By Stephanie Ramage
Last week, the Fulton County Taxpayers Association once again waded into the debate over Mayor Kasim Reed’s plans to cut city employee pensions, this time claiming the plans are illegal—unless Atlanta withdraws its opposition to the association’s lawsuit against the city over improvements to pension benefits in 2001 and 2005.
Reed has offered a pair of proposed plans aimed at saving the city money and shifting more of the responsibility for retirement funds from taxpayers to the employees themselves. He would like to see the City Council adopt one of the plans by July 1.
Option 1 would shift all employees from their defined benefit plan to a defined contribution plan, essentially moving them from a plan in which they know how much money they will draw in retirement to a plan similar to a 401(k) that fluctuates according to financial market performance.
Option 2 would shift all lower-ranking employees to a defined contribution plan with the option of signing up for Social Security. The city opted out of Social Security in the 1970s to avoid paying the match required by the federal government.
The proposed changes – presented during Atlanta City Council’s finance executive committee meeting at City Hall on March 16 – would affect a majority of the city’s employees.
Those with less than about 27 years with the city would see the amount of money withheld from each paycheck increase in order to achieve slightly less than their present projected retirement earnings. An employee’s overall 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 says the current retirement would be $33,750 per year, or 75 percent of their earnings while employed. Under his plans, however, that would drop to about $30,121, or 67 percent of employed earnings.
The attorney for the International Fire Fighters Association (IFFA) has sent a letter to the city claiming that changing the pensions of existing employees without employees’ consent represents a breach of their employment contracts. The firefighters union says such changes are illegal and the group is prepared to fight it out in court.
Oddly enough, the Fulton County Taxpayers Association (FCTA), which usually opposes the firefighter’s union, agrees that the mayor’s plans are illegal.
“We believe that the city of Atlanta would lose at the Georgia Supreme Court if it tried to simply sweep aside existing pension laws by ordinance, both for existing employees and those who have retired,” John Sherman, president of the FCTA, wrote in a press release last week. “It does not matter if they have ‘vested’ yet under the pension plan itself. What matters is whether they have worked one day under their employment contracts and have made one contribution of their salary to the pension fund.
“If they have, they have constitutionally vested contractual rights in the existing pension plans which cannot be impaired by subsequent legislation by the city.”
However, Sherman claims that if the city of Atlanta would withdraw its opposition to the lawsuit the taxpayers group brought to have the city’s 2001 and the 2005 pension law modifications declared void, that would change. The 2001 and 2005 alterations increased the portion of the city’s unfunded pension liability by about 15 percent.
“The law changes were not accompanied by financial impact studies and actuarial studies, both required under the city charter,” Sherman said. “If the courts rule in our favor, the city employees would not be able to assert any vested rights and the City Council would be legally in a position to pass the mayor’s proposals.”
Capt. Jim Daws, president of the firefighters’ union local, says the changes were accompanied by an actuarial statement and he has vowed to wage a legal battle with both the taxpayers’ association and the city, if necessary, to protect retirees.
“This just shows the contempt in which the Fulton County Taxpayers Association holds the public servants who risk their lives to protect the taxpayers’ lives and property,” Daws said. “They have revealed just how vicious they are in resorting to legal maneuvering to leave police and firefighters without any security at all in retirement.”