About 2018, I'm thinking.

Yeah, that sounds about something like that.

So we've gone through a lot of changes in that amount of time.

But I thought it might be helpful just to do a kind of a high level look at how the pension fund works.

When I report a couple times a year, I bring the actual numbers and we'll do that again shortly because we're right in the middle of our valuation for last year.

But I thought it might be helpful just to give you a quick overview if it's not familiar to you.

The Chattanooga Pension Fund was founded in 1949, so it goes back quite a long ways.

In addition to myself as city council appointee, and and Weston Porter as the mayor's appointee with a staff of about two and a half employees.

Myself and the other members is basically oversight of the fund.

You know, there are certain regulations and laws we have to comply with, in addition to setting uh direction for the investments of the fund.

Uh it's part of our job to hire and supervise the actuary who does the work on the fund.

And we do that.

We also have an outside investment consulting firm that actually does most of the research and recommendations, and then we approve and move forward from there.

So I don't think this is going to be real news for anybody, but the difference between a pension fund and uh say a 401k, uh, those are called defined contribution plans.

You put money into your 401k, you invest it.

It's entirely up to you to do it during your lifetime and to save up enough to retire on, as opposed to a traditional pension or defined benefit plan, which is what the city has and what I know the city also has a 403B and 457, I think.

But with a defined pension, a defined benefit plan, the the retiree's salary is based on some percentage formula of their last however many working years.

And it's up to the fund and the employer to fund it and invest it such that that obligation is met in their retirement.

So you can see over the years that dotted line is the progression of people who have pension funds.

This is the left-hand scale is the percentage of workers who have a plan at all.

Once upon a time, there were more pensions than 401ks.

Uh that's certainly not true today.

As you can see, that the light blue line at the top is 80% of people who have a plan at all have a defined contribution plan, a 401k type plan.

The retirement plans that are pension funds, only about 20%.

As you can see from this graph, that top dotted line is public administration.

That would be municipality, state, local governments, and police and fire.

So that's predominantly where we still see pension funds.

And the primary reason for that is first responders on average have lower life expectancies, as you can imagine, because they're exposed to more hazards.

They have typically a shorter working lifetime within their uh professions.

A lot of times they'll go get a second job after retirement, but the theory here was they have less time to save up.

401ks are more difficult for them to amass enough assets.

I can work 40 or 45 years, but uh typical uh firefighter police 25 to 30.

And of course, because of the physical demands, especially in the fire, they're less likely to be able to work the same duration of employment.

Now, you know, over time that's changing as we get better equipment, safety improves, and so forth.

So I was I was gonna ask, I think I think that is changing.

Is there any data that shows what the difference between life expectancy now?

Let's say for someone who's actively employed now, right, versus even like 20 years ago.

Because I know one of the things that we've done, I think that should make a difference anyway, is we've we've started furnishing second set of turnout gear.

Yep, exactly.

And there's a lot of I guess uh I'm not trying to say preventative medicines now.

You know, we've got the we've got the health clinic down here, yeah.

Right, that they go through the physical every year.

Absolutely.

And they look for certain things, early detection, things like that.

So we're much more aware of it, more heightened and more response to in terms of equipment, so forth.

So, you know, one of my thoughts is one of the challenges to this defined benefit is the fact that I think the data would probably show that firefighters are now living longer.

I know we certainly have now for the first time, right?

More firefighters on the pension.

More firefighters on the pension, I mean drawing as opposed to paying in.

Right here.

So you go back to 20, you're right, you're right on point.

Go back to 2015, that red circle there, you can see uh that that ratio 0.92.

So there were you know, there were more actives, which is the dark blue than retirees.

And now come out to 2024, and that pink line shows you that ratio.

So now there's a hundred and ten retirees for every hundred actives.

If you look at that far right-hand column, one point well, it's really almost one point one this year.

So you're exactly right.

There are more retirees than actives, and if you think about the analogy of Social Security.

1960 there were five workers paying in for every retiree, and today it's about two to one.

So it's the same reason that Social Security has financial challenges.

The ratio of retirees to workers has been grown.

So, and my concern is and is this what does the projections look like on further out in the in realm of even contributions that the cities that the city is making?

Because that if if that well, I'm gonna say if and I guess the the pot's not really shrinking paying into it, it's just that the pot is growing that's now drawn from it.

That's right.

So what does that difference look like and how do we make up that difference?

That's a great question.

Uh, if it's okay with you, I'll hold that for just a couple of minutes because I have a couple of slides on that very topic on how excuse me, how we actually go about determining the city's contribution and the trends for that contribution.

I mean, just to cut to the chase, it's a big nut to crack.

City contributes a lot, they contribute roughly 50% of payroll total.

Now that includes the employees' contribution is 11%.

So the city's contribution is around 35% of payroll to the bench.

What is that number right now?

Do you um I have it on a slide a little later on off the top of my head?

I want to say it's around 26 million total.

But I we'll get there and I'll be able to answer that question.

And that's that's on a yearly basis, that's a yearly basis.

That's right.

That's not any infusion of now.

I will say this.

Every year, and this is you know, I was gonna get there's tons of detail here.

We can spend more time later.

But the process is every year we sit down with the actuary, and the actuary makes a whole bunch of assumptions.

How long's everybody gonna live to your point?

And our actuary will have statistics on life expectancies.

When will that be?

Uh well, this will be we'll get it probably in June for the last year.

It takes them a long time to do the well, I mean it takes a whole year to well, we're not a fiscal year on the plan, we're on a calendar year.

So we close out our calendar year in December 31.

Oh, okay.

And then we adjust it to the city's fiscal year for the contribution.

So we're just now closing out our year ending 1231.

But so every year we sit down and we look at the changes in assumptions because the actuary has to project how many, you know, what's the active payroll going to be?

What's the retiree population going to look like?

And every five years we do an experience study because it picks up those differences in life expectancy.

So all those other assumptions get baked in, in addition to the financial performance of the fund.

If we've if we've lost money last year, then we have to make that up in later years.

Now we do that over a 30-year time frame.

But all that to say each year we recompute the city's um what's called the the uh recommended contribution in order to reach that long-term goal of fully funded.

And you and you won't have that until June?

Yeah, May or June, something like that, typically when he finishes because they do a full-blown study.

Now, you know, our actuary Siegel does one off sort of estimates like we did twice with the pay increases.

He produced a report, what's the impact going to be, and so forth.

Do you know?

And I'm asking a lot of questions that you're gonna do.

No, it's okay.

Um from last year's report.

Did the how was that in relationship to what the city budgeted?

Do you know?

Do you remember?

Like what did they say our contribution should be?

What was our contribution?

Oh, the city is as far back as I can go for the last 20 years, with one exception, the city has always made at least that minimum contribution.

They've always come pretty close to hitting it, and it's usually a little over.

