Atlanta Mayor Kasim Reed on Wednesday unveiled his proposal to reduce the annual and long-term costs of the City of Atlanta’s pension program during a presentation to the Finance Executive Committee of the Atlanta City Council.
The proposal, which consists of two parts, meets Reed’s commitment to leave the benefits already earned by current employees unaffected by future changes. It reduces the annual pension cost in the city’s budget and pays off the city’s unfunded liability. The proposal also lessens the financial risk to the city and diversifies the retirement options for employees.
“The data around the City of Atlanta’s pension problem is undeniable,” said Reed. “To let this problem persist is unconscionable. To leave things where they are can leave the city in a posture with a $4.5 billion debt. We don’t have any revenue capacity that addresses a $4.5 billion problem. This would absorb all of government.”
Mayor Reed further explained that to take no action would result in a $2.7 billion liability in 30 years, assuming the market returns strong growth.
If the market performs like it did over the past 10 years, the City of Atlanta would face a $4.5 billion liability. This would be unmanageable and could easily lead to a complete financial crisis for the city.
The first part of the proposal commits the city to pay off its debt over the next 30 years, similar to a homeowner who obtains a 30-year home mortgage from a lender. This would be a significant change from what currently exists. The city’s current pay-off plan will result in the pension liability almost doubling in 30 years without any debt being paid off. In essence, the city currently pays only interest on its unfunded pension liability, while the principal continues to grow — an untenable financial arrangement.
In the second part of the proposal, Reed outlined two different options for the Atlanta City Council to consider. In Option 1, all employees would be moved to a defined contribution plan (similar to a 401K in the private sector) in which employees contribute 6 percent of their salary and the City of Atlanta contributes 6 percent. This option reduces the city’s annual required contribution to the pension fund by between $27 and $31 million in the first five years. City employees above a certain pay grade — including the mayor, Cabinet members and almost 1,000 other employees — have been in such a plan since 2001.
In Option 2, all employees would have the individual choice to enter into the federal Social Security system. The City of Atlanta would match up to 8 percent of employee contributions for those who opt into Social