BRADENTON, Fla. — The Georgia Supreme Court has thrown out a class-action union appeal of Atlanta's landmark pension reform package.
In a unanimous decision Nov. 2, the Supreme Court ruled that Atlanta did not violate the state's constitution when the City Council altered pension benefits in 2011.
City employees, firefighters and police had argued that increasing their pension contributions to 12% from 7% while receiving the same benefits impaired their contract in violation of the constitution. The reforms also raised the vesting period to 15 years from 10 years.
By instituting those changes the city "modified their pension obligations and in no manner divested plaintiffs of their earned pension benefits," Presiding Justice P. Harris Hines wrote for the court.
Mayor Kasim Reed, who championed the reforms in his first term, said the Supreme Court ruling avoids the need for personnel reductions and service cuts, and continues to put the city on a path toward greater fiscal stability.
"Thanks to pension reform, 30 years from now the city will have saved more than $150 million and a pension deficit that was once projected to be over $2 billion will be zero," Reed said in a release. "In addition, city employees can feel secure about the availability of the retirement funds they have earned after years of dedicated service."
According to the city, the comprehensive pension reform plan created $22 million in savings in the first year, reduced the city's exposure to market risk, and put the city on track to pay off a $1.5 billion unfunded pension liability.
"The city is pleased that the Georgia Supreme Court has ruled in favor of the pension reform undertaken 2011," said Chief Financial Officer Jim Beard. "To date these reforms are working as planned, allowing the city to remain on a fiscally responsible path and meet the needs of our citizens and employees."
Rating agency analysts continue to believe that Atlanta's combined pension burden remains moderately high, although the benefit restructuring has factored into general obligation bond rating upgrades.
In June 2014, Standard & Poor's raised its ratings on Atlanta's GOs three notches to AA from A based on the city's strong and diversified economy and budget flexibility, as well as the city's "still sizable pension and other post-employment benefits liabilities."
Moody's in May affirmed its Aa2 rating on the city's GOs and said the outlook is positive based on the expectation that Atlanta's financial position will remain stable.
While rating the city's GOs AA-plus in June, Fitch Ratings said that the city's pension position has improved in recent years because of the 2011 reform effort and improved market performance.
The aggregate funded ratio of the pension plans improved to 67.6% in fiscal 2014 compared to 57% in fiscal 2010, while the actuarial required contribution was sizable but more affordable at $93 million in 2014 compared to the $143.6 million in fiscal 2009, according to Fitch.