This report is somewhat dated now but the research and analysis behind it is solid and it still has a great deal of information useful to all interested parties. Since the report was published, the City implemented the Defined Contribution (DC) Pension Plan for all newly hired employees, while most of non-sworn employees hired before the DC plan was implemented are still in the Defined Benefit (DB) Pension Plan. As the report shows, both of these plans are in need of improvement which we have pushed for for over 3 years. However, because of the terrible shape of the City's finances when Mayor Franklin was elected, pension plan improvements have been delayed. We are committed to keeping this vital issue before City leaders in the future.
The following report from the Pension Task Force was presented to the Atlanta City Council Finance/Executive Committee by P.A.C.E. Political Action Committee and Task Force chair Randy Bundy on Wednesday, October 31, 2001. The Executive Summary, which outlines the key points, is presented first followed by the report.
City
of Atlanta Pension Task Force
Executive Summary
GOALS
FOR PENSION PLANS:
·
Value long term employees
·
Retain institutional knowledge
·
Attract and retain qualified “good” employees
·
Create a retirement system that represents equitably all groups
of employees
CHANGES TO EXISTING PENSION PLANS:
 |
Tiered pension plan retroactive:
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||||||
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Tiered plan capped at 90% of employee’s highest average annual salaries | ||||||
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Tiered plan to be tied to the COLA (Urban Atlanta Index) | ||||||
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Permanent 75 Rule (combination of age and years of service) | ||||||
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10 years of service for full vesting in pension plan (5-10 vesting) | ||||||
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Age 55 retirement without penalty for vested general employees | ||||||
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Age 51 retirement without penalty for vested Police and Fire employees | ||||||
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Rescind existing defined contribution plan - (read more here) | ||||||
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Gradual reduction in employee pension contribution |
RECOMMENDATIONS:
·
Salary
adjustments:
o
Cost of Living
Adjustment (COLA) performed annually
o
Competitive salaries
with Atlanta area local governments
· Consider participation of all employees in Medicare Benefits
· Adjust Health Benefits back to 75% of Medical Plan selected by employees to be competitive with other local governments
· Look at Disability Benefit Issues and Legislation Needed to Protect City Workers
· The Pension Task Force is in Support of a Distinction between Catastrophic Disability and other Levels of Disability. Toward that end, the Pension Task Force Supports Recent Ordinances that Recognize this Distinction and Recommends that these Standards and Definitions used for Members of the Police Officers Pension in 01-0-0976 be Applied to all Three City of Atlanta Pension Plans
· Recommends that the City of Atlanta re-instate the Veterans Benefits option so as to allow employees to buy back their military service for up to four years if they served during periods of hostility
City of Atlanta
Pension Task Force
2001 Report
In July 2001, the Atlanta City Council and the Mayor created a task force for the purpose of reviewing the City’s pension plans and developing recommendations for the overall improvement of the plans and for other purposes. While it is generally recognized that the City’s pension plans needed to be updated and enhanced, some analysis was needed to establish the specific improvements needed.
The Pension Task Force is comprised of 17 members appointed in the following manner
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The President of the Atlanta City Council, or his designee |
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The Chair of the Finance/ Executive Committee or his designee |
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Chief
Financial Officer, Chief Operating Officer, and the Commissioner |
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One representative from each of the three (3) Pension Boards, to be appointed by the respective Boards |
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One representative from A.F.S.C.M.E. |
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One representative from the Firefighters Union (I.A.F.F.) |
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One representative from P.A.C.E. General Employee Union Members |
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One representative from the Police Union International Brotherhood of Police Officers (I.B.P.O.) |
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One representatives from the Police Benevolent Association (P.B.A.) |
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The chairperson of the Civil Service Board |
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Three citizen representatives- one to be appointed by the Mayor, one to be appointed by the President of Council and one to be appointed by the City Council. Each representative shall have knowledge of finance generally, and/ or pension plans, specifically. |
A Perspective for Change
The Pension Task Force initially met on August 29, 2001, and had weekly meetings thereafter through October 26, 2001. The Task Force elected Randy Bundy as the chair, and Lou Arcangeli (since retired) as the vice-chair. Sub-committees were appointed and the Task Force began its work. It was decided that core goals needed to be established. To that end, the following core goals were created:
Ø Value long term employees
Ø Retain institutional knowledge
Ø Attract and retain qualified “good” employees
Ø Create a retirement system that represents equitably all groups of employees
In order to guide the City toward these goals, the Task Force discussed the reasons for having a pension plan and for making upgrades and enhancements to the pension plans. These reasons include the characteristics for having an effective pension plan, meeting the needs of the City and of the employees. These are the following:
Reasons to Modernize our Pension Program
1.
