The pension system of Atlanta is all about to change, as the City Council gears up to bring legislation that may eventually entirely eliminate the city's pension system in its current form.
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The City Council will vote on Thursday on the proposed overhaul of the public-employee retirement benefits. The plan needs a minimum of 10 votes from the 15 member council for it to become legislation. Seven members have signed, as of last week. If the legislation is passed, it will shore up the city’s budget and also help initiate and support similar efforts by other cities. Cities and states across America are scrambling to close huge budget gaps, and revamping pension system is one step towards achieving that goal.
So far, pension changes in other cities have involved just reconfiguring of benefits or requesting public employees to set aside a bigger contribution to their retirement fund. Atlanta’s proposed plan will phase out the current pension system that offers defined benefits. The city will replace it with a 401(k)-type plan where the city will pay defined contributions and also have the city employees join Social Security for the very first time. The proposal could save the city $20 million a year, according to Atlanta Mayor Kasim Reed. With a $1.5 billion shortfall in benefit payments that the city owes to retired and current employees, Mr. Reed is taking some drastic steps.
The plan will reduce what the city owes the retirees, and is expected to generate significant backlash from the community. However, there has been an increase in annual pension contribution from the city over the years, so unless drastic changes are in order, the budget gaps may remain or even increase. Atlanta’s pension woes were partly brought about by City Council’s lack of foresight, when they voted in 2001 and 2005 to dramatically increase pension benefits. Without a corresponding increase in the employees’ contribution to pension funds, the liabilities of the city increased. In 2000, the police pension was funded 96% as against the current 64%, and the firefighter’s pension was funded 92% as against the current 61.4%. In 2000, $51 million was the annual pension contribution from the city, which went up to $119 million in 2010.
Mr. Reed said that the proposed changes are going to have to be done across cities in the country for their governments to remain solvent. Last year, the City Council of Baltimore had voted for some changes including increasing the number of years to get a pension, in a bid to save the city millions of dollars in annual pension payments. The changes are still being challenged by the Unions in court. Chicago had tried to push pension system changes, but the plan was thwarted by Union lobbyists. All other cities across the country are considering pension changes.
The situation is ironic because many pension overhaul efforts are being led by Democrats like the Atlanta Mayor, who were elected with the full support of the unions. Ron Snell, of the National Conference for State Legislatures, says that many changes are forthcoming in 21 states as a result of the above 3,400 bills that have been filed by State legislators across the country in an attempt to deal with a retirement-benefits gap of a trillion dollars.
The legislative upheaval that the country is experiencing as a cumulative result of the state level flurries is the first of its kind at least in the last 30 years. According to Mr. Snell, the changes that are proposed this year are drastic, but they will make pension plans sustainable over long term.
Almost all aspects of pension contracts have been altered. The following are the salient changes:
• Retirement age raised.
• Length of time required to vest raised.
• Benefits reduced.
• Annual automatic cost of living increases cut down or tied to the performance of the pension fund.
Some of the changes will also significantly affect those who have already retired.
In Wisconsin, Gov. Scott Walker signed a law that forced public employees to pay a minimum of 12.6% of their health care premiums and also to contribute 5.8% of salaries to pensions, along with a lower ability to bargain for wages. There is a lot of protest from the community regarding this decision. In Florida, a suit was filed against Gov. Rick Scott to block a law that requires 3% contribution to their retirement plans by public employees.
Not surprisingly, many states are seeing lawsuits, legislative walkouts, efforts to recall politicians who push for the cuts and public employee rallies. The worst affected include Minnesota, Colorado, Rhode Island, South Dakota, Wisconsin and Florida.
In Tennessee’s Shelby County, new firefighters and police officers will have to be 55 and government employees, 65, before they are eligible for pension, regardless of how many years they have served. Employees’ contribution to the plan has also been raised by 2% to 8%.
The California’s Marin County city officials are lobbying the state legislature to increase the power of local governments to alter pension plans. Last year, the retirement age of new hires was increased to 61.25. This year, the city officials are working with public-safety unions to raise the retirement age of new employees and the time it takes for employees to earn a full pension.
These kinds of changes are the need of the hour, so the Atlanta proposal is more than likely to pass in spite of public backlash. If the pension plan does not change, the city is looking at 122 layoffs this year. Atlanta had cut back on expenditure and also had hundreds of layoffs in the several years, in all departments including fire, police and public works. The situation will worsen if the pension plans do not change.
However, city unions are less than pleased and have vowed to legally challenge the proposed retirement cuts. The Professional Association of City Employees president, Gina Pagnotta, says that the unions will go to court if the proposal is passed as it is currently worded.
The unions and employees argue that they have endured several years of wage freezes, layoffs and cuts since the recession. The union sentiment is that Mr. Reed is betraying those workers who voted him to power.