There was one year that some there was some blip in the accounting or something that came a little under, but well, the reason I'm asking is because our budget will be pretty much baked by the time we get this report if it's June.

So they they're gonna have to be making some kind of an assumption of what it would be.

Yeah, not having to have it, the actual numbers, right?

Yeah, and that's a good question.

And honestly, because I'm not involved in the preparation of that estimate.

Um they probably come up when when splits budget season is like in a we usually get our we usually get our budget books in late April.

Yeah, well, May by May anyway.

So he'll have that to you.

He just won't have the full blown report, but he'll have the recommended contribution.

Let me get there.

Okay, okay.

Show you a couple things real quick.

Um, I mean, this is a slide that just tells you all the things that the actuary has to do, right?

He's got a guess how many people are gonna die in the next 30 years, how old are they gonna be when they die?

You know, that's what he's got a crystal ball.

He does much better than me.

And he's got to tell you what the market's gonna do, too.

I need to talk to him.

Yeah, well, and and he's always wrong, I'll tell you that.

He's like the weatherman.

Yeah, because we know we're always wrong, right?

We just what you want to do is build a fence around your errors.

Don't tell him I said that.

Yeah, that stays right in that room, right?

So, I mean, that's all the things the actuary does to make these projections, uh, and they come up with what's called the actuarily accrued liability.

So, what that number is basically is you take every active and retired um police environment in the city, and you know how old they are, and you estimate when they're gonna die.

I mean, statistically using tables, right?

And so you know on as of today, you know theoretically the total accrued liability for the next 30 years of everybody who's either active or retired, if you can guess close enough how long they're gonna live.

But theoretically, that's how all insurance is done, right?

Doing actuarily actuarial assessments, and you know when the timing's gonna be.

So you know that a brand new recruit who just started and he's one year out of the academy, a new, you know, a rookie cop, is gonna work 30 years and he's gonna retire and he's gonna live 18 more years statistically, theoretically.

So we got you know 48 years of liability as of today that he's already accrued because he's worked a year, right?

So we take all those liabilities that we know about, and they're way off in the future.

Some of them are 48 years out, and you discount them back to the present at the assumed rate of return, which today is 6.75%.

Used to be a lot higher than that, but that's a little more realistic.

We were overestimating our future returns for 15 years, and we're going all the way back to the late 90s and weren't attaining it.

So uh so we add all that up, and that's a big old number.

Today it's 622 million dollars.

And what that means literally is if you just stopped everything, if you if we no longer had any firemen or policemen and we no longer contributed, but we still owed them those benefits on the same schedule, it would take $622 million to cover all that.

If it could be invested in the long term at 6.75%.

So that's that's how we start.

We add up all those future liabilities in 2026.

Okay.

So the way to think of you know, you're discounting it from the future, but really the other way to think about it is what would I have to deposit today to have that amount of money 48 years from now and 47 and 46, and each year we have different payouts.

That's where we start.

Okay.

And I was gonna show you numerical example, but you don't you don't need that.

That's you know, theoretically, you understand the concept.

The second thing to understand is that the actual results in the stock market and the bond markets is highly volatile, as you can see.

And that number over there with the big red circle around it is what got us in trouble.

That was 2008 when the fund lost 31% in one year.

Now, everybody lost a lot that year.

That was the great financial crisis, and the stock market was down 30 something percent, the bond market was down.

Um, but you know, to be quite honest, um, I won't say it's before I was born, but it's before I joined the fund.

Um the fund lost more than the average pension fund that did 31%.

The average fund lost 20-ish, 22-ish, something like that.

So that was a big old hit.

But you the point of this graph is that the dark blue line is the actual market results.

The light blue line is what the actuaries do.

They basically average those results over five years to smooth it out.

And the reason is if they didn't do that, and you have a 30% loss, we come to the city the next year and say we need 47 million dollars in funding to get us back to that level.

So actuaries will smooth that.

That's the light blue line, and that's the number we work off.

That's called the actuarial value of the assets.

Chris, let me ask you something.

When we say, and and I get it, I know when we say it lost 30%, that's on paper.

Yeah, of course.

Yeah.

If you don't sell anything, you haven't lost anything.

So why didn't, as the stock market recovered, why didn't we recover sooner?

Did we did we start shifting assets and have a panic sale?

And that's what we did.

Yeah, I mean, I I want to be careful how I put it, because I don't throw shade on any decisions that were made in the past.

They were made in good faith.

The idea at the time was we had too much exposure to the stock market, and we lost a lot.

Coming out of that, now remember 2008-09, the picture still looked pretty bleak.

You know, how long did it take the housing market to recover, you know, from those debts?

It was, you know, a long time.

There was still foreclosures going on into 2010, 2011.

So the theory at the time was that there were hedge funds that were promising above average returns.

Now they carried above average fees.

So the funds shifted some money into hedge funds at the time.

Just at the time that hedge funds started underperforming.

And instead of their history of beating the market, they underperformed the market for the next decade.

And it took us 10 years to unwind that.

So you're right, we did not get it all back.

In fact, if you think about that 30% drop, and we got we had a 20%, 18% gain the next year, but you needed to get 45% to get back even, right?

If if you lose 50%, you have to make a hundred percent of the next year to get back.

So we never did get back there.

It's been a slow climb out.

And I will show you in a minute, our trajectory looks pretty optimistic based on those same assumptions that we've made, which we think are more realistic than they were 10 years ago.

But I hope that answers that question at least.

Well, I'll spring back so the bottom line is they they must have sold, they sold basically and got out of a lot of what they were in, and that became a loss.

They did, but I'll chip, I'll tell you one other thing though, about the uh the way I tend to look at this is it's technically true that you locked in the loss when you sold it, but it's also true that something changed.

And some of the stuff you held, you you don't need to be holding anymore because it's no longer attractive.

So you do have to be active in switching those around.

And the fact that in a pension fund there's no taxation.

Ordinarily, an individual, if you're down on, you know, if you have a large capital gain, you're gonna hesitate to sell something even if you think you need to sell it because you got to pay income tax.

We don't have that situation here.

So the the markets and the world looked substantially different in 2009 than they did in 2006, and the same investments were no longer appropriate.

So there was some adjusting that needed to be made.

And it, you know, um intellectually it's true that you're locking in a loss when you sell something, but you're also missing out on something that has a better, more attractive return if this thing no longer works, and that's where we were in 06.

I hope that makes some sense.

In other words, they weren't necessarily in index funds, they were in.

They were not in index funds.

We're not in index funds as correct.

Came back.

They were in, they were in actively managed funds, and the as I said, the landscape had shifted dramatically by then.

So they were no longer appropriate.

Now, the decision to go into hedge funds, which have very high fees, uh, worked against us as it turned out.

As I said, they were making decisions in good faith, and a lot of pension funds were going into hedge funds at the time.

It was just, as it turns out, poor timing in retrospect.

Uh so we are no longer in any hedge funds.

