After months of debate, haggling and threats of litigation, Atlanta Mayor Kasim Reed finally unveiled his plans to revamp the city’s pension program, which would reduce the annual and long-term costs of the program that he said has been crippling the city.
On Wednesday, Reed told members of the Atlanta City Council’s finance executive committee that his proposal not only reduces the annual pension cost in the city’s budget and pays off the city’s unfunded liability, but it also lessens the financial risk to the city and diversifies the retirement options for employees.
Right now, the pension consumes 20 percent of the city's budget -- at the expense of parks, public safety and services -- while the standard rate should be under 5 percent.
Wednesday’s presentation was made in the full council chambers to accommodate dozens of city workers and union leaders concerned about their pensions and future. Reed did not introduce legislation about the pension changes, so there was no vote.
The changes that the council would consider come in two parts.
The first part is changing how the city pays off the debt, which would reduce the city’s $1.5 billion unfunded liability but also require increased annual contributions. This part of the proposal commits the city to pay off its debt over the next 30 years, similar to a homeowner who obtains a 30-year home mortgage from a lender.
“Last year, when we wrote a check for $125 million [in pension payments], not one penny went down to pay the principal,” Reed said. “It is worse than a subprime loan. Under the program we are in, the principal continues to grow.”
Coupled with that major change would be changing the structure and cost of the pension plan that is now being offered to employees, through two options.
The first option would be to shift all of the city’s workers into an already existing 6 percent defined contribution plan, similar to a private 401(k) program.
All city workers making more than $59,000 have been in this plan since 2001. This option would add about 6,000 current employees to this plan.
Employees would contribute 6 percent of their salary, and the city would contribute 6 percent. This option would reduce the city’s annual contribution cost by $27 million to $31 million in the first five years.
Currently, a worker with 25 years of service would have earned a $28,125 annuity and over the next five years would have added $5,625 toward a $33,750 retirement. Under the new plan, that worker would keep that $28,125, but the five additional years would accrue only around $2,000 for a $30,121 retirement.
The second option would give all employees making less than $39,856 the individual choice of entering into the Social Security system. The city would match up to 8 percent of employee contributions for those who opt into Social Security or up to 12 percent for those who don’t.
That option would save the city $12 million to $18 million in annual contributions in the first five years. For 20-year workers, they would still keep their $28,125 annuity and get roughly $2,000 over the next five years toward a $30,406 retirement.
Either plan -- on the day it is implemented -- would drop the liability by $400 million.
“Both options provide a pension promise to employees that the city can actually meet,” Reed said.
Jim Daws, president of the Atlanta Professional Fire Fighters Association, continued his claim that changes to the pension are illegal and may result in litigation. He said that firefighters and police officers were hired in Atlanta with promises that the city is now reneging on.
“This is the ultimate betrayal. The carrot that they put before us to keep us here has been pulled away,” Daws said. “We feel the administration has been hard at work trying to denigrate and break us. They just looked at one solution -- take back the promises that were made.”
Neither of the plans would impact any city worker's accrued earnings, retirement age, salary calculation, vesting period or cost of living adjustments.
But as of today, only 53 percent of the current plan's liabilities are funded, and since 2001, annual pension costs have gone from $55 million to $125 million.
To do nothing, Reed said, would allow the current $1.5 billion unfunded liability to grow to $4.5 billion over the next decade.
"The data around the problem is undeniable. To let this problem persist is unconscionable," Reed said. "To leave things where they are can leave the city in a posture with a $4.5 billion debt. We don't have any revenue capacity that addresses a $4.5 billion problem. This will absorb all of government."
Yolanda Adrean, who chairs the finance committee, will set up a series of work sessions, and Reed said six meetings are being set up to allow employees to directly question him and his senior staff about the changes.
Peter Aman, the city's chief operating officer, said the administration is hoping to get the changes done by July 1, so that they can be included in the upcoming 2012 budget.
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