Month: June 2001

The bear market in stocks has a lot of people with 401(k) plans worried about their retirement and looking longingly at those stodgy defined-benefit government pensions. Consider a few of the many wrinkles in the pension plans of the City of Memphis, Shelby County, Memphis Light, Gas and Water, and the public school systems.

– A city division director or high-level appointee can leave voluntarily after 12 years, start drawing immediate retirement benefits of around $32,000 a year, and go off to another job in the public or private sector and work 25 more years and get a second pension.

– A public school teacher or principal can work 30 years, begin taking pension benefits at age 55, go work in DeSoto County for another 10 years, and get a second pension plus Social Security. Total value of the deal: over $80,000 a year.

– MLGW employees enjoy an 8-percent company contribution annually and can take up to 25 percent of their benefits in a lump sum at retirement after 25 years.

– City of Memphis employees can retire with a full pension after 25 years, no matter what their age.

And in what may be the most attractive feature of all, at least in hard times anyway, government pension plans save employees from themselves. Unlike employee-directed 401(k) plans, government plans are run by experienced pros, and everyone gets the same mix of stocks, bonds, and money-market investments. Bottom line: no years with 30 percent gains, but very few losing years either.

Pension documents are full of pages of details hammered out by unions, politicians, and pension boards, and an overview can’t do justice to all of them. It’s the unusual case that’s likely to make news, as former City Finance Director Roland McElrath did earlier this year when he “retired” from that job to take a similar one with the school board. Suddenly McElrath was a pensioner at the tender age of 40, with a nice raise to $116,000 to boot. City and school system officials say he is worth it, and they note (correctly, based on Memphis magazine’s last two surveys of local corporate compensation) that financial officers at corporations with smaller budgets and fewer employees command much higher salaries and benefits.

Pension administrators say competitiveness with the private sector is the underlying assumption in public pension plans.

“The mentality is, ‘I work for the government and make less salary but I get security in return,'” says Danny Kail, human resources administrator for Shelby County.

Key questions for any pension plan include:

– When are you vested? That is, how many years do you have to work before you qualify for pension benefits?

– Does the employee, the employer, or both contribute regularly to the pension plan, and how much?

– At what age, and with how many years service, can you retire with full pension benefits?

– How are age, years of service, and salary weighted to reach the final benefit calculation?

– What are the special perks and pitfalls?

To see how public and 401(k) plans compare, play a little game we’ll call “$25,000.” The objective is to reach an annual pension of $25,000 – a modest level but probably adequate if paired with Social Security and other savings and assets.

Typical 401(k) plan

In this defined-contribution plan, the employee invests 6 percent (or some other percentage) of salary each month and the employer matches it with a 3-percent contribution. (Some plans match dollar for dollar up to a certain point, while some don’t have an employer match at all.)

The employee works 25 years, earning an average salary of $50,000. Contributions of $4,500 a year total $112,500 at the end of 25 years. If investment returns build the account up to $420,000, the employee can earn $25,000 a year in interest at 6 percent without touching the principal. Less than that and the principal will have to be reduced each year to get $25,000.

Can the employee invest wisely enough to earn $307,500 over 25 years? It’s certainly possible, but probably a lot harder than some 401(k) salesmen made it sound when the market was returning 20 percent a year. Plug in a year or two where you lose 30 percent, as some plans did last year, and you could actually have less than the total of your contributions.

If all goes well, you have $25,000 a year and a $420,000 savings account to draw down. If the stock market does exceptionally well, a 401(k) could outperform a conservative public pension plan.

Shelby County Government

Shelby County has a defined-benefit plan. The employer makes all contributions, and the employee can calculate his or her exact benefits at retirement.

County employees hired after 1986 pay only the Medicare portion of Social Security taxes, which is 1.45 percent, and they get only that benefit.

Employees are vested after 7.5 years and can begin drawing reduced benefits at age 55. Public safety employees, however, can get a pension without age penalty after 25 years. The idea is that the county doesn’t want 65-year-olds climbing ladders and chasing bad guys. It wants them to retire.

For all others, age is as much of a factor as years of service, on the assumption that younger people can get another job and change careers easier, says Kail.

A county employee with 25 years of service and a $50,000 average final salary gets a $20,625 pension at age 55. To reach the $25,000 threshhold, the employee has to be 62 years old with the same salary and service.

