Get Full Government Meeting Transcripts, Videos, & Alerts Forever!
Get email alerts on the Pension Fund topic
No spam. Unsubscribe anytime.
City council appointee briefs council on Chattanooga pension fund’s funding, risks and options
Summary
A council education session reviewed the Chattanooga pension fund’s structure, recent market performance, and funding gap: accrued liabilities were estimated at about $622 million with fund assets in the low-$400 million range, leaving an unfunded liability near $252 million; an actuary’s full valuation is expected in May or June.
Chris, a city council appointee and pension trustee, presented an education briefing to the Chattanooga City Council on the status and management of the city’s police and fire pension fund. He said the fund — founded in 1949 — is governed primarily by sworn trustees (three police, three fire), plus a council appointee and the mayor’s appointee Weston Porter.
Chris explained the difference between a defined-benefit pension and defined-contribution plans, saying pensions guarantee a salary-based retirement benefit and place investment and longevity risk on the fund and employer. He described the fund’s accrued liability as roughly $622 million, based on a 30-year discounted projection using a current assumed rate of return of 6.75%, and said the actuarial value of assets used in preliminary calculations was about $370 million, creating an unfunded liability in the neighborhood of $252 million. He cautioned the $370 million figure was a preliminary actuarial value and later noted the fund’s market value had moved north of $400 million in recent statements, which raises the funded ratio estimate toward the low-60s percent range.
On investment performance, Chris said the fund earned a year-to-date gross return of roughly 14.9% for the most recent reporting period and that the fund’s allocation is roughly two-thirds equities and one-third bond-like assets. He described past decisions to use hedge funds after the 2008 crisis as costly in retrospect — high fees and prolonged underperformance — and said the fund has since moved to more indexed strategies with lower fees, cutting total investment costs from about 1% to about 0.5% including administration.
Council members asked about recent large pay raises and whether the fund recovered from the 2008 losses. Chris said that big raises increase the pension liability immediately (because benefits are salary-based) and can lower the funded percentage in the short term; he noted actuarial assumptions about future salary increases are incorporated annually. He also explained that actuarial practice smooths investment gains and losses over multiple years (a five-year smoothing), which reduces year-by-year volatility in funding measures.
When asked about converting sworn employees to defined-contribution plans such as 401(k)s, Chris said conversion is legally and financially complex: the city would have to make up existing unfunded liabilities, provide transition money for vested employees, and in many cases Tennessee law constrains how benefits may be changed. He described conversion as “expensive” and “difficult” and said hybrid arrangements exist but that changes typically require negotiation and statutory review.
On benefit restorations, Chris described the prior restructuring that tied cost-of-living adjustments (COLA) restorations to funding thresholds: partial COLA restoration at a 70% funded level and fuller restoration at 80%. He said, under current actuarial assumptions and the council’s contribution path, the fund’s glide path could reach about 70% in the early 2030s and 80% around 2039–2040, but he reiterated projections depend on market returns and every projection carries uncertainty.
He closed by noting the actuary’s final valuation for the last calendar year is expected in May or June; that valuation will include finalized assumptions and the recommended city contribution that staff will use in budget development. No formal council action or vote occurred at the briefing.
