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Policy In-Depth: Tennessee legislature makes drastic changes to the state’s pension system


Defined Benefit/DB side:

State employees contribute for the first time: 5% of salary

State (employer): 4% of payroll

Defined Contribution/DC side:

State employees contribute: 2% of salary with an opt-out feature

State (employer): 5% of salary


What does this mean? It means that new hires coming into higher education will have a worse benefit package than current workers have with the Tennessee Consolidated Retirement System/TCRS, the largest retirement plan for higher education employees, which was recently voted #1 in the country. It means that the current pension plan will not receive contributions that would have come from future new hires.


The Tennessee Consolidated Retirement System serves about 210,500 active employees and 122,500 retirees. Tennessee largely avoided a funding crisis for TCRS through sound economic planning, choosing conservative investments, and making regular pension contributions. Many other states spent the late 1990s and early 2000s making speculative investments and skipping pension payments. As a result the gap between current reserves and future liabilities for those plans grew, ultimately reaching crisis proportions with the economic crisis in 2008. In response many employers, both public and private have introduced so-called “hybrid plans.” But studies are finding that these two-tier retirement plans, where new employees are diverted into a contribution-based plan and vested employees remain in the traditional pension, are actually increasing the funding gap for the pension, ultimately leading some plans to renege on retirement promises.


Defined benefit plans are an integral part of retirement income security. This is true both for the employee and employer. The value to employees is well known: the income from these types of pensions is guaranteed and therefore secure and predictable. But for employers, DB plans are the most cost efficient retirement income vehicle. This is because 1) these plans pool the longevity risks of large numbers of individuals, which allow them to avoid the “oversaving” inherent in DC plans (the study mentioned below found a savings of 15% as compared with a typical DC plan); 2) DB plans do not age, and so take advantage of diversified returns over the course of an individual’s lifetime (study showed a savings of 5%); and 3) DB plans achieve greater investment returns as compared with DC plans that are made of individual accounts, in part because they are professionally managed (savings of 26%). The study “A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pension Plans” showed that the cost to deliver the same level of retirement income to a group of employees is 46% lower in a DB plan than it is in a DC plan.


Because TCRS is funded with taxpayer dollars, United Campus Workers argued in a March 25 letter to Governor Haslam that insufficient attention was paid to the costs associated with proposed “reforms” and that rather than push for an expedited approach, each should be submitted to an actuary to measure the costs and make that information available to the public.

UCW Member and MTSU Chapter VP Rick Kurtz speaks at 2013 Lobby Day on the pension bill and its implications for us

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From a February 25 UCW press release: "Honestly, these proposals feel more philosophical than based in reality. The economy just went through the worst economic downturn since the Depression; of course earnings were down. The fact that our plan is still over 90% funded despite the economic crisis reinforces its current form. [Treasurer] Lillard’s basis for making the change seems to actually be a basis for keeping it. It weathered the storm. If folks had had their retirement in his proposed plan they would have lost significantly," said UCW President and UTK Facilities Services employee Tom Anderson.


"TCRS is not in crisis,” says Anderson. “We need sound government policies to rebuild after the economic shock we have been going through, not an ideological attack on public employees that funnels our salaries into retirement accounts administered by the same Wall Street bankers who have behaved like gamblers on a binge in Las Vegas.”


“The facts are plain; any legislation that removes new employees from the current pension will over time destroy our very solvent retirement system and constitute a massive pay cut for hardworking employees earning modest salaries,” explains UCW Vice President and MTSU library employee Rick Kurtz. Kurtz recently ran as a candidate for the Tennessee Consolidated Retirement System Board of Trustees election. “My grandmother who was an English teacher instilled in me the importance of education, hard work and the responsibility of service to others. Our higher education employees, state workers and teachers deserve to have the careers we give to the people of Tennessee honored. If the person who comes after me also gives a lifetime of dedication to our state, she or he is as deserving of the respect of a secure retirement as I am.”


We can expect more and more attacks on our public sector benefits as states are now required to report these as liabilities for the first time. This includes things like your insurance after you retire but before you qualify for Medicare. Will you stand up for an affordable, secure retirement? Stay in touch:


How did your elected officials vote?
How did your elected officials vote on SB 1005?How did your elected officials vote on HB 948?
 House moved to substitute and conform to SB1005
          Present and not voting..............1
Senators voting aye were: Beavers, Bell, Bowling, Burks, Campfield, Crowe, Dickerson, Finney L, Ford, Gardenhire, Green, Gresham, Haile, Harper, Henry, Hensley, Johnson, Kelsey, Ketron, Kyle, Massey, McNally, Niceley, Norris, Overbey, Southerland, Stevens, Tate, Tracy, Watson, Yager, Mr. Speaker Ramsey -- 32.Representatives voting aye were: Alexander, Brooks H, Brooks K, Butt, Calfee, Camper, Carr D, Carr J, Carter, Casada, Curtiss, Dean, Dennis, Doss, Dunn, Durham, Eldridge, Evans, Faison, Farmer, Floyd, Goins, Halford, Hall, Harrison, Hawk, Haynes, Hill M, Hill T, Holt, Johnson C, Kane, Keisling, Lamberth, Lollar, Lundberg, Lynn, Marsh, Matheny, McCormick, McDaniel, McManus, Miller, Moody, Parkinson, Pitts, Pody, Powers, Ragan, Rich, Roach, Rogers, Sanderson, Sargent, Sexton, Shepard, Shipley, Sparks, Spivey, Swann, Todd, Travis, Van Huss, Watson, Weaver, White D, White M, Williams R, Wirgau, Womick, Madam Speaker Harwell -- 71.
 Representatives voting no were: Cooper, DeBerry J, Fitzhugh, Hardaway, Jernigan, Johnson G, Jones, Mitchell, Powell, Stewart, Tidwell, Towns, Turner J, Turner M, Williams K, Windle -- 16.
 Representatives present and not voting were: Forgety -- 1.