The Atlanta City Council last week unanimously approved sweeping reforms to the city's retirement plan that will allow the city to avoid layoffs and cuts in service, and bolsters its fiscal stability, officials said.
The comprehensive pension reform plan creates $22 million in savings the first year, reduces the exposure to market risk, and enables the city to pay off a $1.5 billion unfunded pension liability.
The changes are projected to save more than $270 million over the next 10 years and more than $500 million over 30 years.
"One year ago, the city of Atlanta's pension plan could fairly be compared to a subprime loan in which the city was investing $110 million per year without one penny of that amount going to pay down its $1.5 billion unfunded pension liability," Mayor Kasim Reed said. "We have faced this problem head-on, and through shared responsibility, we have taken a critical groundbreaking step toward resolving it."
The final legislation was a compromise between plans proposed by Reed and a number of members of the City Council.
The process included negotiations with the city's unions, officials said.
The legislation makes no changes to the benefits of retired city employees. It allows current workers to remain in a traditional pension plan, though they must contribute an extra 5% of their pay to maintain benefits for a total contribution of 13% percent for workers with beneficiaries and 12% for those without.
The changes will not affect active Atlanta government employees who were hired before 1984.
For new employees there are major changes. Newly sworn police and fire personnel and employees below a certain payroll grade will be placed into a hybrid plan composed of a reduced traditional pension and a 401(k)-type defined contribution plan.
There are other changes as well.
The retirement age for new employees increases. For new sworn police and fire personnel the age goes to 57 from 55, for all other new employees retirement age will be 62 instead of 60.
In addition to those changes, the reform includes a cap on Atlanta's annual contribution to the various pension funds in order to share a portion of the market risk.
"A cap has been adopted that will force changes to the plan should the pension costs exceed agreed upon parameters," said City Council member Yolanda Adrean, chair of the finance executive committee. "This is a significant part of the reform which protects the city and its citizens against volatile market fluctuations."
Since early 2010, the city has studied avenues to reduce pension costs.
Without changes in the system, Atlanta faced costs that were nearing 20% of the city's budget in addition to a $1.5 billion unfunded liability.