This is a guest post by Josh Hart.
In 2009, the city of Atlanta pensions were only 53 percent funded, facing a $1.5 billion shortfall. Mayor Kasim Reed knew that he needed to act. Focused on an inclusive and transparent reform process, the city established a panel with representatives from unions, elected officials and local businesses leaders to find a solution. The 18-month process ended with a plan unanimously approved by the Atlanta City Council requiring existing employees to make a larger contribution out of their own payroll to the pension, and placing all new employees in a so-called “hybrid” system with a reduced defined benefit plan tied to a 401(k)-type defined contribution benefit with mandatory participation. The reform package also reduced the city’s long-term pension liabilities by over $500 million.
City leaders across the country are faced with rising retiree-related costs, and a responsibility to ensure that the municipal workforce has secure retirement and healthcare. These priorities can at times seem conflicting, and the complexities of managing retirement and other post-employment benefits (OPEB) can be daunting. What options are available and what role can city leaders play?
NLC wants to educate municipal leaders
The National League of Cities (NLC) recently announced the Public Sector Retirement Initiative, designed to provide timely research and educational resources to help elected officials navigate these issues.
The initiative will explore questions every elected official needs to ask, including:
- What are the best practices for providing retirement benefits?
- What is my city spending to provide retirement and healthcare benefits? Is this a larger proportion of the budget than it was a few years ago?
- Do the benefits my municipality provides allow me to recruit and retain the workforce my city needs?
- How is my municipality fiscally responsible for the retirement benefits offered to employees?
- How will recently enacted Government Accounting Standards Board (GASB) changes affect my municipality’s finances and cost of borrowing?
- How do employees use retiree health benefits between their retirement and Medicare eligibility?
Understanding the role of the state
The Public Sector Retirement Initiative will also explore and help city leaders understand the key elements of the city-state relationship affecting the management of retirement and OPEB. For example, many states allow or require some cities to participate in statewide pension systems; this requirement has many benefits, like reducing costs for participating cities. In some cases, state statute sets required pension contributions, limiting a city’s ability to address its liability – even when the city manages its own plans. And no matter how your plan is managed, GASB changes have made it abundantly clear that these liabilities are a part of your city’s fiscal health.
This is the first post in our new blog series on public sector retirement. In the coming weeks, we will have postings from members of NLC’s Public Sector Retirement Advisory Council, a group representing perspectives from the private sector, state municipal leagues, city leadership, academia and nonprofits to provide guidance and advice to the initiative. We hope you find this information useful as you think about your own city’s finances and workforce needs.