Investment in Human Capital:
The City must recognize the importance
in maintaining an attractive pension plan as part of an
investment strategy in
managing it’s human resource capital.
2. Recruiting the Best Workforce: An appropriate and fair pension system will help attract increasingly savvy employees who are evaluating the employers “total compensation package” before making an employment commitment.
3. Retaining Institutional Memory: A competitive retirement plan will assist in retaining excellent employees who are in the early and mid part of their career. Without this incentive the City will not be able to build and maintain a depth of employees with “institutional knowledge” critical to successfully managing operations.
4. Stable Plan Management: A modern retirement program will eliminate the need for unplanned “early out” programs. These sudden windows force employees to choose or loose special benefits. They also don’t allow the City to plan for a smooth transition of retiring staff to ensure continuity of mission critical programs.
5. Succession Planning: The City can better plan for succession of employees as retirement approaches. This partnership with employees will protect the citizens ensuring replacement staff is constantly ready fir service delivery.
6. Employee Retirement Planning: The employees can better plan for their retirement, and the economic protection and security of their families. (As compared to a temporary, short window early out program).
7. Health of Pension Plans: Insure that the three pension funds are fiscally sound and in compliance with conservative and long-range actuarial goals.
The Challenge
The last significant improvement to the City of Atlanta pension program was in 1978. Except for the improvements to the Police Officers and Firefighters Pension Plans in 2001, there have been no enhancements to the plans. During this time, surrounding local governments have made steady improvements to their pension plans to stay competitive with both government and private sector benefits in competing for an increasingly skilled and mobile work force. Atlanta’s pension plans are no longer competitive and do not provide sufficient incentive to attract and retain the best workers and to retain institutional knowledge.
When compared with cities and counties of comparable size, Atlanta’s pension plan for general employees ranks very low. In fact, when comparing the years of service multiplier for calculating individuals’ pensions, the minimum age for a full pension, and the active employee’s contribution to the pension fund, we find that the City of Atlanta Employees contribute more and receive much less.
NOTE: During the first five years, the multiplier is 2.25% then increases to 2.50%. Newly hired employees and those so electing are under the defined contribution pension plan.
The Health of the Pension Funds
According to actuarial reports, the City’s three pension funds –General, Police and Fire, (as of this report), are currently sound, but do need overhauling and state of the art enhancements. However, Pension Fund Trustees serving on this Task Force expressed concerns that recent actions will have the effect of increasing contributions by future employees and citizens.
Pension Plan Changes and Recommendations
The Task Force met weekly for nine weeks and discussed remedies and developed recommendations for improvements. These recommendations include a fee of approximately $15,000.00 for actuarial analysis for all three pension plans, General, Police and Fire. A letter was generated to Council Member Lee Morris requesting assistance in identifying funds for the actuarial analysis.
The recommendations are therefore presented without actual cost figures because the actuarial analysis has not been completed as of the date of this report. The following represent the approved pension plan changes:
Approved Pension Plan By Pension Task Force
|
Tiered Pension Plan Retroactive: |
o 3.25% Multiplier First $0-$20,000
o 3.00% Multiplier Next $20,001-$40,000
o 2.75% Multiplier Next $40,001- and higher
|
Tiered plan capped at 90% of employee's highest average annual salary (based on 36 months) |
|
Tiered Plan to be tied to the COLA (Urban Atlanta Index) |
|
Permanent 75 Rule (combination of age and years of service) |
|
10
years of service for full vesting in pension
plan |
|
Age 55 retirement without penalty for vested General Employees |
|
Age 51 retirement without penalty for vested Police and Fire employees |
|
Rescind existing defined contribution plan - (read more here) |
|
Gradual reduction in employee pension contribution |
The Task Force further considered that certain features were of higher priority than others and that the features could be phased in over three years as follows:
Prioritization of New Pension Plan Features
BUDGET YEAR ONE
|
Discontinue defined contribution plan (make optional) |
|
Tiered plan with 80% cap of highest annual salary and retroactive for all City of Atlanta employees with COLA adjustment |
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Rule 80 for all city of Atlanta employees |
BUDGET YEAR TWO
|
Lower age of retirement without penalty from 60 to 55 years for employees of the general employees pension fund |
|
Lower age or retirement without penalty from 55 to 51 years for police and fire employees pension fund |
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Raise pension cap to 85% of highest annual salary |
