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New Tennessee law requires full pension contributions by local governments


Tennessee Gov. Bill Haslam signed legislation on Wednesday that will require some local governments in the state to increase contributions to their pension funds.

It is effective immediately for contributions beginning July 1.

The Public Employee Defined Benefit Financial Security Act of 2014, which had been unanimously passed by both the state House of Representatives and Senate in April, requires local governments to contribute 100% of the “actuarially determined annual required contribution that incorporates both the normal cost of benefits and the amortization of the pension plan's unfunded accrued liability.”

The act affects local government pension funds that do not participate in the $40 billion Tennessee Consolidated Retirement System, Nashville, and originated as a proposal by the office of David H. Lillard Jr., state treasurer. Local governments with pension funds in TCRS are already required to fund 100% of the ARC.

“Tennessee has a well-deserved reputation as one of the best financially managed states in the nation,” Mr. Lillard said in a news release. “This landmark legislation continues that proud tradition by applying a common-sense approach to local government pension funding.”


Local governments can work toward the 100% contribution requirement over six years, but local governments that would experience financial hardship can work with the Treasury Department if they can’t reach 100% in that time frame.

Among local government pension funds that do not belong to TCRS is the $1.9 billion Memphis City Retirement System.

The act is cited as a primary driver for Memphis Mayor A.C. Wharton Jr.’s recommendation to close the defined benefit plan. On July 1, 2013, the city contributed $19.53 million to its pension fund for fiscal year 2014, just 20.4% of the annual required contribution of $95.6 million.

As of July 1, 2013, the Memphis City Retirement System had $2.592 billion in liabilities, giving the pension fund a 72.6% funding ratio.

Rob Kozlowski writes for Pensions & Investments, a sister publication of Business Insurance.