As the chairman of Atlanta’s general employees pension board, Al Berry Jr. has been a busy man lately.
Two weeks ago, Berry and the rest of the city sat through a lengthy presentation by a pension reform panel, who outlined at least seven options that Mayor Kasim Reed might consider as he tries to rein in Atlanta’s pension program before it spirals out of control.
Now, as Reed contemplates changes in the overburdened pension system, Berry, along with representatives from each of Atlanta’s pension boards and union leaders, have been fielding calls and messages from members asking, “What’s next?”
“But I can’t answer anything. All we can do is speculate,” said Berry, a research and policy analyst for the city. “It is a bit frustrating, but it is a decision that the mayor and council has to make.”
With Atlanta facing about $1.5 billion in unfunded pension obligations, that decision will no doubt be the biggest in Reed’s young tenure as mayor.
Atlanta, like many municipalities across the nation — from tiny Prichard, Ala., to Philadelphia to all of New Jersey — is feeling the strain of expensive pension programs.
Which leaves the city at a crossroads. Either fix it or ignore it for future administrations to deal with.
“We believe we are at a place where we are making promises that we might not be able to keep with our current plan. We want to prevent what happened in Alabama, where they just decided to stop sending out checks one day,” said Peter Aman, the city’s chief operating officer. “We have to tackle this. We don’t have a choice — not just for the taxpayers, but for the employers as well.”
But that has not stopped the speculation. Fearful of losing benefits or taking home less money, workers are talking about leaving the city for other municipalities or even filing lawsuits.
“I have done a bunch of research as far as pension law is concerned and talked to a lot of pension boards,” said Ken Allen, president of the International Brotherhood of Police Officers. “I am not so sure they have the ability to change anything. And if there are changes that are made to the current form — some kind of reduction in pay — there will be lawsuits.”
Mayor has options
On Feb. 1, pension panel Chairman John Mellott presented Reed with seven options on how he can fix the problem that continues to cripple municipal finances.
Almost immediately after he was elected, Reed reached out to the former Atlanta Journal-Constitution publisher and asked him to head the panel and take a close look at the pension program. The result was a list of options such as reducing cost-of-living adjustments by 1 percent for all city workers or cutting out all city benefits in favor of just Social Security.
Atlanta does not participate in the federal Social Security program, which would reduce the take-home pay of workers.
“The city now has in its possession all of the necessary information to make a decision,” Mellott said. “And I think they are in a very good position to make a decision.”
Reed, Aman, members of the City Council, key city officials and advisers now must go through the difficult process of choosing one of those options. Depending on which is chosen, Atlanta could save up to $60 million annually and up to $640 million in liability.
Councilwoman and finance chair Yolanda Adrean said: “We need to shift some of that risk from the taxpayer to the employer because the plan we have now is not sustainable. Everyone needs to be concerned about that.”
Hit by ‘black swans’
Since 2001, Atlanta’s pension costs have risen from $55 million annually to $125 million. At the same time, the unfunded pension liability grew from $321 million to the current $1.5 billion, with only 53 percent of it funded. A healthy retirement plan should be about 80 percent funded.
Mike Bell, Atlanta’s former chief financial officer, said that during the past decade, municipalities were hit by “black swans” or “extremely out of the ordinary occurrences that nobody could predict.”
Bell, now a professor of practice at the Andrew Young School of Policy Studies at Georgia State University, said it started with the attacks on Sept. 11, 2001, which led to instability in America’s financial markets. That was followed by crashes in technology and the recent housing crisis.
And suffering followed.
Just last week, for example, Standard & Poor’s downgraded New Jersey’s bond rating from AA to AA-, citing pension costs as a key reason.
Like those other municipalities, the chances of Atlanta having normal market-driven pension problems were likely, but several decisions didn’t help.
In 2001, and again in 2005, the Atlanta City Council voted to increase the pension payouts to police officers, firefighters and general employees. But the burden of those increases was amplified by council members deciding to apply the increases retroactively.
“In hindsight, that decision was radioactive,” Aman said. “It was toxic.”
Now, six years later, pension payouts account for nearly a quarter of Atlanta’s annual budget and about 70 percent of those payments go to retired employees.
Atlanta contributes 39 percent of each employee’s salary toward pension benefits while similarly sized cities contribute about 21 percent.
Three general options that any city would have in this situation would be to raise taxes, cut city services or reduce benefits for workers.
Raising taxes is not on the table, Reed said.
“Atlanta should be very proud of itself as a community for stepping up to the plate early and looking at this difficult issue,” Mellott said. “The mayor, within days of being elected, even before he was inaugurated, was already in contact with me and working on the pension issue.”
Aman said they are in the process of “mixing and matching” aspects of the options to come up with a proposal to send to the city workers within the next month. The city is hoping to have a plan finalized by the end of June, when the municipal budget has to be ratified.
“If we don’t change the pension plan, the odds of mass layoffs to fund pension liabilities are much higher,” Aman said. “We are not doing this because we want to. We are doing this because we have to.”
The choice is yours
Like Berry, Allen of the IBPO also has been busy. He said he is “fielding 25-50 e-mails a day and a lot of phone calls” from police officers anxious about the future of the pension plan.
“It is huge. It has drawn some of the greatest attention I have seen in the last decade as far as the union goes,” Allen said. “You have older officers who are looking to get out early, and I have been shocked by the number of younger officers who are on the Internet looking for other opportunities because of the course the city is taking right now.”
Whatever option is chosen, the changes would impact only future pension payments. Anything accrued before the changes would not be affected, Aman said.
“On the issue of employee fears, unfortunately there is this notion to retire today to beat the clock. That is just wrong,” Aman said. “We can’t take away a benefit that has already been earned.”
Aman said as part of the upcoming process, the city is going to beef up its communications to better explain options and realities to workers.
“Once we make that information available, the best and smartest employees will figure it out. If they don’t figure it out, they will leave,” Aman said. “A few people will leave because it is emotional and they don’t understand it. Those who aren’t the best and the brightest will leave and we are OK with that.”
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