We are about 50% indexed in bonds and stocks, and the rest is in semi-active management, and then we've got some investments and things like which are kind of bond substitutes like real estate timber and farmland and things that are perpetual income generators.

So it's a much more, it's a much less leveraged portfolio today.

One other thing I will tell you is coming out of that decline, that next seven or eight years really, when we had a big hedge fund exposure, our average expenses in the fund were probably a little over one percent on average annually, and we're at around a half a percent now, all in, including administration.

Now, that I mean, for even for an individual, a half a percent fee on average is pretty darn attractive.

You know, you can buy a cheap index fund for almost nothing, but a balanced portfolio uh even for an individual with no oversight, no management, 25, 30 basis points is pretty good.

We're paying 50, half a percent, 50 basis points all in, including the administration of the fund, and paying all the paying the investment consultant and the actuary.

So that's one thing we're really proud of.

We shaved more than a half a percent off our expense ratio.

And and that over 30 years makes a real difference.

It's a big deal.

So before I move on, is that okay?

That the third line, that purple line, that's the assumed rate of return, and we've kind of dragged it down from it doesn't show because the scale is so small, but the very bottom line, our assumed rate of return in 06 was 8%, and we've gradually reduced that.

And what that means is the rate at which we discount those liabilities back to the future.

If you use a smaller rate, that number gets bigger because that's in the denominator.

So it means our liability goes up.

It also means the city's contribution goes up when you compute it.

But that's the only way to get back to Eden Stephen.

So that's what that graph is trying to demonstrate.

Um I didn't realize it took two years for the stock market to bottom.

I say bottom out.

2020 was COVID, right?

It was.

And then 2022 was a really bad year.

Wasn't as bad as 06, but the stock market was off 22% that year, and the bond market was down about 16%.

And if you remember what happened, that was 22 was the year that inflation spiked to 9%.

Oh, yeah.

And the Fed raised rates very aggressively.

And it whacked the stock market and the bond market.

You know, we went from basically 0% to 5.5% on the Fed funds rate.

Mortgages went from two and a half to seven and change or eight-ish.

So when you raise rates that fast, mathematically, it kills your bond portfolio, but it also kills stock market returns because of the expected future cost.

You're discounting everything back at a much higher uh capital cost.

So yeah, 22 2022 was a really bad year.

But 23 was good, uh, and 24 was good, 25 was good.

And I'll show you our actual results here in a second.

But yeah, it was uh COVID was a bad year, it bounced quickly out of COVID because so many people were working from home and they weren't driving and they were spending less on transportation and work clothes, so they spent more on Amazon.

Yeah, and the economy bounced pretty hard.

So uh now if that accrued liability, which I mentioned was six hundred and twenty-two million dollars, roughly estimated based on preliminary numbers at the end of or at the beginning of this year.

If that number is bigger than what's in the fund, which it is, that deficit is the unfunded liability, and that's where we come into this idea of a funded status or funded ratio.

The the ratio of the fund balance divided by the accrued liabilities is the funding ratio.

So as we sit here today, we're just a hair under 60 percent.

We got back above 60 when the city made their contribution last year, but then the estimate for the raises, hey, how are you?

The estimate for the raises knocked us back down again.

So but we're in the neighborhood, we're really close to 60 percent.

So that's uh that's encouraging.

But that's what when we talk about a funded ratio, we're talking about the fund balance, what's in there now, divided by that accrued liability at any point in time.

So here you can kind of see I'd mentioned the liability 622 million, the actuarial value of the fund, that smooth five-year average was 370.

So you do the math, the unfunded liabilities 252 million or about 59.5 percent.

Now that's the funded status, I should say.

So, you know, six sixty cents out of every dollar of future liabilities is funded, it's in the fund.

Now, by comp you know, we've talked about this before in other council meetings.

60 percent is kind of the threshold below which they really pay close attention, and David Lillard starts calling, and yeah, you know, I stay in touch with him.

I keep him apprised of what's going on.

But uh as we hit that 60 percent threshold, and there's a game plan to pull out of the pull out of the ditch, then I I will mention just for comparison purposes.

When I joined, I guess shortly after the year after I joined the board, that number was 46 percent.

The funded ratio was 46 percent on a market value basis.

And this is the actuarial basis, but I'll say you know, the smooth, but we're almost exactly equal.

Our actuarial value and market value as of this year are almost right on top of each other because we've had pretty good market returns, and those two lines have converged.

So we can kind of talk either or right now, and they're pretty pretty similar.

But Chris, you mentioned something that that I think a lot and and we sort of had this discussion last year during budget when a couple of the new council people was talking about how you know how far behind on pay raises we were.

Yes, right.

And they said, how did we get here?

But what you know, what you have to take in consideration is every time we give pay raises, that funded percentage goes down.

And we were really we were really fighting a kind of a two-edged sword, because every time we give pay raises, we lose ground on our funded funding percentage.

So I mean, we were at such a critical level.

I know when I took office and it was shortly after that you became on board, yes.

You know, our main goal was to get that funded percentage up, which almost means you have to starve the salary increase uh portion of it.

Right.

And then that creates its own problems, and that creates its own problems.

Yeah.

And let me while you're on that topic, uh let me just show you.

This this I'm gonna the wrong way.

Uh this was my example.

I said, let's assume just for illustration, because I don't know where everybody's coming from on this whole idea of discounting a pension liability.

But I my hypothetical one-man plan here, okay.

Uh so a firefighter retires today and his pension is 45,000 a year, and just ignoring COLAs, just make it simple, and he's expected to live 18 years.

So we're gonna pay him 45 grand every year for 18 years.

And the way we calculate that liability today is we take year one, 45,000, and discount it back to today, one year.

So you take 45 divided by 1.0675.

And so if you deposited 42,000 today and earn 675, it would be 45,000 next year, and you could write him as check.

And then the next year, the 45,000, if you deposit it today, it would be 39,000 but grow over two years and so forth.

So the 45,000 in year 18 would cost you $13,000 today and grows 18 years compounded at six and three quarters.

So that's the way that works.

That's the math.

Well, if you add it all up, the liability is 460,000 for that one firefighter who retires today.

Now, Chip, to your point, if you give that guy an 18% raise, and that 45,000 goes to like 53,000, that number at the bottom goes from 460,000 to 570,000.

And that's exactly what you're talking about.

Those two big raises were necessary in my opinion to retain and attract.

But it it worsens the funded status overnight without any other changes, even though you haven't paid a dime of it yet because you've increased the future liabilities.

What's I'm saying?

Starve a uh starve a cold feet of fever.

One of those one way or the other.

Yeah, just kind of like that, really.

That's right, exactly.

So uh, and it's worth noting too that the actuary makes projections of salary increases every year.

That's part of the calculation.

But we since we haven't been doing it, there hasn't really been anything to estimate.

The actuary knows, you know, you just kind of look at historical trends.

