Atlanta’s 2011 pension reform continues to set precedent for Georgia governments
By David Pendered
Atlanta’s pension reforms in 2011 helped set the foundation for a court ruling in Hall County that supported Hall County’s defined contributions benefits plan and eliminated a potential payment to employees of more than $75 million.
The ruling was deemed a credit positive event for Hall County by analysts with Moody’s Investors Service. The county had been looking at a liability in excess of $75 million. The county’s entire annual operating budget is barely twice that amount – $166 million, according to a report by Moody’s.
Atlanta’s precedent-setting role came in the form of the city’s 2011 pension reform effort.
The effort may seem like ancient history: Pension liabilities are not now the subject of rampant discussion, as they were in the wake of the Great Recession. Back then, fears ran high in the retiree sector as the global crash undercut investment returns on which pension funds relied to meet withdrawal demands of pensioners.
Even in today’s seemingly robust global economy, Hall County’s existing pension plan investments are projected to provide long-term returns at rates of 1.97 percent and 3.07 percent, net of inflation. These are the rates for two funds that represent a total of 60 percent of the pension fund, according to notes in the county’s Comprehensive Annual Financial Report, for the year ending June 30, 2019.
In 2011, then Mayor Kasim Reed’s administration and the Atlanta City Council battled for months over reform efforts intended to increase the solvency of pensions for the city’s police, fire and general employees. A settlement was reached and employees saw big changes in their paychecks.
Here’s how two lawyers with Morris, Manning & Martin described the change in a piece published in the November 2015 newsletter of Georgia Association of Public Pension Trustees:
- “The amendments to the Plans took effect on November 1, 2011. Prior to that date, participants in the three Plans [police, fire, general employees] were required to contribute 7% of their annual salary to their pension plan if they did not have a designated eligible beneficiary, and 8% of their annual salary if they did have a designated eligible beneficiary.
- “After November 1, 2011, the amendments increased the mandatory employee contributions by an additional 5%, such that participants were required to con- tribute 12% of their annual salary (or 13% with a beneficiary).
- “The Ordinance also provided that mandatory employee contributions might be increased by an additional 5%, up to 17% or 18% of annual compensation, if the City’s required contributions to the Plans exceed 35% of the City’s total payroll. The Ordinance did not change a participant’s benefit formula or the actual benefit amount payable at the time of the participant’s retirement.”
Atlanta employees filed a lawsuit in 2013 in Fulton County Superior Court in an effort to overturn the city’s reform program. A judge upheld the program, as did the Georgia Supreme Court in 2015 – upon an appeal of the lower court’s ruling on alleged violations of the state Constitution and alleged breaches of employees’ contracts.
The piece by the two lawyers with Morris, Manning & Martin predicted the ruling would have ongoing effects on public pension programs in Georgia:
- “The case sets an important precedent for Georgia public employers, as it affirms the authority of a local government to amend a retirement plan, including by increasing prospective employee contributions, so long as the plan unambiguously provides for subsequent modification or amendment.”
Moody’s report repeated the observation:
- “Courts in Georgia … historically upheld pensions and benefits reforms, most recently with regard to reforms implemented by Atlanta … in 2011. Atlanta established a DC [defined contribution] plan for all new employees and required existing employees to join the DC plan or increase their contributions to the existing DB [defined benefits] plan by 5 percent.
- “The Georgia Supreme Court upheld the reforms, saying employees’ pension benefits remained unchanged and only the method by which the benefits are funded was altered through the reforms.”
Atlanta’s independent auditor, Amanda Noble, is in the process is conducting actuarial audits of Atlanta’s three pension funds. The city retained Deloitte to do the work. The audits were to have been delivered late last year, according to a schedule.