Mayor Kasim Reed is offering legislation to phase-out Atlanta's defined benefit pension system and replace it with a defined contribution system. According to the Wall Street Journal Atlanta currently faces a $1.5 billion shortfall between pension system assets and benefits. How did Atlanta's pension system end up in distress?
Atlanta operates three funds: Fire, Police and General Employees. In the last decade the City's contribution for firefighters doubled; and more than doubled for police and public employees. At the same time the plans' funding levels dropped from the seventy percent range to between 64 percent and 52 percent funded resulting in an unfunded liability of $1.2 billion in FY 2009.
(You can read the City's pension report and a history of the funds, here.)
One reason for the fallout was benefit enhancements. In 2001 Atlanta created a defined contribution plan for General Employees. This led unions to ask the City Council to "rectify disadvantages" in employee contribution levels and retirement ages between Atlanta employees and employees in neighboring counties (Cobb, DeKalb and Fulton). They also sought the elimination of the newly-established DC plan on the grounds that, "pension plans should be the same for all city employees." Thus began a series of pension enhancements to lower attrition rates. Benefit multipliers were increased for police which increasing the city's contribution from 17.6 percent of payroll to 23.3 percent of payroll.
In 2005 the City Council reduced the vesting period, increased the benefit multiplier for firefighters and general employees, and allow some newly hired employees to switch out of the defined contribution plan and into the defined benefit plan. Savings were to be found in a new amortization schedule.
Instead, the liability jumped immediately.
Now the Mayor and the City Council are having a serious look at the numbers and trying to undo the fiscal damage by freezing the DB plan for Public Employees and offers a 6 percent match in a defined contribution plan for all employees going forward. The unions suggest they plan to sue if this passes. Doing nothing will mean that penion liability grows to $4.5 billion.
(You can read the City's pension report and a history of the funds, here.)
One reason for the fallout was benefit enhancements. In 2001 Atlanta created a defined contribution plan for General Employees. This led unions to ask the City Council to "rectify disadvantages" in employee contribution levels and retirement ages between Atlanta employees and employees in neighboring counties (Cobb, DeKalb and Fulton). They also sought the elimination of the newly-established DC plan on the grounds that, "pension plans should be the same for all city employees." Thus began a series of pension enhancements to lower attrition rates. Benefit multipliers were increased for police which increasing the city's contribution from 17.6 percent of payroll to 23.3 percent of payroll.
In 2005 the City Council reduced the vesting period, increased the benefit multiplier for firefighters and general employees, and allow some newly hired employees to switch out of the defined contribution plan and into the defined benefit plan. Savings were to be found in a new amortization schedule.
Instead, the liability jumped immediately.
Now the Mayor and the City Council are having a serious look at the numbers and trying to undo the fiscal damage by freezing the DB plan for Public Employees and offers a 6 percent match in a defined contribution plan for all employees going forward. The unions suggest they plan to sue if this passes. Doing nothing will mean that penion liability grows to $4.5 billion.
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