Public pensions in Tennessee

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Tennessee public pensions
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Pension system
Number of pension systems 1
State pension systems: Tennessee Consolidated Retirement System
System type: Defined benefit plan; hybrid plan
Pension health (2011)[1]
Fund value: $36,680,782,000
Estimated liabilities: $40,069,332,000
Unfunded liabilities : $3,388,550,000
Percent funded: 91.54%
Percent funded change: Green Arrow Up Darker.svg1.65%[2]
Percent funded rank: 5[3]
Pension fund members (2012)
Total members: 364,286
Active members: 215,076
Other members: 149,210
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
Tennessee public pensions are the state mechanism by which state and many local government employees in Tennessee receive retirement benefits. The Tennessee Consolidated Retirement System (TCRS) administers benefits to the state's eligible retirees through two distinct plans: the State Employees, Teachers, Higher Education Employees Pension Plan (SETHEEPP) and the Political Subdivisions Pension Plan.[4]

According to the United States Census Bureau, the state has 14 locally-administered pension systems.[5]

A 2012 report from the Pew Center on the States noted that Tennessee's pension system was funded at 90 percent at the close of fiscal year 2010, above the 80 percent funding level experts recommend. Consequently, Pew designated the state's pension system as a "solid performer."[6]

The funding ratio for the state's pension system decreased from 95.10 percent in fiscal year 2007 to 91.54 percent in fiscal year 2011, a decrease of 3.56 percentage points, or 3.7 percent. Likewise, unfunded liabilities increased from $1.6 billion in fiscal year 2007 to more than $3.3 billion in fiscal year 2011.[4]


Pension plans

In fiscal year 2012, according to the system's Comprehensive Annual Financial Report, Tennessee had a total of 215,076 active members in its retirement plans.[4] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[7]

The following data was collected from the system's Comprehensive Annual Financial Report. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value was 7.5 percent in fiscal year 2011. The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[8][9] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[10]

Basic pension plan information -- Tennessee**[4]
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[11] State figure SBS figure[11]
State Employees, Teachers, Higher Education Employees Pension Plan $30,118,178,000 92.08% N/A[12] $2,589,447,000 N/A[12] 135,588 active members
Political Subdivisions Pension Plan $6,562,604,000 89.15% $799,103,000 79,488 active members
TOTALS $36,680,782,000 91.54% 50% $3,388,550,000 $36,647,700,000 active members
**Valuations are conducted every two years. The data in this table dates to July 1, 2011, the most recent valuation available.

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Tennessee paid 100 percent of its annual required contribution.[6][13]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[14] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[15]

ARC historical data[4]
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $731,352,000 100% $271,361,000 100%
2011 $721,759,000 100% $273,781,000 100%
2010 $578,403,000 100% $258,324,000 100%
2009 $583,985,000 100% $252,926,000 100%
2008 $593,412,000 100% $244,847,000 100%

Historical funding levels

Historical pension plan data - all systems[4]
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $31,112,969,000 $32,715,771,000 $1,602,802,000 95.10%
2009 $31,639,654,000 $35,198,741,000 $3,559,087,000 89.89%
Change from 2007-2009 $526,685,000 $2,482,970,000 $1,956,285,000 -5.21%

Rate of return

Tennessee presumes a 7.5 percent return rate on its pension investments.[4]


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[16] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[17]

Using a lower rate of return to predict investment earnings accurately, however, increases the current plan liabilities. This would lower the percent funded ratio and and require increased employer contributions (ARCs). This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[18] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[19] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[20]

Financial crisis

The 2008 financial crisis had a devastating effect on pension plans nationwide because of slower economic growth and increased market volatility. Some market strategists found the 8 percent assumption to be overly ambitious and "dangerously optimistic."[21] Advocates for a lower assumed rate of return argue that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected because of a higher rate of return, the fund would have a surplus and smaller future required contributions (ARCs), which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[22][23][24][25][26]

Traditional public pension plan advocates argue that the dip in recent years does not prove there is a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[21]