There are about 6,500 current full-time county employees.

City of Memphis

In the City of Memphis plan, the employee and employer both contribute 5 percent. The employee contribution increases to 8 percent in July. Employees are vested after five years and can retire with full benefits after 25 years of service, regardless of age.

That means city employees reach that $25,000 threshhold earlier. An employee with 25 years of service and $50,000 final average compensation gets $29,531. The city contributes to either the pension plan or Social Security for every employee, but not both.

A unique aspect of the city plan is the “DROP” feature adopted three years ago.

“We had a significant amount of employees with 20 to 30 years experience,” says Sara Hall, administrator of benefits and employee services. “The DROP plan, it was felt, would help retain experienced employees but also let them and the city plan for transition.”

Employees with 25 years service can set a retirement date up to three years in advance. All contributions cease on the effective date, and no additional years of service are credited. At the end of the period, the employee must retire.

During the DROP period, a special account is credited with an amount equal to the employee’s monthly retirement benefit. At the end of the period, he gets a lump-sum payment. For example, someone whose DROP period is three years and whose benefit was $2,000 a month would get $72,000, plus interest.

“It’s a significant boost to a person’s retirement dollars,” says Hall.

Another unique feature of the city plan is the treatment of high-level appointed employees like McElrath who take “involuntary” retirement. If they have 12 years service, they can get immediate retirement benefits even if they resign. And the benefit is based on their highest one-year salary instead of their highest three-year average.

There are approximately 8,500 current employees and retirees in the city pension plan.

Memphis and Shelby County Schools

Both school systems are part of the Tennessee Consolidated Retirement System (TCRS). Employees are vested after five years, and they contribute 5 percent of salary. Employers contribute 3.7 percent to 5.2 percent depending on the employee classification.

School system employees can retire with reduced benefits at age 55, but they probably won’t make that $25,000 threshhold. A teacher with 25 years experience and a $50,000 salary will get $15,816 a year. To get full benefits you must be either 60 years old or have 30 years of service. That gets the benefit to $24,960, assuming a $50,000 salary.

The TCRS has 185,000 active members.

Memphis Light, Gas and Water

At MLGW, employees are vested after 10 years. Employee and employer each contribute 8 percent, the highest employer contribution in the public pension plans. But the retirement benefit is the only source of income for most retired MLGW employees, who are not eligible for Social Security.

They can retire with a full pension after 25 years. An employee with 25 years service and a $50,000 salary gets $28,125 a year.

MLGW has an option that allows retirees to take up to 25 percent of their benefits in a lump sum.

“Most employees take from 5 to 25 percent in a lump sum,” says Brenda Greene, manager of risk management.

There are 4,600 current employees, retirees, and survivors covered under the plan.

[This story originally appeared in the May issue of Memphis magazine..]

Everyone who lives in Memphis, and maybe even everyone who passes through, has at least one. You’ve all seen them, the utterly random people that create a constantly changing series of human landmarks about town every day. Like traffic lights and strip malls in other cities, it’s hard to break these city limits without finding them.

Yes, I’m a voyeur at heart. I admit it. But when you can’t leave the house without tripping over a scene, a person unique, bizarre or inspiring, it’s really not your fault. You can find me staring slack-jawed rather often, but it’s too expensive to get it wired shut, so I deal with it.

I was raised in another of America’s “tri-state areas,” along the Jersey shore. As a Jersey-ite, “the city” always meant New York, where there’s a whole lot of pride in cultural richness, and an assumption of ascendancy to a certain extent. It’s taken for granted.

Having been away from that part of the country for two years now, I’m starting to see things differently. To me, a city like New York is the perfect place to go if you want to find the melodies that carry the songs of world culture. To really get inside, however, or to find the complete arrangement, you might do well to look elsewhere. In Memphis, I’m learning that this can be an encounter both multiple and cohesive in nature.

My strange and random encounter of this past week was certainly an eyeful. I was stopped at the traffic light at Union and McLean one evening, and a black sports coupe pulled into the left-turn lane alongside of me. Being the self-proclaimed “take a peek” girl that I am, I of course looked over to see who might be there. I found quite an unexpected display.