So when you did the big raise in 21 and the big raise in 25, you know, those two added together were pretty substantial changes to the accrued liability, and therefore to the city's contribution and so forth.

So you're exactly right about that.

There's a you know, there's a consequence to everything.

Now, over time, the good news here, you know, that that number we looked at before where there's so many more retirees than active, then we're in a period of time right now demographically where the that's the baby boom generation is going off into the sunset, and they're gonna pass away eventually.

And bless their hearts, Gen X is the smallest generation, and they're gonna have to pay my bills in retirement, and then comes you know, the millennials and Gen Z, and they're a much bigger generation.

So demographically, 15-20 years from now, we're in we're on the backside of that.

We got fewer retirees and more workers.

But you know, election cycles are longer than 20 years, right?

And budget cycles are longer than 20 years, and it's hard to keep that in mind, but that that demographic pyramid kind of reverses a little bit 20 years down the road.

But now, according to the chart that we saw, who was at the uh chambers uh luncheon some charts that they showed.

Oh, you're talking about Dave Altic?

The uh yeah, well, it was showing that the barf rate is like birth rate no new babies last year.

And if we don't have if we don't have immigration, because I think we'll be the immigrant contract.

We'll have less people the workforce will contract.

The workforce will contract, it may contract next this year right because of net negative net immigration.

However, I'm not talking about babies born today, I'm talking about people who are already born who are 22, 24 years old.

You're right, you go on down another generation, we're back in the soup.

But you know, demographically, 20 years from now, the picture gets much brighter for uh for uh another generation.

Okay.

So we had 59.50% right now as the unfunded liability, our goal is 60 percent, is that right?

What's the goal?

Well, our our immediate kind of the threshold.

I mean 100% is the goal is 100%.

Well, it's 80%.

80%, okay.

It's unrealistic to say 100%.

Right, but if you're 100% funded, you have too much in the right.

If you're 80%, you're that's solid.

That's right.

Exactly.

80%.

So there is a glide path for that.

Now, you know, um, and and Dr.

Acuff had been working on some projections in our actuary too, and they're at somewhat of a variance, and we'll rectify, you know, we'll we'll we'll you know uh coordinate those numbers eventually.

Um but just based on our actuarial assumptions, I can even I can even get there and show you what we what our actuary projects is that uh we'll hit that 80% funded level by around 2039, 2040, something like that.

Okay, so we're close.

Yeah, I mean the trend is good.

Now, all of this, remember, this is all projections.

Right, right.

There's no way to project another negative 20% in the stock market.

We know we're gonna have it, right?

But we're also looking at longer term averages, right?

And the long-term return on the stock market is give or take, nine and a half to ten percent.

Right.

We can't be all in stocks because of that 32% loss we saw.

And you know, we have to be balanced, but an average balanced portfolio can earn, you know, between six and eight percent, and our assumed rate is six point seven five.

Back in 1992, our assumed rate of return was nine percent.

I mean, that was just whacked out, but everybody was coming off the heady 1990s with the dot-com and then we had three years in a row of double digit losses.

2020, 21, 22 were all double digit losses, and 21 was minus 20 percent.

So the stock market lost 45% of its value over three years.

Okay.

We can't afford to do that.

So that's why we balance the portfolio.

So at our current rate, assuming again, that every year we recompute the city's contribution, and it's a moving target, right?

Depending on stock market returns.

But that glide path, according to the actuary, gets us to 70 percent in 2020, 2033, at which point we can restore part of the cola, and 2080 we can restore the rest of the cola.

Okay.

So that's our glide path.

I will tell you that when we looked at this before the raises, um our glide path was 2038 and 2032.

So even the two raises only cost us a year.

Because the stock market returns have been a little better than predicted since we dropped that rate of return.

Okay.

So let me actually, while we're on that, let me just show you.

This is a snapshot of what the fund has actually done in the last year.

Uh so if you just look at the top line, that's gross ignoring fees and expenses.

That year-to-date column, the fund earned 14.9%.

Now that's pretty darn good for a balanced fund.

We're about 60, you can see 65% in stocks, and the rest is in bond-like assets.

So 6535 give or take allocation.

Uh, and that number in parentheses 29, that's the percentile ranking.

So we were in the top 29% of all public pension funds for 2025.

We want to stay around 50% because we don't want the bigger swings that comes with more risk.

But even going back to the five-year average, we're right about in the middle of the pack, which we're very happy with.

But anytime we're above, we're below 50 means we're in like the three-year average, we're in the top 40 percent of all pension funds.

So uh returns have been pretty good on average over the last five years, and that's helped us get back on that glide path to uh 70 and 80 percent funded status.

Okay.

So what would what would it look like to if we would it be reasonable?

And I'm again, I'm asking because this is something that I've I've heard a couple of constituents mention.

Of course.

Um, but to switch this to switch over to like everyone to a 401k.

What does that what does that look like?

What would that entail?

I know uh we're at unfunded liability right now is uh 252 million dollars, and so um, and you say if we stop right now, we will need 62 million dollars, and at 252 is what we're kind of what we're short at in the gap.

So what would that look like?

Not that I'm advocating forward, but I think it's really exactly the question asked.

It's just one of the questions that I get often um and I've asked here and there, you know, got all kinds of numbers.

Uh so it's good to get these numbers, but what does that look like to uh transition it over?

And is that something I mean how I mean how difficult would it be?

How much would it cost?

Yep.

No, you're your your question is right on point because that question gets asked all the time with funds that I and I was just back up for context.

The city of Dallas police and fire is 30 percent funded.

Yeah, Dallas Fire and Police is 30 36 percent funded.

Oh Chicago is 26% funded.

State of Illinois is 30% funded.

So I mean, they still survive because they're paying in in real time out of tax dollars.

We're not you know, we can't do that.

So let me address your question directly.

Really, kind of two or three answers.

Number one is in order to convert over, you've got to make up that unfunded difference somehow.

Okay.

Now, how do you do that?

There are a couple of ways to go about it, but you've got to take care of people who are 20 years into their career, and you're gonna try to transition them into something else, and when they signed up, they were promised a pension.

So, and it's not to say that those things can't be changed, that happens.

It's very difficult, and and the state of Tennessee has laws on how to go about doing that.

I don't know what they entail.

Uh some states forbid it.

I don't think we do, but there's you've got to make a transition, and the transition is extremely costly.

Somehow or other you've got to get people who have a pension and are vested in that pension, and they have a you know an accrued benefit of let's say 30,000 dollars a year in the future.

How do you how do you give them a big enough lump sum today to equate in a 401k to the same kind of income in retirement?

The second question is you're putting it all on their back to make the investment decisions in the 401k.

Now you can give them tools, you can give them funds inside the pension fund and so forth.

You're also relying on them to fund their own.

The city matches maybe a contribution, but you know, 401k means you got to put some skin in the game too.