The National Association of State Retirement Administrators researched the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20- and 25-year periods ending in 2013 and found it was 7.9 percent over the 20-year period, and exceeded 8 percent for the 1-, 3- and 25-year periods. It is important to note that the NASRA data reported the median returns, which means that median annualized returns of investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[27]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (6.20 percent for Tennessee) instead of the state-reported assumed rates of return (7.50 percent for Tennessee as of July 1, 2009).[28]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[28]

The adjusted net pension liability for Tennessee in fiscal year 2011 was ranked the 33rd highest in the nation.[28] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Tennessee
Governmental revenue* Personal income State GDP Per capita
State findings 19.2% 2.3% 2.0%% $843
National ranking 43rd 41st 41st 44th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[28]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[29]

The table below presents the information collected by MPPI for Tennessee and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Tennessee had the highest total net assets, but the second lowest total management fees.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
Tennessee 2012 $33,663,308,000 $34,912,773,000 $32,379,360 0.10% 3.11%
Alabama 2012 $25,092,788,000 $28,374,703,000 $13,294,000 0.05% 7.53%
Arkansas 2012; 2011 $15,912,286,857 $17,797,373,547 $65,729,237 0.41% 1.22%
Kentucky 2012 $30,179,958,000 $29,076,119,000 $75,473,000 0.25% 0.20%
Mississippi 2012 $20,840,987,000 $20,220,476,000 $47,575,948 0.23% 1.30%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[29]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


S.B. 1005

In April 2013, the Tennessee General Assembly passed a series of significant pension reforms proposed by Treasurer David Lillard.[30] Perhaps most notably, S.B. 1005 created a new hybrid plan for all teachers and public employees hired on or after July 1, 2014.[31] Benefits for current employees and retirees would remain unchanged.[32]

Governor Bill Haslam signed the bill into law on April 24, 2013.[31]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has 14 locally-administered pension systems.[5]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • Pension information, including annual actuarial reports, a payroll schedule, plans for local government options and public meeting notices, is published on the TCRS website.
  • The names of pension recipients and amounts disbursed are not posted.
  • The Tennessee Department of Treasury provides both oversight of the pension system and prepares annual audits of the funds.[4]

Recent news

This section displays the most recent stories in a Google news search for the term "Tennessee + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Tennessee Public Pensions News Feed

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 Tennessee Consolidated Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 20, 2013
  5. 5.0 5.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  6. 6.0 6.1 Pew Center on the States, "Widening Gap Update: Tennessee," June 18, 2012
  7. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  8. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  9. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  10. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  11. 11.0 11.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  12. 12.0 12.1 Analysis only available for system totals and not individual funds.
  13. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  14. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  15. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  16. The Widening Gap Update, "Pew Center on the States," accessed October 17, 2013
  17. The New York Times, "Public Pensions Faulted for Bets on Rosy Returns," accessed May 27, 2012
  18. Benefits Magazine, "Public Pension Funding 101: Key Terms and Concepts," accessed October 23, 2013
  19. Crain's Chicago Business, "State teachers pension board lowers expected rate of return," accessed September 21, 2013
  20. Huffington Post, "California Pension Funds Expect Lower Investment Return," accessed March 14, 2012
  21. 21.0 21.1 Governing, "Expert: Governments Are Masking Their Pension Liabilities," accessed October 25, 2013
  22. The Washington Post, "Kansas’s pension funding gap just grew by $1 billion," accessed September 6, 2013
  23. Topeka Capital-Journal, "KPERS' unfunded liability rises to $10.2B," accessed September 4, 2013
  24. Wall Street Journal, "Pensions Wrestle With Return Rates," accessed October 10, 2011
  25. The Courant, "Promising Too Much On Public Pensions," accessed August 10, 2012
  26. Business Wire, "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," accessed October 22, 2013
  27. National Association of State Retirement Administrators, "Issue Brief: Public Pension Plan Investment Return Assumptions," accessed October 23, 2013
  28. 28.0 28.1 28.2 28.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," accessed June 27, 2013
  29. Cite error: Invalid <ref> tag; no text was provided for refs named report
  30. The Times Free Press, "401(k) eyed to cut cost of Tennessee pensions," April 2, 2013
  31. 31.0 31.1 Tennessee General Assembly, "SB 1005," accessed November 20, 2013
  32., "Pension Reform Plan Passes House and Senate, Awaits Governor's Signature," April 12, 2013