Wednesday, November 26, 2014

How the Metro Council buckled to the SEIU and voted to continue fiscal irresponsibility.

Last week when reporting on what happened on at the November 18th Council meeting, I reported that RESOLUTION NO. RS2014-1269 which would extend the term of the Study and Formulating Committee to March 31st, 2015 failed by a vote of 16 in favor and 17 opposed. That immediately ended the work of the committee because without the extension the Committee had to have their work completed by November 19, 2014. I reported that the work of the committee was  not finished and that the Council staff analysis said the extension was needed.  Every five years the mayor has to appoint such a committee to study and make recommendations on employee benefits. I did not know why the term of the Study and Formulating Committee was not extended; now I know.

At the time I opined:

I wish the employee retirement plan would be changed to a Metro defined contribution plan rather than a defined benefit plan, but I don't think that will happen anytime soon. Most private sector plans, if there is any retirement plan, is a defined contribution plan rather than defined benefit. A defined contribution plan is less risky to the employer. A defined contribution plan specifies the employer make contributions on a regular basis and within a set range of options, the employee decides how his contributions will be invested.
Well unbeknownst to me at the time, the Study Committee was considering such a move and to stop them from making a recommendation to move away from a defined benefit plan to a defined contribution plan, the Service International Employees Union Local 205 urged council members to defeat the extension.  If you are still confused by what is the difference between the two retirement plans, a "defined benefit plan" says that after x number of years of service you can retire and draw x number of dollars per month, usually based on a percentage of your salary at the time you retire. 

A defined contribution plan is like a 401K and the city contributes money to it but the plan is the employees and within limits the employee decides where the money is invested and how much risk he wishes to take. No current employees would have been affected by any change in benefit plan policy unless they voluntarily chose to come under the new plan instead of the old plan. Also, any recommendation made by the Study Committee would go back to the Council and would have to be passed by the Council.

According to an article in today's Tennessean, The Study Committee had been working for months with Pew Charitable Trusts to review Metro’s defined-benefit pension plan and retiree health benefits. Pew’s preliminary findings, released in September, raised more concerns with health care obligations than with the state of Metro’s pension system. The city has accumulated $2.3 billion in unfunded costs to cover retiree health benefits.

SEIU feared the study committee would would recommend moving away from Metro’s defined benefit pension plan and was successful in shutting down the work of the committee. Unions like defined plans, because the risk is all born by the employer and it gives the Union power since unions can claim credit for forcing the city to grant generous retirement plans. Also, some employees do better under a defined contribution plan than a defined benefit plan.  Many plans match the contribution of an employee up to a certain limit.  Some employees leave money on the table and do not provide the maximum match.  So, irresponsible employees who are not too bright may be worse off under a defined contribution plan and other employees be much better off.  Unions are generally opposed to different outcomes and want everyone to be rewarded the same regardless of contribution or effort. 

Cities across America are being faced with unsustainable pension obligations and the problem is only going to get worse. Cities will be forced to raise taxes to meet retirement health care and pension obligations. The responsible thing to do is to phase out defined benefit plans and phase in defined contribution plans.

Below is how the Council voted. A fiscally responsible vote was a vote to extend the life of the study committee. The names of Council members in red text are those council members who I normally think of as the "good" council members, several of them self-identify as Republicans or conservative or have usually voted in a responsible manner.
“Ayes” Barry, Garrett, Tygard, Matthews, Banks, Scott Davis, Westerholm, Bennett, Claiborne, Allen, Langster, Weiner, Evans, Blalock, Dominy, Todd (16)

“Noes” Harrison, Hunt, Hagar, Glover, Stites, Stanley, Tenpenny, Gilmore, Baker, Holleman, Harmon, Johnson, Potts, Bedne, Dowell, Duvall, Mitchell (17).

I hate to say that Megan Barry voted for fiscal responsibility and Robert Duvall did not, but that is the way I see it.  It is difficult to say Peter Westerholm cast a conservative vote and that Josh Stites cast a liberal vote but that is what happened. It seems contradictory to vote against tax increases and then vote for policies that are likely to make a future tax increase mandatory. That is hypocritical and having your cake and eating it too.

Now, I know how things work.  A person who campaigned for a council member may have come to that member and asked for him to vote to not expand the Study Committee and he does so. Or, out of animosity to the Mayor or friendship with the Mayor one may have cast a vote a certain way without regards to the merit of the issue.  Or, if  one was endorsed by the SEIU,  he may feel he owes them.  Those Council members who voted the wrong way have a chance to redeem themselves.  Mayor Dean says he plans to resubmit names of the five-member committee for reappointment, setting up a new council vote Dec. 16. I hope the Council does the fiscally responsible thing and votes to allow the Study Committee to continue their work.

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  1. Rod: Did Dean resubmit for reappointment? If so, what happened - if not, is this issue being pushed down the road for the next mayor?

  2. I found it in the Tennessean on 12/16. "In other business Tuesday, the council approved Dean’s reappointment of a citizen-led committee that has been reviewing Metro’s employee and retiree pension and health benefit systems.

    The council voted 27-3 to reappoint the city’s five-member Study and Formulating Committee, which has been unable to finish a final report on the sustainability of the city’s benefits by its original one-year time frame.

    The committee is chaired by Nashville businessman Michael Shmerling. Its work had come under fire from Service International Employees Union Local 205, which represents Metro workers. The council last month voted 17-16 to defeat a resolution to prolong the committee’s activity, but the vote Tuesday will mean its work will carry on."

  3. Dean did resubmit and the Council approved by a vote of 27-4. I support the reappointment of this committee but disappointed that the Council can be so manipulated. The opponents would have had more than 4 "no's" if they knew how to use parliamentary procedure. The Vice Mayor pushed this through unchallenged. Now the study committee is back at work. What ever they come up with will go back to the Council, but not before the next Council comes in office. I hope we can get some fiscally conservative councilmembers who will stand up to the unions and vote for reform of the employee retirement system. I hope the next Mayor will support a transition to a defined contribution plan and phase out of the defined benefit plan. Dean does get credit for starting the study of the issue.