The police and fire are doing that, they're contributing about 10 or 11 percent of their pay into the fund.

But that's because they don't have any choice, and some will choose to not defer anything if they're you know, live and check to check.

So then the question becomes, and this is a philosophical question.

Uh, you know, I'm just not a pinting, just throwing it out there is do we owe first responders something a little bit more than we owe you know, me if I'm working in the finance office?

Absolutely.

Is there an is there a question of of an additional obligation, kind of like veterans' benefits?

Veterans benefit veterans are entitled to additional benefits over and above what I am a title to as somebody who never served.

So that's the the sort of the moral question in whether to retain a pension fund.

Are there hybrids that combine the two that other cities use that you might could tell us about?

There are in fact Chattanooga has a 457 and I may have a 403B too.

And some of the some of the more for sighted first responders are participating in that too.

They're sucking more money away and they're making their own investment decisions.

So the answer is yes.

Okay.

And there are hybrids, and there are cases where there are really two two cases.

Uh one is there are cities and states and municipalities that have just had no choice but to dump their pension fund and somehow either float a bond issue or do something to help the transition, because they just can't sustain the our our fund we think is sustainable.

The second thing is that in Tennessee, um smaller municipalities are part of the Tennessee Consolidated Retirement System.

Yeah, right.

The problem with that transition is that the benefits are less favorable, and then you got to go through may or may not recall 2014.

You're on the council at the time.

Well, yeah, I came on the 2013.

Yeah, so you went through that pretty unpleasant transition period where we had to take some benefits away.

Again, I wasn't involved either, but obviously read the papers and well, that's when we did away with the COLA.

Yes, right.

Well, we did away with it.

We limited the COVID.

Yes.

Exactly.

So limited the COLA from the uh so that yeah, they used to get an automatic three percent every year.

But because we were so far behind, right?

It was eating our lunch.

So we basically made a revision that uh we came up with terms when it got to 70 percent funded, okay.

Then they got a portion of that colo back.

And then once it hit 80, then it fit.

They would they would fully come back.

And the way the legislation reads right now that the deal that they cut was that I think you're right, it was an automatic three percent, but the way it reads now is it a maximum of three percent.

But if the CPI is two, they get two.

Oh, okay.

So, but they only get one and a half right now.

Yeah, because that was part of the restructuring, and that was fair.

I mean, that's you know, you got to make the thing work.

So Chris, converting to the Tennessee plan, the Tennessee retirement fund is what some cities have done who just couldn't sustain the pensions.

But then you got another similar fight on your hands with the actives having to give up significant benefits to go into the Tennessee system.

Let me ask you this.

Is it would be advantageous of us to consider uh going back to the uh you know the moral obligations that we have to those who are uh in sworn positions if if we reserve the pension fund only to sworn officers fire and police and then reserved positions, you know, like the council or uh like you said the finance office to some other form of retirement plan, such as a 401k or something like that.

And that I will tell you is above my pay grade, okay.

Um there is they are separate systems.

Well, we already have a general pension fund, right?

General pension funds for everybody that's not sworn.

It's not sworn.

There's two pensions, and the city pension fund is healthy, uh they also the average city employee pays in over a longer period of time, everybody.

You have more time for the contributions to a crew additional value.

First responder funds are always challenging because the statistically shorter working lifespan and and disabilities is a big issue we're doing with right now.

You know, there's lots of presumptions in the law that if you get cancer on the job, the job caused it.

You get a disability pension.

Right.

And that adds additional burden and cost.

And I don't think I mean it's just me talking that we do have a moral obligation to our we don't know that that fire didn't cause their cancer, but we don't want to have to litigate every case.

That's my personal opinion.

But that adds additional cost and complexity, and we uh here's the latest wrinkle is that we're seeing a big uh statistical increase, still relatively small numbers, but geometrical growth in PTSD disability claims as as everyone is, um, and that's a difficult one.

So um, but so far, actually we've had good uh it's it's been very difficult, but we've had good productive conversations with the fire union.

Police have been pretty much on board, it's been fire that's been a little more resistant.

Um, and I've done education sessions with the leadership of the fire department, um the fire union, and we've agreed to some modest changes in the disability policy in the in the non-job related disability.

If it's job related, nobody has any qualms about it, as long as it's a legit disability.

One other thing I'll mention is that a little bit unique with Chattanooga, not entirely, is that the sworn officers make the decisions on disability awards to their peers.

So and they're elected by their peers.

So part of their job as fiduciaries of the plan is to evaluate these disability claims.

They have professional opinions, they have doctors and you know, evaluations, but at the end of the day, it's the sworn officers on the fund, and occasionally the non-sworn people get pulled in if it's a if it's going to be a difficult case or you know, it might be a close call or something.

I've participated in only one in the time I've been on board.

But so all those additional challenges, I think.

But to your point, I think it does make sense to kind of lean on the argument that just like our military veterans, that there is sort of an obligation to do to do a little bit more above and beyond.

And because I think we can demonstrate that we're on a constructive path.

Uh it's a big bite for the city to take.

There's just no question about it.

But they always have stepped up every single year that I've been involved.

And if we follow the plan and everything kind of goes more or less according to plan, uh we hit those targets.

And if you look back 10 years, as I said, we're really still pretty close to those original projections, even 10 years later.

So you had something else.

Yeah, um kind of talking about some types of reform.

I I've had several in the fire department ask me about account uh benefit plan.

In other words, uh meaning, you know, we have we have some in the fire department that that say um hit uh a higher rank chief, for instance, you know, for the last year or two of their service, and then that's what their benefit becomes based on, as opposed to capping everybody like at a captain's rate of pay.

Right, sure.

What kind of difference would that make in helping us catch up to the so that's 80 percent?

That's a good question.

I you know, I'd have to have the actuary do some work on that, but I'll tell you, I read I reread the council's uh legislation granting the pay raises in September, whatever it was, and I was looking at the list of ranks, yeah, and there's not as many chiefs and deputies as I kind of thought there was.

I just assumed.

So I don't know.

I mean, it's certainly something we can look at.

And and what do we know the average rank of a of a fire or police when they mean I don't, but the actuary probably does, or maybe maybe uh somebody in the department knows probably I don't know.

I I've been asked that question before.

I mean, I mean, obviously, it it's to everybody's benefit that this fund is healthy, and you know I'd love to see it up to maybe 70 percent before I can get out of here at least.

You know, but we'll hold you to that.

Well, and I don't know if that's improving the fund or you stayed on longer.

I might be a very old man, but what would a two to three percent cola every year for sworn only due to the pension fund?

Uh well, we're doing one and a half now.

You know, it would be basically just think of it as uh an additional one and a half percent raise every year, basically.

And since we hadn't factored much in terms of annual raises in with the actuarial assessment, this goes back to a a point I was gonna make earlier before I lose my train of thought.

We did two big raises because we fell so far behind.

