Frank Daniels writing in The Tennessean today points out that Metro's employee's retirement benefits which are paid out of Metro's current budget has grown from 13% of the property tax revenue in 2002 to 25% today. Employee benefits now account for 9% of the total budget. Research done by the Pew Charitable Trust shows that the unfunded retirement liability has a long-term shortfall of $2.4 billion.
The next Mayor and Council must deal with this issue. Unfortunately, with term limits we are losing some talented Council members. Two of the more informed council members on this topic, Emily Evans and Charlie Tygard, are termed-out, meaning they have served two terms and are not eligible to serve again. It is important that that in August we elect capable people to the council who will address this issue and a mayor who will take our unfunded pension liability seriously. Constantly increasing retirement obligations are not sustainable.
I think Metro should transition from a defined benefit plan to a defined contribution plan. A defined benefit plan may say something like: After serving x number of years working for metro you can retire and earn X% of the salary you were earning when you retired, for the rest of your life.
A defined contribution plan says something like this: Metro will put into a retirement plan an amount equal to x% of your monthly salary, each month. Within limits, you may choose the amount of risk you wish to accept and choose between retirement plan investment options. Often such plans may match an employee's voluntary contribution, up to a certain limit, beyond what Metro contributes automatically. Plans such as this relieve Metro from a commitment to an outcome. It eliminates future retirement obligations. Some employees will do much better under a defined benefit plan, but some will not do as well. Most private sector employers have gone to a defined contribution system, rather than a defined benefit system. It is time for metro to do the same.
Metro Unions such as the MNEA and SEIU and FOP will fight any change to the current Metro retirement plan. Any change would most likely not affect current employees unless they chose to transition to the new system, yet public sector unions have usually opposed any change to a defined benefit system. We can expect these unions to support candidates who will oppose any change to the current retirement plan. These unions may have other criteria for endorsing candidates rather than this one issue, but any mayoral candidate or council candidate who gets the endorsement of the metro unions should be regarded with suspicion.
Changing to a defined contribution system from the current defined benefit system, would stop the bleeding; it would not relieve Metro of current employee benefit contribution obligations or the current unfunded defined benefit obligation, but it would stop the unfunded defined benefit obligation from growing.
I do not want another property tax increase, but the next mayor is going to be under considerable pressure to raise taxes. We need improvement in mass transit, the schools are going to make the case for more funding, many want an aggressive sidewalk expansion program, and our underground infrastructure is crumbling. We are a dynamic, growing city, yet it is time to pay attention to basics. I know replacing sewer lines and fixing our metro employee benefit system is not as appealing to voters as promising new shiny things, but we cannot continue to ignore the basics. Before being swayed by a mayor or council candidate who promises new sidewalks, and lots of other shiny new things, ask them it they are going to find the money to fund our pension obligations and fix our old water mains.