BUDGET YEAR THREE
|
Lower vesting from 15 years to 10 years of service (5-10) |
|
Raise pension cap to 90% of highest annual salary |
In addition, the Task Force made other recommendations concerning benefits that directly affect the pension program that are in support of its goals but are not directly tied to the improvements in the pension plans. Those recommendations are as follows:
|
Salary adjustments: |
o Cost of Living Adjustment (COLA) performed annually
o Competitive salaries with Atlanta area local governments
|
Consider
participation of all employees in Medicare |
|
Adjust
health benefits back to 75% of any medical plan selected by employees to
be competitive with other Metro area jurisdictions |
|
Look
at disability benefit issue and legislation needed to protect city workers |
|
The
Pension Task Force is in support of a distinction between catastrophic
disability and other levels of disability. Toward that end,
the Pension Task Force supports recent ordinances that recognize this
distinction and recommends that these standards and definitions used for
members of the Police Officers Pension in 01-0-0976 be applied to all
three City of Atlanta pension plans. |
|
Recommends that the City of Atlanta re-instate the military veterans benefits option so as to allow employees to buy back their military service for up to four years if they served during periods of hostility |
APPENDIX
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Comparative Pensions 4 cases in(as of 12/31/2000) 4 different plans in the Metro area |
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City Plan |
DeKalb Plan |
Cobb Plan |
Fulton Plan |
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Age 55 |
Age 55 |
Age 55 |
Age 55 |
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%Benefit Amount vs.City |
--- |
+53% |
+39% |
+32% |
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%Employee Contributes |
7% |
0.5% |
4% |
6% |
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Payroll Clerk-retires at-> |
$11,846.70 |
$18,099.13 |
$16,453.75 |
$15,631.06 |
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based on annual salary of: $26,326 |
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Years of Service:25 |
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Electrician -retires at-> |
$17,095.50 |
$26,118.13 |
$23,743.75 |
$22,556.56 |
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based on annual salary of: |
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$37,990.00 |
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Years of Sevice:25 |
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IT Analyst - retires at-> |
$21,469.95 |
$32,801.31 |
$29,819.38 |
$28,328.41 |
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based on annual salary of: |
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$47,711.00 |
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Years of Sevice:25 |
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Chief Civil Eng. -retires-> |
$30,217.95 |
$46,166.31 |
$41,969.38 |
$39,870.91 |
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based on annual salary of |
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$67,151.00 |
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Years of Sevice:25 |
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Note: The City of Atlanta retiree receives no social security benefits. Employees in the other jurisdictions would receive social security in addition to these pension plan benefits.
CPI-U source: U.S.
Dept. of Labor Series CWURA319SA0,CWUSA319SA0, All items, Area=Atlanta,GA
US Workers source: U.S. Dept. of Labor Series EEU00500006
City of Atlanta based upon a composite of 8 different job classes at pay
grades 9, 11, 13, 17, 21, 24, 27 and 35
DB (Defined Benefit) Plan with 3 steps
The first $20,000 of average annual salary is computed at
3.25%
From $20,001 to $40,000 is based on 3.0%
All above $40,000 is at 2.75%
Calculations are based on 25 years of employment and no age penalty at retirement.
Avg. Annual Salary Multipliers Total Retirement Salary % replacement
$20,000 @ 3.25% .8125 * 20,000 = $16,250 81.25%
$30,000
1st
20,000 (3.25%)
.8125 * 20,000 =
$16,250
2nd 10,000 (3.0%)
.75 * 10,000 =
+$ 7,500 = 23,750
79%
$40,000
1st
20,000 (3.25%)
.8125 * 20,000 =
$16,250
2nd 20,000 (3.0%)
.75 *
20,000 = +$15,000 =31,250
78%
$50,000
1st
20,000 (3.25%)
.8125 * 20,000 = $16,250
2nd 20,000 (3.0%)
.75 *
20,000 = $15,000
3rd 10,000 (2.75%)
.6875 * 10,000 = +$
6,875 = 38,125
76%
$60,000
1st
20,000 (3.25%)
.8125 * 20,000 =
$16,250
2nd 20,000 (3.0%)
.75 *
20,000 = $15,000
3rd 20,000 (2.75%)
.6875 * 20,000 = +$13,750
= 45,000
75%
$70,000
1st
20,000 (3.25%)
.8125 * 20,000 = $16,250
2nd 20,000 (3.0%)
.75 *
20,000 = $15,000
3rd 30,000 (2.75%)
.6875* 30,000 = +$20,625
= 51,875
74%
$80,000
1st
20,000 (3.25%)
.8125 * 20,000 = $16,250
2nd 20,000 (3.0%)
.75 *
20,000 = $15,000
3rd 40,000 (2.75%)
.6875* 30,000 = +$27,500
= 58,750
73%
Note 1: These figures reflect a 10% age penalty for the City of Atlanta worker. Employees in the other jurisdictions would not incur any age penalty under the conditions in this example.
Note 2: The City of Atlanta retiree receives no social security benefits. Employees in the other jurisdictions would receive social security in addition to these pension plan benefits.