Pension Options Presented by City of Atlanta’s Review Panel
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Options project potential maximum of $60 million in annual savings 2/2/11 Atlanta Mayor Kasim Reed's appointed Pension Review Panel presented the final results of its one-year study into the City of Atlanta's pension benefits today. The report reveals a wide range of options available to reduce the annual and long-term cost of the pension program. Within weeks of taking office, Mayor 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. Those obligations account for close to 20 percent of the city’s annual budget and have grown exponentially over the past decade. 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. “If no action is taken, the city’s financial position will weaken and the quality of city-provided services will slip. It’s important to tackle this challenge immediately to reverse the growth in pension obligations the city doesn’t have the money to pay for. As Mayor, 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.” 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 7 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 Federal 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. 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, 2011. 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.
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:
The panel was assisted by a work group of professional services
firms. The work group was tasked with evaluating the current
state of the pension system and investigating any and all
options available to the city and its employees. The work
group will provide a comprehensive report of all of the work
completed as well as continue to assist panel members and the
city in interpreting findings and data as necessary. To review the pension presentation, click here.
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