On the dashboard of this particular vehicle, the driver had affixed a TV monitor. Neat, I thought, then “whoa” as I was met with the sight of a woman onscreen that was, shall I say, returning her garments to their appropriate location. The moral? You never know when you might be pulling up to the porn-mobile, so keep your eyes open if you’re into that sort of thing. It could bring rubbernecking to a whole new level.

When I first got to town, I wondered if it was just me or if this type of thing happened to everybody. Was there some giggling deity hovering over The Pyramid throwing baffling encounters my way for kicks? I waited for the hidden camera and the benevolent laughter at my expense. I’ve searched, however, and haven’t come up with any proof for either of these possibilities, so I’m guessing that it’s something bigger than a giant hoax at my expense.

The one thing I’ve learned about the Memphis landscape is that there’s no scarcity of character. Though it doesn’t wear as elaborate a necklace of skyscrapers as some other cities, it is a bonafide city of people, kind of like a huge collective of smaller independent elements. This is the only description I can think of that captures the unpredictability of the things one can see here.

Last week I was fortunate enough to have met a couple named Gigi and Bernie, traveling musicians on a self-financed tour from Salt Lake City. When I asked them about their impressions of the city, Bernie remarked that in some way he couldn’t quite put his finger on, it seems to have more culture. That got me thinking and it occurred to me that you can see Memphis on any budget by people-watching. Just go outside and look around. You’re bound to find something.

Really, don’t we all have more important things to consider? Ok, if you care anything about the media coverage of Jenna Bush, raise your hand.

Both of you should be ashamed of yourselves.

The rest of us should be ashamed as well because we still read and watch the trash, even if it holds only mild distaste. It’s not totally our fault since the stories have been right in front of us for a while. On Salon.com alone, four instances involving the twins appear on the front page alone. Extra! Extra! Jenna Bush is a teenager. Stop the presses. Thank God for freedom of speech.

How many of us read the Enquirer-esque tawdries of the presidential progeny while at the same time ignore our own kids doing the same things? How many adults didn’t use a fake ID just once? It’s probably the same two of you who raised your hands earlier. You should still be ashamed. If for different reasons.

Yes, talking about Jenna’s wild tape that is rumored to exist in the nefarious hands of some of her peers at the University of Texas is much more fun than discussing anything of import. But remember that we already have her grandfather puking on the Japanese emperor. Can Jenna really top that? Would you really want to see her try?

Perhaps it is a good point to say that W’s girls ought to know better. Maybe Chelsea Clinton was the role model of the perfectly presidential child. On the other hand, it’s not as if the president is going out of his way to bail the girls out or that Chelsea’s pristine image removed the stain on Monica Lewinsky’s dress.

Perhaps we could also ask that our leader’s kids conduct themselves with a touch more decorum in light of our world prestige. If that’s the case, then we should send Jenna over to England to learn her manners from the royal relatives. Give her a month and she’ll do the whole of America proud.

The biggest problem is that there are far more important issues to discuss. About this president even. The role of the U.S. in the U.N. has been significantly cut in matters of human rights. A Darth Vader like plan of covering the sky with nuclear weapons seems imminent. The F.B.I. has been shown to be at best incompetent with the Timothy McVeigh case and at worst filled with (ahem) foreign sympathies (read: spies). This makes no mention of environmental conservatism being drilled out of the ground vis-a-vis economic conservatism.

Where’s our focus? Why all the interest in whether the first daughter pukes rather than whether her dad is a good president? Just a few months ago the nation couldn’t seem to decide whether Bush was the president. Now, we ache for some scandal to remind us that he won’t last one term.

Part of the problem lies with the media. This stuff draws ratings the same way free heroin draws addicts. People can’t help themselves and the media knows it. In a world of higher profit-margin demands, shrinking advertising, and a lack of real scandal in the White House, we are now reduced to following the errant Bush twins as if they are about to sprout horns and confirm that they are indeed spawn of Satan. Instead of filling space with important stuff, the media goes for the easy story, the one that will generate the most conversation. It’s called pandering and it is a favorite tactic.

The pull is strong. There have been times, desperate for copy and under a deadline, this writer has snuck some trash in. Ok, so I’m not proud of it. But I’ll make you a deal. If you stop reading it, I’ll do my best not to print it.