund. About half of the rest make investments that performed well and will provide them a smooth transition. The other half of the rest, perhaps 10 percent of 120 employees, made investments that have lost money.
Because of their careers with the Marshall County School System, Councilmen Robin Minor and Hershel Davis are members of the TCRS. Mayor Bob Phillips and Councilman Phil Sanders are married to women who are beneficiaries of the TCRS.
The TCRS representatives said a similar presentation is to be made for the Chapel Hill Board of Mayor and Aldermen on May 11 when the question will be whether that town's employees might join the system.