Yeah, but those were not anticipated by the actuary before they came down the pike.

They happened because we had to.

But if we were able to do two percent a year, or whatever it is that would equate to 20 percent every five years, then the actuary could build that in, and it would be part of the projection.

Okay, I didn't want to lose sight of that.

Okay, that was gonna be my question.

So you're you're talking about uh a colour though.

Yes, right.

I'm just I wanted to go back and uh backtrack on what I meant to say earlier, but that would be equivalent to an additional increase in salary.

Basically, what you're doing is adding whatever that number is, you're adding one per 1.5% to it every year.

Every year, right.

So if you were to go back to my example of the guy with the one-man pension plan, yeah, it's 45,000 this year, it's 45,800 or whatever next year, and it just goes up.

And that would be equivalent to that.

And by the way, that one and a half percent is factored into the actuary's projections because it's set.

So if we add another one and a half percent, you just basically just crank it up to and it's compounded, obviously.

Right here, so then again, that's the that's all the actuary's responsibility.

Let me back up.

First, I just wanted to touch on the funds doing actually great.

We hit the the actuarial numbers that I gave you were based on the value of 370 million dollars at the end of 2025, which was his best yes, because we didn't have full numbers yet.

If you look down at the lower right-hand corner there, that box, we actually ended the year at 400 million, 399.

And as of today, we're north of 400 million.

We're at 405-ish, something like that, which puts us at about 64 percent funded.

Now, you know, we don't take that to the bank, right?

I'm just saying that the numbers have been better than the estimates for the last couple of years.

They'll be worse than the estimates sometime, maybe next year.

Who knows?

But let me go back and touch on how we get to that point, because this kind of goes back to Chip, your very first question.

There are really two components of this when you when you look at this the city's contribution every year.

So the line number four is called the normal cost.

Now, what that is is that is the um well, let me look at the top line.

The total normal cost, first of all, that's how much you would have to contribute this year if the pension was fully funded.

Okay?

That's called the normal cost.

That's just to satisfy obligations you incurred since last year, going forward forever.

So if the fund was fully funded, that normal cost would be 10 million dollars.

I don't I don't understand, I don't understand what you're telling me, right?

Okay, if you started out fresh from scratch and you started a police department and it had no money in it, but you offered them the same pension we offer, and there were the same number of sworn officers, you would have to add 10 million dollars to that fund this year to fund the pension for the next 30 years for the rest of those guys.

That's just this year, that's just what they approved this year, right?

Okay.

So next year you'll do it again, and it'll be more because you'll have higher salaries, you maybe have more people, but that normal cost is what it costs to keep the fund fully funded if it's already fully funded.

Probably the best way to think of it.

If you were 100% funded, you would contribute 10 million dollars to the fund this year.

This was last year's number.

I'm just showing you an example.

Does that make sense?

Yes.

10 million dollars more, you're saying.

That's that would be the total contribution.

So just for just this year.

10 million.

We're already 26 million.

So I'm gonna get the same.

I'm gonna get there.

Okay, so I just want to set the stage.

Okay.

So the normal cost is just what you put in, just if everything is status quo and everything is healthy, and you're just covering the new expenses you accrued for one year of fire and pollution.

Oh, okay.

Okay, okay.

Okay.

This is in fairy tale land, right?

Yes, right.

Exactly.

This is through the looking glass.

Okay.

Okay, we're very theoretically, right?

If everything was exactly right and everybody retired on time and they lived exactly the right amount of time, okay, and we made exactly six and three quarter percent, then that would cover all the future obligations that we incurred this year.

That's called the normal cost.

Okay.

Now the cops and firemen pay some of that.

That's line three.

So the city's normal cost is line four.

Okay, so again, if everything was cool, that's all we would be out.

However, everything isn't cool.

So that unfunded liability, the 2020.

Yeah.

Okay.

We amortize that over 30 years.

You can't come up with it all in one year.

No, we can't.

The rules say you got to do it over 30.

So you put in enough every year over 30 years to make up that difference.

Okay.

And then every year you go back and recompute that and you extend it another year.

So it's a rolling 30 years.

So like hopes hopefully next year it won't be 252, it may be 225, hopefully.

Something like that.

Okay.

Okay.

So in order to amortize that unfunded liability, if you go down, that's line number eight.

Okay.

So that 19, 20 million dollars is this year's down payment on funding that deficit over the next 30 years.

Okay.

Does that make sense?

Yes.

Add them together.

Line 10 is the city's contribution.

So first is what will we pay if everything was fair telling.

Everything was great, we'll pay.

However, we are underfunded.

Well, we have an unfunded liability because of that, we're adding the 19 million.

So that okay.

That's this year's payment on a 30-year payoff of that deficit to get back to 100%.

Okay.

Now, again, it's a rolling target, right?

We redo this every year, and we don't want to get to 100%.

Austin PD is 110% funded.

Don't ask me why.

Oh, that could be it doesn't make any sense because it means they're over-contributing.

Yeah.

Oh.

And if they I don't understand it.

And and the guys that I've met from their fund don't really understand it either.

It's just their policy.

That's pretty scary.

Yeah, yeah, yeah.

They don't know what we're doing.

I mean, they're not the decision makers, right?

They're just the guys sitting around the room like I do.

But um but uh as I said, the the city of Dallas just entered into a new agreement with the city, nobody's happy.

It's gonna be significant cuts in benefits.

Um but they were they were 30% funded.

Now they're 36, but it's gonna, they're never gonna get back the whole.

I mean, they you know, the city's contribution is to the if they were the same size as us, their contribution is like 45 million dollars, and they're making 20 million of it.

They're not making it.

So they fall farther behind.

That's what happened in Illinois in Chicago and the state of Illinois.

They didn't make their required contribution every year, and they got deeper and deeper in the hole.

And that's why I always try to mention the council how uh important it is to recognize the council has always made at least the minimum, the term and contribution.

That is good.

That is good.

It is good.

People need to know that.

Because I kind of listen to it and this is it, you know, it's like we we do try in chapter.

There's no question.

One or two years has been a little more than that, because the parking fees or court fees or whatever came in a little higher.

Right, you know.

Um so far, does this all make some sense on how it works?

This is fantastic.

Yeah, and I've been on council and I needed this education again.

So is there a projection of block the next 10 years for the city's what the city's contribution would be?

Our actuary does that.

Um where is that?

It's like I I will tell you that the number goes up, but the percentage of payroll goes down because we're paying more people, we're paying more money.

So that the dollar of value goes up, and I don't have it in front of me because we're still working on refund.

So we we can expect to see a larger than 26 million dollar contribution.

Yes.

Okay.

Yes.

Because everything goes up, inflation for one thing, and you know, that's the cost of everything goes up.

You add more people to the payroll, because you're gonna add more cops and firemen, more firemen especially.

Right.

Then the contribution's gonna go up.

The normal contribution is gonna go up, right?

