By John Schaffner
The Atlanta City Council’s Select Committee on Pensions has recommended that the city slash retirement benefits it would pay to future employees and consider having the city join Social Security. Three of the committee’s five council members represent parts of Buckhead.
The committee was created last summer to look at the city’s pension obligations — its future debts to cover benefits for workers and retirees — which last year totaled almost $1.2 billion, which is significantly higher than other city expenses.
With the world recession this past year, pension costs are expected to increase because all of the pension funds have lost money in the stock market and other investments.
The committee’s report was released Aug. 13 as the administration of Mayor Shirley Franklin was in the process of hiring outside consultants to also make pension reform recommendations to the city.
The committee was co-chaired by Dist. 7 City Councilman Howard Shook, who also chairs the city’s Finance Committee, and Dist. 9 City Councilwoman Felicia Moore. Other members of the committee included Councilwoman Clair Muller, who represents Dist. 8 in Buckhead, and council members Anne Fauver and C.T. Martin.
The Select Committee on Pensions focused on Atlanta’s three traditional pension plans — for general employees, police and firefighters— and the associated labor discontent and periodic changes of the last decade. “Some of the changes mitigated an inequity for participants in one of the plans while increasing the sense of disparity for the others,” the committee’s report stated.
The 24-page report offered three major recommendations;
Changing retirement benefits for new employees so the city is responsible for about 50 percent of retirement income. If the city joins Social Security, the direct responsibility for retiree benefits would drop to 25 percent. Currently, police officers can get up to 80 percent of their pay from the pension at retirement. Firefighters and general employees get less.
Looking into joining Social Security. It has been at least three decades since Atlanta last paid into the federal system. As a result, city workers do not get any Social Security benefits when they retire.
Study whether “a new, hybrid plan” — such as a mix between a pension and a 401(k)-type plan —would work for workers and possibly lure pensioned workers into a new plan. The overall goal is to reduce what the city has to pay every year into the pensions. In 2009, Atlanta paid around $136 million into its pensions.
The law requires the city to provide pay into police, firefighter and general employee pensions. Both the city and the workers pay into the plan. But, unlike a 401(k) plan, the workers’ payments and benefits are guaranteed. The city has to make up any shortfall.
Atlanta’s pension problems developed first because Atlanta does not pay into Social Security. Therefore, workers are not entitled to those benefits, which increases the need for a good pension.
Second, the city decided in 2001 to increase the pension benefits for police and then in 2005 increased the pension benefits for firefighters and general employees as well. That added millions of dollars of obligations to plans the city had underfunded for years.
“What we have is not sustainable,” Shook said. However, he does not see council passing pension reform legislation during this election year.
The committee recommendations included adopting a statement affirming that all Atlanta pension plan(s) should:
Provide a retiree the opportunity t receive 75 percent of his highest pre-retirement income.
Observe the standard “three-legged stool” formula regarding the 75 percent—one-third personal savings, one-third pension, one-third Social Security (or equivalent).
Absent Social Security participation, Atlanta should provide two-thirds of the 75 percent, or 50 percent of the highest pre-retirement income.
Changes should bring the benefits of Atlanta’s different plans closer together.
Salary, not pension benefits, should be the primary tool for addressing employees with demonstrably more hazardous jobs, such police and fire.