Atlanta Mayor Kasim Reed’s appointed Pension Review Panel presented the final results of its yearlong study into the city’s pension benefits Feb. 1 and presented a range of seven options to reduce the annual and long-term cost of the pension program, which now represents close to 20 percent of the city’s annual operating budget.
After a year, the panel presented options that ranged from changing the maximum cost-of-living adjustment (COLA) to ending the retirement system completely and providing employees a personal retirement system.
The COLA adjustment may save the city $5 to $10 million per year and reduce the long-term obligation by up to $180 million. Leaving the retirement system completely could save the city up to $60 million each year and reduce the long-term obligation by up to $640 million.
The review panel highlighted seven options out of 17 that were analyzed. Those options include several reduced versions of the current pension plan; some involve greater utilization of defined contribution plans similar to private sector employers that other municipalities are increasingly adopting; others include enrolling employees in the Social Security system; and combinations of the three.
Under all the options presented, pension changes would only impact pension benefits that have yet to be accrued in the future by current and future employees. Benefits already accrued would remain intact.
In addition to changes in the benefit designs, the Panel reviewed other potential changes that could impact the cost of the city’s pension plan, including extending the time for employee vesting and changes to current investment practices. Other potential changes include moving retirement ages from 55 for public safety employees and 60 for other employees to higher ages.
Any changes to the pension will require two-thirds approval by the Atlanta City Council. For changes to be reflected in the 2011/2012 adopted budget, the process must be completed before June 30.
Within weeks of taking office, Reed appointed the Pension Review Panel—which includes business leaders, city officials, employees and other key representatives—to study options to reduce the growing cost of the city’s pension obligations. The unfunded accrued liability is currently calculated at $1.5 billion.
“The current pension system is not working for anyone – the city, its citizens, nor its employees,” said Mayor Reed said at the time he named the panel. . “I want to make a retirement promise to our employees that I know we can keep. An oversized promise that isn’t properly funded is of no use to anyone.”
In a December meeting, the Panel reported the results of research and analysis which revealed the City of Atlanta’s unfunded liability was $250 million more than calculated earlier in the year.
Further, the work group reported that Atlanta’s current pension system is costing more than pension plans at the city’s peer group of national and regional municipalities. The higher pension costs for the city are delivering, at best, average benefits to employees while putting the whole system on a path towards an uncertain future in terms of funding.
Among the findings reported:
- Atlanta contributes 39.1 percent of each employee’s salary toward pension benefits while its peers contribute 20.8 percent.
- Atlanta’s pension program is funded at 53 percent versus the national benchmarks of 80 percent of the pension commitment being funded.
- Over the past 10 years, Atlanta’s pension liability increased $650 million due to poor investment performance.
To review the Power Point presentation of the Pension Panel’s final report, Click Here: