The Tennessee Consolidated Retirement System (TCRS) is the State of Tennessee's comprehensive retirement program in which local governments are authorized to participate. Since July 1973, the City of Brentwood has participated in this program. Eligible (full-time) employees of the City of Brentwood (past and present) currently benefit from or will benefit in the future at retirement by receiving a steady pension under this defined benefit retirement program.
Initially, when the City of Brentwood joined TCRS, employees were required to contribute 5% of their salary toward the City's contribution rate for funding future employee pensions, with the City required to contribute the balance above that amount. This type of pension plan is referred to as a "Contributory" Plan because employees contribute a portion of the cost.
In 1982, during a time of extremely high inflation and tight budgets, many cities struggled to offer employees pay increases. The City of Brentwood, as well as other municipalities, adopted a "Non-Contributory" plan under TCRS in lieu of pay increases that year. This new plan effectively gave employees a full 5% salary increase with no federal income and social security (FICA) obligations, and the City avoided the required cost for the matching employer contributions for FICA. The City's "Non-contributory" plan was effective July 1, 1982 (Resolution 82-11).
In 2009, the City was experiencing slow revenue growth and notice was given by the State to expect significant impending rate increases for all TCRS participating employers, including the State of Tennessee group. This action was necessary to recover financially after the stock market bust of 2000 and 2001. Realizing the current "Non-Contributory" plan was unsustainable, the City took action to adopt a provision to discontinue the non-contributory arrangement for newly eligible employees. Effective January 1, 2010, the Commission adopted a provision passed by the Tennessee General Assembly requiring newly hired City employees to contribute 5% of their salary toward the cost of participating in TCRS.
As it currently stands, employees enrolled in the City's TCRS retirement plan prior to January 1, 2010, are Legacy Non-Contributory plan members. Employees enrolled in the retirement plan after January 1, 2010, but before April 1, 2019, are Legacy Contributory plan members. Legacy Non-Contributory plan members are not required to contribute to the plan with one exception. Those employees earning wages in excess of the Social Security wage base in a calendar year are required to contribute 0.5% of their excess wages toward the cost of participating in the TCRS plan. Legacy Contributory plan members are required to contribute 5% of their earnings to the plan. Additionally, those earning wages in excess of the Social Security wage base in a calendar year are required to contribute an additional 0.5% of their salary toward the cost of participating in TCRS for a total of 5.5%. The Social Security wage base is set by the Social Security Administration and is adjusted annually.
Recently, the City was informed of a plan provision, TCA Section 8-37-202(a)(4), allowing the governing body of a political subdivision to authorize by resolution the option to accept the liability of these additional contributions on salaries in excess of the Social Security wage base so that members are not required to contribute the additional 0.5% on their gross annual salary. The option is recommended by the State, and the cost to the employer is nominal. Additionally, the newer Hybrid plans adopted by the City already include this feature as a plan default.
The cost of exercising this option depends on the number of employees whose salaries exceed the Social Security wage base. The employer cost would equal the extra contributions made by an employee for salaries over the Social Security wage base and is rolled into the annual TCRS employer contribution rates. TCRS establishes contribution rates on an annual basis based on a study of the City's group and recommendations by the TCRS actuary. The new contribution rate is then applied as a percentage of eligible payroll expense and determines what TCRS charges each participating local government to fund the retirement program for their employees. The City generally pays a rate higher than what is required by TCRS so while a noticeable rate increase is not expected from adopting this provision, it would not impact what the City is already budgeting to pay. In 2023, the City had two members required to contribute the additional 0.5% due to receiving wages in excess of the Social Security wage base for a total employee contribution of $323.00. It should be noted a total of five employees are likely to exceed the wage base in 2024.
The staff is recommending the City adopt the plan provision as allowed in TCA Section 8-37-202(a)(4), authorizing the removal of the additional contributions to salary above the Social Security wage base for Legacy TCRS Retirement Plan members with the City accepting the liability of these contributions in their annual TCRS rates. |