Okay, the normal cost because you have more people in the plant, and you're paying them a higher salary.

Did you say you don't have those numbers?

I have some preliminary numbers, but we won't really have their latest guess until they figure till they finish the annual report.

Have you gotten Weston?

So I think we got it in May last year.

Yeah, something like that.

We were just talking, I was trying to remember when they do the valuation.

So how do you know what number?

How do you know what number to plug in?

We we do a best guess until we get it.

If you remember last year, we we will kind of because we're conservative with what it is.

Um and then when we get the final number, we true it up, and then last year uh we used it to offset some additional costs.

I think we actually put it into the contingency bucket that we set aside the five million dollars or whatever that we in the initial budget submission, we added it to that bucket, I believe.

And and the guess will be fairly close.

I mean, it's order of magnitude.

So I mean it won't be off five percent either way, probably.

We always start with a six percent.

I think well, I say always the last two years, which is what I have.

Um it's a six-week budget, a six percent increase, and it's so it's so it usually you're saying six percent more than the twenty-six million is what you would estimate for the twenty-seven year.

Is that is that what you're saying?

So, and usually it's some number less.

I think uh I I talked to our general pension and they thought maybe three or four percent, they're still working on their finalizing their numbers as well.

So that that number starts to get pretty big though after a while.

It does.

No question.

But as a percentage of payroll, it goes down.

Which I mean that's counterintuitive.

That is, I mean, that that's really irrelevant.

Yeah, irrelative to it's not entirely irrelevant because you want it to go down to zero percent of payroll.

Theoretically, there's a top-out point where the actual absolute number starts to come down to once you've hacked away enough of the unfunded liability.

Oh, that's right.

Okay, and again, you're right, it's it's la la land, it's all projections.

But you know, but there's some projections you you know and you've got to live with projections, you have no choice because that's the nature of a pension accounting.

You you're making everything about it is an assumption, except the current census.

You know how many cops and firemen there are this year.

But you've got to guess how many you're gonna have next year.

How far out do you project a six percent increase?

Uh well, I'm I'm not I mean at some point that's got to be.

Well, that's what I say.

At some point when you've hacked away at the unfunded liability enough, that absolute number starts coming down instead of up.

So let's say it goes 26, 27, 28 million, whatever the number is.

It gets to 35 million, and then the next year is 32 and so forth, because you're approaching paying down, and the the differential, the percentage of the unfunded liability gets smaller as you hacked away at it.

But that's but what I'm asking is how many years do you anticipate a six percent increase?

Well, and I I'm I'm not telling you six percent because I don't know.

I mean, he's just saying that's the rule that they've used just for estimation until we get to actual valuation.

Well, it must be pretty close if we're using it.

Yeah, I mean it's in the ballpark.

Yeah, I'm trying to think about last year.

It may have been a decent amount lower.

I can't remember if it's it was it was a little bit.

But this year with the raising.

With the raises, we maybe it's right at six percent, we're not sure.

So anyway, let's just say it's six percent.

And again, that's just we're just pulling a kind of a number from that we've used as a as a placeholder.

So is that what that 2032 number is?

Is when we think we crest?

Um I would say probably in that neighborhood.

2033 was yeah, that's the year that we get to 70 percent funded if error again if everything plays out according to plan.

Um but the actuary has numbers, and I can get I can get you a better estimate when we think it'll crest in.

I I know that the percentage of payroll starts dropping almost right away.

In fact, this you know, it's 50 percent of payroll this year.

I think the preliminary numbers I saw were about 50 or 51 for next year and 49 the next year, and you know, because the payroll has gone up dramatically with the raises.

Um, but at some point the actual number, the 26 million, however big that number gets, starts coming down as you get closer to paying down the unfunded liability.

Okay, and then so because you just walk me through kind of processes in regards to so I did take Chief Chambers to ask what was the majority rank of a CPD.

He says mostly police officers, and I know they're bringing in new uh new officers.

So how long does it take for them to get they come they get higher, they get into the pension.

Is it amount of is there like a percentage that they're paying as as time goes on until they're 100% vested?

Like how does that how does that work?

Yeah, I wish I could tell you off the top of my head the vesting schedule on that.

Okay.

Uh it's in the plan document.

But it is a schedule that they own the schedule.

And if they decide to leave before they're fully vested, their contributions are refunded to them.

Their own personal contribution that they put in.

Okay can roll it into wherever they end up going.

Is it five years, Weston?

I think the fireplace is ten years.

I want to say ten.

Before the general mission is five.

General.

But I want to say it's ten years.

Okay.

Before they're 100% invested in right.

And again, they're only vested in the benefit they've accrued.

So they, you know, they don't get their full pension because they haven't worked 25 or 30 years, but they're they're vested in 10 years worth of their pension.

Okay.

So it's all theirs to, you know, they can choose to defer.

They can't take the money until they hit eligible retirement age.

Okay.

But they can they know they're vested.

And they can they have some choices.

They can take their contributions out and walk away.

They can wait until they hit 25 years or whatever the age is 60 years old to begin taking their vested benefits, but it'll only be based on their accrued service.

But those years they didn't.

So it'll be a much smaller check than if they had worked the whole 30 years.

Okay.

Okay.

Thank you so much.

So and I hope I answered your question about the transition to a form of the case.

I think that it and you explain it in a way that I can explain it, explain it to others.

I knew my explanation, I will always is it's gonna be expensive.

That's really why I land it.

Uh but it's gonna be expensive and it's gonna be less less favorable to the sworn officers.

Now, all the rest of us in in life in private enterprise, that's what we have.

We have defined contribution plans, and it's on us.

It is.

But you know, and then it kind of comes down to that moral question.

We owe them more.

These guys are going into burning buildings and chasing down bad guys, and I'm not willing to do that.

I'm not, and that's why I support them 100%.

I am not.

I'm probably the guy he's chasing.

So yeah, it was it was good and it was uh uh which is why I I almost primarily say it was like I I wanted to ask you that because I like I said I get it often and a lot of times I'm like, well, it's gonna cost a lot of money.

I know that.

But then the money also it is do we owe them more?

Because we do owe them more.

I mean, I that's my personal opinion.

Same thing with my dad who was in a marine corps, you know.

I couldn't serve.

I'm not doing it.

Yeah, I'm not so I mean I appreciate you.

Well and I want to tell you one other thing too, just it has nothing to do with the numbers, but you know, I I forget who even asked me to consider doing this in the first place, but it was around 2017 or 2018, and um I started working with these police and fire.

Now there have been a lot of changes, you know, but they're elected by the members.

One of the things that we had when I started the term was two years, and they could run twice for two-year terms.

But in two years, they just learn where the bathroom is.

They don't you know, two years of meeting twice a month isn't enough to get your sea legs.

Okay.

So we came to council with legislation the three or four years ago to gradually change that to a six-year term.

