Amid national uncertainty about retirement, active city employees in Franklin hired prior to 2016 are guaranteed robust retirement benefits, and those hired after will benefit from one of the top five state plans in the country.
A Brentwood-based actuarial firm services both the City of Franklin and the state of Tennessee, negotiating interest rates down for the state’s consolidated pension plan while keeping interest rates on Franklin’s plan within a legally acceptable distance of the state’s for as little fluctuation as possible, which bodes well for city employee retirement benefits.
Franklin manages two pension plans for its reported 628 active city employees: a single employer plan established by the city on May 1, 1971 with 438 active enrollees reported and a multiple employer plan established by the Tennessee Consolidated Retirement System that went into effect for new hires starting on or after Jan. 1, 2017 with 190 active enrollees reported. The city closed its single employer plan to new hires as of Dec. 31, 2016.
State law requires the single employer plan’s interest rate assumption never be more than half a percent higher than that of the TCRS offering. The city of Franklin is nearly done implementing a five-year compliance strategy on the advice of Findley, an actuarial firm rendering services for both Franklin and Tennessee. The strategy ostensibly secures continued growth of the war chest from which city retirees will draw benefits for decades to come.
"This speaks volumes about Franklin and how Franklin manages its money and what we do for employees,” according to Budget and Finance Committee At-Large Alderman John Schroer. “It also relates favorably to the interest rate […] because rating agencies look at a big piece of that, which is why the state’s rating is so well and why those bonds don’t borrow a lot of money at this point in time; if they could, they would love it, and then they look at cities like Franklin that are in a state like Tennessee that [is] well financed. […] It’s a good thing for the people that work here and live here.”
The TCRS interest rate assumption, approved annually by the TCRS board, has sat at 7.25 percent for several consecutive years, but Assistant City Administrator Kristine Brock attributed knowledge of state deliberations about lowering that rate to their mutual actuary. Beginning with fiscal 2022, Franklin’s interest rate is 7.1 percent, down from 7.2 percent last year — a move that accounted for $200,000 of the city’s fiscal budget.
“The numbers that I’ve seen, some have been 6.75 for the state,” said At-Large Alderman Clyde Barnhill.
The strategy was decided about four years ago during deliberations over the fiscal 2018 budget when the city’s single employer plan’s interest rate assumption was 7.5 percent and the state’s plan was still at 7.25.
The Board of Mayor and Aldermen approved a resolution to lower that single employer rate by 0.1 percent each year for five years, which will land Franklin’s single-employer interest rate at an even seven percent for fiscal 2023. Each step down yields a similar expense to taxpayers, so the next fiscal budget will complete a $1 million compliance expenditure over five years.
The closed plan paid out $6.2 million in benefits for 2020, but the open TCRS plan has yet to start paying out any benefits and is not expected to begin doing so for several years.
The former currently holds about $136 million in assets, and the latter has just under $2 million according to a valuation of both plans dated Jan. 1, 2021. Since that report, though, the closed plan has notably increased already this year, and the 190 reported active employees are now 208.
“The employees that are members of the TCRS plan are contributing five percent of their salary to that plan, and we don’t have any benefits being paid,” said Brock. “So in these first few years, we are going to be growing assets pretty quickly in the open plan until we start having benefits that are paid out.”
As of 2019, TCRS was the fifth-highest rated state plan in the U.S., being 91 percent funded.
Findley is a division of leading insurance brokerage, USI in Valhalla, New York.