The city of Memphis has a large unfunded pension liability of $709 million. The current pension system is no longer affordable and has not been sustainable for years. If changes are not made, pension costs will consume more of the city's budget, leaving less money for important services. The document proposes switching city employees to a defined contribution plan similar to a 401(k). This would make the pension system affordable for both employees and taxpayers by eliminating unfunded liabilities and ensuring funds are available for retirees. Polls show most Memphians support reforms to the current pension system.

1. Pension Reform
Defined Contribution
A Fair System for All

2. {Pension}
pen(t)-shen: n.
1. A fixed sum to be paid regularly to a
person or their dependents, typically following
retirement from service.
2. If fully funded, pensions would be the third
largest line item on the City of Memphis’ budget.
*See note 1.

3. {Unfunded Pension Liabilities}
/ˌənˈfəndid/ /pen(t)-shen/ /ˌlīəˈbilətē/ : n.
1. Potential or actual debts for which no current
funding is available.
2. Our retirement system has more liabilities
than assets. The money needed to cover current
and future retirements is not available.
*See notes 2 and 3.

4. We have a problem.
By no fault of city employees, our
government created the Cadillac of
retirement systems in 1948.* Today,
Memphis owes $709 million in
pension debt.**
We cannot afford this system and
haven't been able to for years.
*In Mayor Wharton’s April 15, 2014 proposed FY2015 budget
address.
**See note 3.

5. If we can’t afford it now, we can’t afford it later.
*See note 4.

6. In 2014, it cost $96 million to fully
fund our pension system. The city
only paid $20 million, creating a
payment due of $76 million.*
In 15 years, it will cost taxpayers
$252 million to fully fund our pension
system. That’s the same that we spend
now on law enforcement.**
*See note 2.
**See note 4.

8. If we don't fix this, everyone loses.
Pension debt is consuming our budget and could
increase our taxes. This means less money for:
Public Safety
Libraries
Parks
Anti-Blight Services
Roads
*See note 5.

9. Memphis owes $709 million in pension debt.
To pay this debt, each household owes an additional $2,900 in taxes.
*See note 6.

10. Polls taken by the City of Memphis show:
65% of Memphians said they would definitely or
somewhat support changes to pension plans held by
current city employees in order to contain future
pension costs.
*See note 7.

11. We need a fair solution.

12. Defined Contribution is a fair
and equitable solution for everyone.
Comparable to a 401(k), Defined Contribution is
more flexible and does not penalize short-term
employment.
*See note 8.

14. Benefits of Defined Contribution
1. Defined Contribution is the only plan that does not
allow the government to “kick the can” down the road
and defer pension payments.
2. Defined Contribution will ensure our retirees' money is
available when they need it.
3. Defined Contribution will allow us to be competitive
when seeking to attract or retain businesses because it
reassures everyone that our city is on solid financial
ground.
*See notes 9 and 10.

15. Advantages to Employees
• 33% increase in city contributions—the city will contribute
8% of each employee’s annual salary to the new plan.
• Contributions become portable and the employee owns his
or her account in full.
• Under the current plan, if the employee leaves before serving 10 years,
they lose the benefits they accrued and the money they paid into the
pension plan.
• Employees are automatically vested at six months.
• The ending balance can be taken as a lump sum or annuity.
*See notes 9 and 10.

16. Advantages to Taxpayers
• There’s no unfunded liability—this is a pay as you
go plan.
• Defined Contribution will restore predictability
and sustainability to city finances.
• Our children and grandchildren are not saddled
with ever-growing debt.
• Defined Contribution requires elected leaders to
make retirement payments on time—just as they do
with paychecks.
*See notes 9 and 10.

17. Charleston, SC
Omaha, NE
Portland, OR
Providence, RI
Atlanta, GA
Chicago, IL
Phoenix, AZ
Memphis is not alone.
Other cities around the country are addressing their own
pension problems, including:
Philadelphia, PA
New York City
San Francisco, CA
Milwaukee, WI
Little Rock, AR
Nashville, TN
*See note 11.

18. Memphis must take the
necessary steps to
prevent today's problem
from becoming tomorrow's crisis.

19. Step 1: Go to reformmem.com

20. Step 2: Click email.

21. Step 3: Send email.

22. Sources:
1. If the full $96M pension bill had been paid
this year, it would have amounted to 16% of
our total budget. Pensions would have been
the third largest expenditure after fire
($131.7M) and police ($230.1M).
2. PricewaterhouseCoopers. (2013,
September 14). City of Memphis: Retirement
Benefit Alternatives, p. 5. Memphis cannot
afford its current pension system. Instead of
paying $96M in 2014, it paid $20M,
creating a payment due of $76M.
3. PricewaterhouseCoopers. (2013, July 1).
City of Memphis Retirement System, p. 6.
4. PricewaterhouseCoopers. (2013,
September 14). City of Memphis: Retirement
Benefit Alternatives, p. 35.
5. The City of Memphis. (2013, September 3).
Pension Fund: Frequently Asked Questions, p.
1.
6. To pay our pension debt, each household owes an
additional $2,900 in taxes. Amount derived from dividing
$709,210,000 (pension debt) by 244,538 (households).
7. City of Memphis Public Survey Report. (2013,
December 9). 5 Year Strategic and Financial Plan, p.15.
8. Mayor A C Wharton, Jr. (2013, December 16). An
Open Letter from Mayor A C Wharton to the Citizens of
Memphis about Pension Reform and the City's Financial
Health, p. 4.
9. Mayor A C Wharton, Jr. (2013, December 16). An
Open Letter from Mayor A C Wharton to the Citizens of
Memphis about Pension Reform and the City's Financial
Health, p. 3-4.
10. Quintin Robinson (HR Director). (2014, March 18).
Pension Benefits Reform: Presentation to Memphis City
Council Executive Session.
11. A widening gap in cities: Shortfalls in Funding for
Pensions and Retiree Health Care. The Pew Charitable
Trusts, p. 1-55.