News Column

EDITORIAL: Child beneficiary option for pensions must be scrapped

May 18, 2014

The Knoxville News-Sentinel, Tenn.

May 18--Knoxville Mayor Madeline Rogero and the city Pension Board she chairs are taking steps to change the municipal charter to end one of the more lavish perks imbedded in the city's retirement plan.

As it stands now, city employees have the option of naming a child the beneficiary of their pensions. The provision is costing taxpayers millions for a benefit to people who, for the most part, have not worked for the city and receive those benefits throughout the prime of their lives. The benefit needs to be eliminated.

The Pension Board is drafting an ordinance that would put the question of removing the child beneficiary option before the voters.

"It's a move to protect the pension system to what it was meant to be (and) not be a trust fund," Rogero said at a Pension Board meeting earlier this month.

Anyone who doubts that the child beneficiary option is a rather opulent perk can look no further than former Mayor Victor Ashe, who named his daughter, Martha, the beneficiary of his pension in 2007.

"I named my daughter as my beneficiary as part of my interest in looking after my daughter's future welfare," Ashe told the News Sentinel. "It's that simple."

Ashe is 69 years old, his daughter 21. If Ashe lives to 80, he will have received $761,773 in benefits, according to News Sentinel calculations confirmed by Pension Board staff. Martha Ashe would then receive 50 percent of her father's pension. If she, too, lives to age 80, she would receive a total of $2.8 million over nearly five decades -- $106,857 in the final year. And Martha Ashe would never have to work a day for the city of Knoxville.

In total, including mandatory 3 percent annual cost-of-living increases, Ashe and his daughter will have received $3.5 million over 67 years.

Granted, Ashe's pension is much larger than those of other retired city employees. Still, there are 31 current retirees, including the former mayor, who have designated their children as beneficiaries. Current employees have that option as well. The numbers, particularly with the cost-of-living raises automatically included, can add up for children who receive the benefit over four or five decades.

"A pension is meant for myself and my spouse to continue through our senior years and was never intended to be for our own children to live out their lives," said Knoxville Police Lt. Greg Coker, a Pension Board member.

Voters in 2012 approved dropping the defined benefit pension plan that covers Ashe, current retirees and current employees hired before the referendum. In its place is a hybrid plan that includes a more fiscally responsible defined contribution component.

The changes are not enough to slow the growth in city pension obligations anytime soon, however, because they apply only to workers hired after the 2012 vote. The Rogero administration is seeking a property tax increase that should cover the anticipated increases in pension funding for the next few years.

Ideally, the city would have applied all the pension changes to current employees, who continue to enjoy the child beneficiary option and the "drop plan," which allows workers to accumulate two years' worth of benefits while still on the city payroll. But a Tennessee Supreme Court decision, commonly referred to as the Blackwell decision, prevents cities and counties from changing benefits for vested employees. The city of Chattanooga under Mayor Andy Berke reduced benefits anyway, and was promptly sued. The litigation will take at least a couple of years, but the case offers the possibility that meaningful adjustments to public pension benefits could be made in the future.

City employees earn their retirement benefits through public service. After death, their spouses and domestic partners deserve to receive a portion of those benefits. Taxpayers, however, do not owe the adult children of city retirees a dime. The child beneficiary option must go.


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Source: Knoxville News-Sentinel (TN)