City Council Passes Pension Reform

June 30,2011

Mayor Kasim Reed and the Atlanta City Council Unanimously Reach Landmark Agreement on Sweeping Pension Reform Mayor Kasim Reed’s push for major reforms to the City of Atlanta’s pension plan is approved 15-0 by the Atlanta City Council; City’s future pension liability and risk will be reduced

Atlanta Mayor Kasim Reed and Council President Ceasar Mitchell on Wednesday applauded the Atlanta City Council on its 15-0 vote in favor of reforming the city’s retirement plan. The legislation avoids the need for personnel reductions and service cuts, and puts the city on a path toward greater fiscal stability in the upcoming fiscal year and beyond.

The comprehensive pension reform plan creates $22 million in savings the first year, reduces the city’s exposure to market risk and allows the city to pay off a $1.5 billion unfunded pension liability. The measure saves the city more than $270 million over the next 10 years, and more than $500 million over 30 years.

Today’s vote reflects one of the most sweeping overhauls of public-employee retirement benefits attempted by a large U.S. city in recent years, according to The Wall Street Journal.

“One year ago, the City of Atlanta’s pension plan could fairly be compared to a sub-prime loan in which the city was investing $110 million per year without one penny of that amount going to pay down its $1.5 billion unfunded pension liability,” said Mayor Reed. “Today, because of the courage of the Atlanta City Council and the women and men who work for the City of Atlanta, we have faced this problem head-on, and through shared responsibility, we have taken a critical groundbreaking step toward resolving it.”

The legislation was originally authored by Councilman H. Lamar Willis and Aaron Watson, and amended by Finance Executive Committee Chairwoman Yolanda Adrean and Councilwoman Felicia Moore. Mayor Reed especially thanked Councilmembers Keisha Lance Bottoms, Alex Wan, Howard Shook and Ivory Lee Young for their support throughout the process. He also acknowledged the support and efforts of Councilmembers C.T. Martin, Cleta Winslow and Carla Smith in negotiating and representing the concerns of employees and the city’s unions, including AFSCME, IBPO, PBA and PACE.

“I commend every member of council for their tremendous dedication and hard work in creating a pension reform plan that the entire Atlanta community can confidently embrace,” said City Council President Ceasar Mitchell. “I also applaud Mayor Reed for his passionate commitment to this issue and his willingness to collaborate in finding a plan that meets our fundamental goals. In adopting a plan that is fiscally prudent, legally defensible, functionally sustainable and humane, we have demonstrated a reform model where both common ground and high ground can be reached when people work together in an atmosphere of mutual respect. This historic vote is a win-win for taxpayers, city workers and the long-term financial health of the city of Atlanta.”

City of Atlanta Retirees
• The legislation makes no changes to the benefits of retired city employees.

City of Atlanta Current Employees
• As approved Wednesday, the legislation allows current employees to remain in a traditional pension plan. They must contribute an extra five percent of their compensation to keep their existing benefits – 13 percent for workers with beneficiaries and 12 percent for those without. The changes do not affect active employees hired before 1984.

City of Atlanta New Employees
• The legislation makes major changes to the retirement options for new employees. New sworn police and fire personnel, as well as those employees below a certain payroll grade, will be placed into a hybrid plan composed of both a reduced traditional pension and a 401K-type plan, similar to those offered to private sector employees.

The traditional pension portion of the plan will have a one percent defined benefit multiplier and an eight percent employee contribution. It has a 15-year vesting period. The 401K-type plan will have a 3.75 percent mandatory employee contribution that is matched 100 percent by the city. Employees would have the option to contribute up to an additional 4.25 percent that will also be matched 100 percent by the city. The 401K-type plan has a 5-year vesting period.

The retirement age for new employees will increase by two years. The retirement age for new sworn police and fire personnel increases from age 55 to 57. The retirement age for all other new employees will increase from age 60 to 62. The legislation creates for the first time a minimum retirement age for city employees: 10 years below the normal retirement age.

Finally, the legislation includes an amendment that caps the city’s annual contribution to the pension funds in order to share a portion of the market risk.

“Across our country, some citizens have lost confidence in government’s ability to act on difficult financial issues, including pension reform,” said City Council member and Finance Executive Committee Chairwoman Yolanda Adrean. “This government has demonstrated its ability to bring all stakeholders to the table to face a difficult issue with unflinching resolve, and has agreed to a solution that will benefit our city for years to come.

Councilwoman Adrean added: “The pension reform we have agreed upon provides significant savings that can be used for services to citizens and investment in infrastructure. It also includes important safe guards to limit the city’s exposure to market risk. A cap has been adopted that will force changes to the plan should the pension costs exceed agreed upon parameters. This is a significant part of the reform which protects the city and its citizens against volatile market fluctuations.”

Today’s vote is the result of dozens of committee meetings, presentations, workshops, and employee sessions on pension reform over the past 18 months attended by Atlanta City Council members, employees, union representatives and the public.

“This pension reform legislation can serve as a model across the country as to how to work collaboratively to address this pressing issue,” said District 9 City Council member Felicia A. Moore, Vice Chairwoman of the Finance/Executive Committee. “I’m extremely proud of how Atlanta has continued to prove itself as a leader and model for other cities to follow. This collaboration of working together is consistent with our rich history.”

Mayor Reed has made shoring up the city’s reserves, balancing the budget and safeguarding taxpayer dollars a top priority, second only to public safety. Shortly after his inauguration in January 2010, he appointed a Pension Review Panel, chaired by John Mellott, the former publisher of the Atlanta Journal-Constitution, to begin studying the city’s pension fund and make recommendations on how to address the problem.

“Atlanta faced a burdensome financial future without the action taken today by the City Council,” Mellott said. “The panel worked hard for months, in a way that was neutral and transparent, to provide the necessary and comprehensive data for the community to make a decision. I believe the solution adopted by Mayor Reed and the Atlanta City Council represents a responsible approach to a difficult issue that many other governments also face and may serve as a model other municipalities could consider implementing.”

Six months after taking office, the Reed Administration successfully took the first step toward pension reform by proposing legislation to reduce the multiplier for new employees. The multiplier decreased from three percent to two percent for sworn firefighters and police officers, and from 2.5 percent to two percent for the city’s general workers. The legislation also increased the vesting period from 10 to 15 years.