Atlanta Mayor Kasim Reed’s appointed Pension Review Panel presented a range of seven options to reduce the annual and long-term cost of the city’s pension programs, which now represent close to 20 percent of the city’s annual operating budget.
But the panel offered no recommendations—only options.
Those options ranged from changing the maximum cost-of-living adjustment to ending the retirement system completely and providing employees a personal retirement system.
The cost-of-living adjustment may save the city $5 million to $10 million a 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.
“At the end of the presentation, I did not have an ‘ahh-ha’ [moment],” said Dist 8 Atlanta City Councilwoman Yolanda Adrean, who chairs the council’s Finance/Executive Committee that will review, debate and recommend a pension solution to Atlanta City Council. “There was no obvious answer.”
Dist. 7 Councilman Howard Shook, who represented City Council as a member of the Pension Reform Panel, agreed with Adrean . He said what was presented Feb. 1 as the committee’s final report “are not recommendations. They are options.”
Shook also said the process with the committee was different that what he had experienced in the past and had expected.
“This was different from other bodies on which I have served, in that your function as a panel member in this situation is to review and then be a sounding board and provide feedback to material that chairman John Mellott has put together with the aid of various subject matter experts working at his direction.”
He said the Feb. 1 meeting was the first time he had seen the 17 options for review and the seven options that were highlighted for discussion. “So, at the last and final meeting, the binder was handed out which contained 17 options for pension reform,” Shook said. “Seven or those options were briefly discussed and reviewed by chairman Mellott. They range from ‘do nothing’ to an equally nonviable ‘complete reduction of employee benefits.’”
“Right now I have more questions than answers,” said Shook, former chair of the council’s Finance/Executive Committee, who has fought for reform of the city’s several pension programs in the past.
“Obviously what we would expect the mayor to look at would be sort of middle-of-the-road options in presenting his recommendations to City Council in the next couple of weeks,” he said.
Adrean said she was told by the mayor and COO Peter Aman that the administration would review the options and have its recommendations to the council in a couple of weeks. She anticipates the first discussion in Finance/Executive Committee will be at its March 2 meeting.
The review panel highlighted seven options from the 17 that were analyzed. Highlighted options include reduced versions of the current pension plan; greater utilization of defined contribution plans similar to ones used by private sector employers; enrolling employees in the Social Security system; and combinations of the three.
Under all the options presented, changes would only change future pension. Benefits already accrued would remain intact.
In addition to changes in benefits, the panel reviewed other potential changes that could impact the cost of the city’s pension plan, including extending the time before employees are vested in the plan and changing current investment practices. Other potential changes include raising retirement ages from 55 for public safety employees and 60 for other employees.
Any changes to the pension will require two-thirds approval by the City Council. For changes to be reflected in the 2011/2012 budget, the process must be completed by the beginning of June.
In a December meeting, the panel reported the results of research and analysis which revealed the city’s unfunded liability was $250 million more than calculated earlier in the year.
Further, the work group reported that Atlanta’s pension system is costing more than pension plans at the city’s peer group of national and regional municipalities. Among the findings the Panel 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.
“The mayor said he would read the report, pick the various plan features that he liked and crystallize them into legislation that would reflect what he felt could best be hammered out between the administration, the employees and City Council,” Shook said.
Both he and Adrean felt the council could approve a revised pension plan by June 1.
“I would guess there will be an early retirement option of some sort,” Shook said. “I expect there will be a city return to Social Security as part of it. I would guess there will be reduction in healthcare benefits as part of it.”
Shook said that Aman stated that the retirement ages would stay the same—64 for general employees, 55 for police and fire. And that he also stated that the 15-year vesting period would remain in effect.
But Adrean said she thought Aman had said retirement ages might have to be raised. “Social Security is very viable for our lower-income employees,” she said.
“My disappointment was that I had hoped a hybrid plan would yield a better coverage for income replacement, especially for lower wage-earning employees,” Adrean said.
“Our pension plan tries to replace about 80 percent, which is expensive and we are bearing the bulk of risk. We all know why that is not working,” she said. “But I had hoped that there would be a little bit more coverage when we made some of the combination plans. And, I thought there would be more suggestions of some the combinations that we might study.”
Adrean said that before the council makes a decision, members want to meet with the same legal teams that counseled the mayor and the panel.
“The council will proceed very cautiously because other councils have made pension decisions about which they probably wish they had had more information before making those decisions,” she said. “We need the help of actuaries, plan benefit people and lawyers. Having other experts to bounce questions off of I think is definitely on the table. “
Adrean said her objective” is to shift the market risk from the taxpayers to the employees. It is insane for a municipality or a taxpayer to guarantee something to someone else. Private industry doesn’t do it and we can’t do it. So, my bottom line is to shift the risk. “
Shook said he “will have trouble supporting a proposal that looks likely to be tied up in court for a decade, because that is not going to help anybody.”
As a member of the panel, Shook said, “one reason I never became very worried about the nature of this panel was knowing full well that at the end of the day, City Council was going to have the final word and plenty of time to review whatever recommendations it was in our interest to review. That allowed me to be more patient than I otherwise would have been“