And they're staggered.

So two new guys come on every two years, and there's an overlap.

Now we have a lot more continuity.

Yeah.

Now they do sometimes leave because if they get promoted to uh to a chief rank or deputy chief, then they're no longer eligible to serve because it's a kind of a conflict of interest below a certain rank.

So sometimes they roll off if they get promoted, and sometimes they just decide they don't have the time.

And the reason I say that is because these guys, I mean, I I don't put uh dramatic amount of time into this.

I do this, I'm not pension stuff, but I do investments for a living.

But those guys spend ten or fifteen hours a week of their own time unpaid working on the pension fund, primarily on disability cases.

I mean, it's a huge amount of time that they put into this thing.

And the only two guys that get any compensation is like a 200 a month stipend for the two officers, the president and vice president of the board who have to do all the filing and reports and everything.

So I have developed such a tremendous respect for these guys.

Absolutely now.

I'm totally prejudiced about you know my moral obligation to take care of these guys because I hear these stories.

You know, they come in that sometimes the fire truck is parked right outside the pension office and they're idling, and he's got his radio, and he's may have to jump out and go take a call.

And these guys are totally focused, and they understand that all the trustees have a fiduciary duty to the fund.

They're legally obligated to do what's in the best interest of all the planned participants, which means all the sworn officers in the fire and all the retired uh sworn retired uh first responders and their spouses if they were successors to the benefit.

So, you know, it's changed my attitude.

You know, I once upon a time I used to think, well, shoot, we should just do a 401k, and I do not believe that anymore.

My attitude has changed.

And I'm also convinced now, which I wasn't 100% convinced in 2018, that the numbers will work if we stick to the plan.

Okay.

Now that again, it's a you got to sell it to your constituents every year in the budget.

Well, it it it works with a six percent increase in contributions every year.

Right, that's what I'm saying.

You know, that it's a it's a big nut to crack, it's you know, it's a lot to ask.

But council has always done it.

Okay, going back, and that is not true of every city or every state in the country.

Okay.

I mentioned Illinois, but that's the worst case.

Mississippi's pretty bad, where they just rated the pension.

They didn't have the money, and so they didn't make that 26 million dollar contribution.

They put 10 in.

Because that's all they could do.

And every year they fall the behinder they get every year, because they're just not they're not hitting the number.

And first thing you know, then you got a crisis.

And now what do you do?

You know, it's not sustainable on its own, and it's too expensive to change it.

Right.

So you stuck with it.

And if everybody desvested that could retire, there'd be it'd be a problem.

The old problem.

Okay.

There was, and uh, you guys know this, I'm sure well from talking to the chiefs, there was a big morale problem, you had a huge attrition problem.

So the I don't think there's much dispute that the raises were necessary.

Right, yeah.

Um, but it definitely comes with an additional cost over and above the salaries.

Right for the for the benefits.

Okay.

Chip, you got anything else?

Wow.

Well, other than another lesson on how the treasury bonds work.

And you've explained this to me a hundred times.

Okay.

So when that when that yield goes up, they become less attractive.

Right, what you're already holding.

So let me put it to you this way.

Think about think about bond prices and interest rates as a teeter totter.

So right now they're running at about a four and just say four.

Let's say a 10 years, it's 4.2 something, I don't know, in the checklist.

So let's say you went out today and you bought a 10-year treasury bond, and it's going to pay you four, let's say four percent, just round numbers for the next 10 years, and then you're gonna get your money back, and it's guaranteed because it's a government obligation.

So you I mean, yeah.

That's yeah, that's a whole other two-hour conversation.

I grabbed it.

Okay.

Talking about fairy tale.

Say that with a straight place.

I tried, but I just couldn't.

But let's just assume that you're gonna get your money back in 10 years.

So you're gonna make four percent for 10 years, and that's that.

You don't have to worry about it, you sleep at night.

Well, so next year, um the Fed cuts interest rates, and a 10-year treasury bond next year is paid in 3%, hypothetically.

All right.

So if you went out and bought a brand new 10-year bond next year, you're gonna get 3%.

Yours pays 4%.

So the 4% becomes more attractive.

Exactly.

If you want to turn it on and sell that to somebody, you're gonna get a premium for it.

But that shows up on the on your statement because it's priced every day.

It's marked to market.

So the value of an outstanding bond rises when interest rates fall generally.

The same thing happens in reverse.

So it happened in 2022, the bond market crashed because all these bonds were paying close to zero.

There was there was a time where 10-year treasury yields dropped to a half a percent.

So nobody won 21.

Basically, yeah.

So if you had a bond paying a half percent for the next 10 years, the next year a 10-year treasury was paying five.

You got hammered.

Your bonds fell by 40% in value, 30%.

The longer out in duration, the worse it is.

A short-term bond price doesn't move that much.

A 30-year bond, um, it it can swing a lot.

So that's what happens with existing bonds if you hold them in your portfolio.

You know, uh, you're buying new bonds every year, you're gonna get whatever the market interest rate is.

But a year from now, that could either go up or down depending on what market rates do.

That makes sense.

I mean, just think about you know, think about the opportunity cost.

You spent a hundred dollars on a bond, and it's gonna pay you four percent, but now all of a sudden you could have bought a bond that's paying you five percent.

So, what do you do?

How do you make that switch?

Well, you gotta dump the one you've got, and in order to sell it to some other sucker, you've got a discount.

Now they're not suckers, they know because people buy bonds at a discount on purpose, deliberately in the secondary market because they're betting maybe interest rates are gonna are gonna fall some more, or you know, whatever.

But because you buy it at a discount, here's the other the other twist that'll really blow your mind, I'm sure.

You were making four percent.

Now the market rate went up to five percent.

In order to sell your bond, you have to cut the price.

But the guy who's buying that is still gonna get five percent because he's paying less for it.

Right?

So the market makes that decision.

You have to discount it enough so that a buyer will make an equivalent yield to what he could get with a brand new bond paying the same thing.

That helps I know we'll have to talk about it.

It's good though.

Y'all got anything else?

No.

I'm so sorry I screwed up the time, and I apologize.

Thank you very much.

Did I did you start at two?

I suppose to I thought I was starting at 2 30.

Okay.

Chip called and said, Where in the heck are you?

I had two on my calendar, and I didn't know it was one thirty, so I oh that's okay.

So I'm good.

I was I told him I was in Chicago and I put it on my calendar, and somehow it it got screwed up.

Okay, well, I read mine wrong too, so I don't feel as bad.

Give me a call paying what you like.

Thank you.

Thank you, Chris.

This was fantastic.

Well, thanks a lot, guys.

And again, we really appreciate the support we get because council's been great about this, and I enjoy coming to council and talking about how we're doing.

Even in those years when the numbers weren't all that great.

Roman something is it's just but it's I mean, this is it says a lot about the council, especially because I only been here, you know, this is just my second term, but like to chew and all