Atlanta Mayor Kasim Reed is proposing changes to city pensions that would save the city money and shift more of the cost of retirement onto employees.
He offered a pair of proposed plans.
Both plans call for closing amortization at 30 years. Option 1 would shift all employees to a 6 percent defined contribution plan. Option 2 would shift all lower-ranking employees to an 8 percent defined contribution plan with the ability to sign up for Social Security.
The city opted out of Social Security in the 1970s to avoid paying the matching funds required by the federal government.
Those changes – presented on March 16 to the Atlanta City Council’s Finance Committee — would primarily affect employees with less than roughly 27 years with the city, which means a majority of employees would see changes in their paychecks as the amount of money they must have withheld each pay period would increase in order to achieve slightly less than their present projected retirement earnings. An employee’s required contribution would go from about 8 percent to 14 percent.
Using the example of a 25-year employee who made $45,000 annually and retired at age 55, Reed showed that the current retirement would be $33,750 per year, or 75 percent of their earnings while still employed. Under his plan, however, that would drop to $30,121, or about 67 percent of employed earnings.
At present, the pensions rely upon funding from city taxpayers, but the city has not met its obligation to the pension match in about a decade, a situation acknowledged by Reed, and one he attributes largely to the recession.
Reed explained that the unfunded portion of the pensions, the part the city is required to pay to match the contributions its employees make, has soared from about 4 percent for the police in 2000 to almost 50 percent in 2009. The pension funds of the two other employee groups, the firefighters and general employees, have seen similar trends.
“The direction these funds have taken is undeniable,” Reed said. “It is literally unconscionable to continue.”
Chief Operating Officer Peter Aman told council members the mayor would like to see them adopt some plan for reducing the city’s role in funding the pensions by July 1, the beginning of the next fiscal year.
The mayor himself held out the threat to fire employees at least 10 times during his presentation to council, if pension costs are not reduced.
The attorney for the International Fire Fighters Association has sent a letter to the city claiming that modifying the pensions of existing employees without employees’ consent represents a breach of the employment contract and would open the gate for other public employees elsewhere to have their retirement terms changed without their permission. The firefighters union says such changes are illegal and the group is prepared to fight it out in court.
“We have received a letter [from the firefighters’ counsel] that we are going to take very seriously,” Reed said. “I happen to believe it could not be more wrong, but that will come out in the wash over time.”
The president of the local chapter of the International Brotherhood of Police Officers, who also spoke during the four-hour meeting at Atlanta City Hall, seconded the firefighters, saying the police would also be willing to pursue a lawsuit to stop the changes.