New Front in Benefits Fight,
Atlanta May Drop Pensions

ATLANTA—Atlanta's City Council is expected to vote as early as Thursday on one of the most sweeping overhauls of public-employee retirement benefits attempted by a large U.S. city in recent years, as cities and states across the country race to close big budget gaps.

The legislation, if passed, would set the stage for eventually eliminating the city's current pension system entirely. That would shore up its budget and potentially bolster similar efforts by other municipal governments. Many pension changes undertaken by other cities have focused largely on asking public employees to kick in greater contributions to their retirement funds or reconfiguring benefits.

Faced with a $1.5 billion shortfall in benefit payments owed to current and retired employees, Atlanta Mayor Kasim Reed is backing legislation to phase out pensions, which offer defined benefits, and replace them with a 401(k)-type plan, in which the city instead pays defined contributions. The new plan would also have city employees join Social Security for the first time.

Mr. Reed said the proposal could save the city as much as $20 million a year. That would sharply reduce what Atlanta owes its retirees. In 2000, the required annual pension contribution from the city was $51 million. In 2010, it was $119 million, according to city officials.

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"The steps we are taking are going to have to be done across the country," Mr. Reed said in an interview. Mayors, governors and other political leaders have to push for pension changes for their governments to remain solvent, he said, but politicians also "need to have a very high pain threshold," because the changes will bring a backlash.

Baltimore's City Council voted last year to increase the years of service required to get a pension and other changes to save the city tens of millions in annual pension payments. Unions are challenging the changes in court.

Chicago's new mayor, Rahm Emanuel, a Democrat, tried to push pension changes in the Illinois state legislature this year, but union lobbyists defeated the plans. Other cities, from Los Angeles to Phoenix to Philadelphia, are considering pension changes.

Many of the efforts have been led by Democrats like Mr. Reed who were elected with the support of unions but now find themselves slashing benefits for workers—once politically unthinkable. New York Governor Andrew Cuomo, a Democrat, and New York City Mayor Michael Bloomberg, an independent, are both pushing pension overhauls.

Across the country,State legislators have filed more than 3,400 bills this year to deal with a trillion-dollar retirement-benefits gap, said Ron Snell, a senior fellow at the National Conference of State Legislatures. The result, he said, has been major change in 21 states.

That surge at the state level follows an even larger legislative flurry last year and is cumulatively greater than anything the country has experienced since the early 1980s. "The changes we've seen this year are designed to make pension plans sustainable over the long term," Mr. Snell said.

They have affected almost every aspect of pension contracts, said Keith Brainard, research director at the National Association of State Retirement Administrators. Retirement ages have been raised, benefits have been reduced, the length of time required to vest has been increased and annual automatic cost-of-living increases have been scaled back or tied to the pension portfolio's performance. The reforms are affecting some people who are already retired.

They have spurred lawsuits in Colorado, Minnesota, South Dakota and Rhode Island, among others. They have prompted legislative walkouts, massive rallies by public employees and efforts to recall politicians who have supported cuts.

The highest-profile fight came in Wisconsin, where Republican Gov. Scott Walker signed a law forcing public employees to contribute 5.8% of their salaries to their pensions and pay at least 12.6% of their health care premiums. They will have reduced ability to bargain for wages.

On Monday in Florida, the state's 140,000-member teachers union filed suit against Gov. Rick Scott, also a Republican, to block a law requiring public employees to contribute 3% of their salaries to their retirement plans.

While the majority of county government employees piggyback on state pension plans, many that are independent have pushed for change. Two weeks ago, Shelby County in Tennessee eliminated for new employees the key aspect of its pension plan, a full pension after 25 years of service, regardless of age.

"That was probably a mistake when they did it," said the county's chief administrative officer, Harvey Kennedy. New police officers and firefighters will now have to reach age 55 for a pension; government employees, age 65. The new deal also increases employees' contributions to the plan to 8% of their base salary, from 6%.

"We attacked it from a couple of different directions, because it was just killing our general fund," Mr. Kennedy said.

In California's Marin County, budget manager Dan Eilerman said county officials are focused first on lobbying the state legislature to expand local governments' power to alter pension plans. Last year, government workers agreed to raise the retirement age by 6.25 years for new hires to 61.25. County officials are now working with public-safety unions to raise new employees' retirement age and the time it takes to earn a full pension.

The Atlanta proposal is expected to pass, despite weeks of acrimony at City Hall. Atlanta is $18 million over budget for the coming fiscal year, despite years of cuts and hundreds of layoffs in every city department, including police, fire and public works. The city work force of 7,000 faces the prospect of 122 additional layoffs this year if the pension changes don't pass, according to Atlanta COO Peter Aman.

City unions oppose the pension changes, which cut city payments for worker retirement plans, and have vowed legal challenges. "What is happening in Atlanta to municipal workers is a travesty," said Jim Daws, president of the Atlanta Professional Fire Fighters Association.

If the proposal passes as worded, unions plan to go to court, said Gina Pagnotta, president of the city's Professional Association of City Employees.

Atlanta's cash woes have been exacerbated by the recession, which hit the city of 420,000 people hard. But its pension crisis is partly self-inflicted. Votes by the City Council in 2001 and 2005 dramatically increased the value of pension benefits for city workers. The city's liabilities increased as a result, but Atlanta didn't adequately increase contributions to its pension funds.The city's police pension was 96% funded in 2000 but is only 64% funded now. The firefighters' pension was more than 92% funded in 2000; funding is now 61.4%.

Mr. Reed backs legislation by Councilwoman Yolanda Adrean, which calls for a pension plan to continue for current employees but with significantly reduced benefits, and for new employees to be put into a 401(k)-type plan as well as Social Security. Ms. Adrean recently called the pension costs "a huge liability that is sucking the life out of this city."

The plan passed out of the council's finance committee last week, after a public hearing in which angry city workers heckled council members and hurled curses and insults. Union and city employees argue they have endured years of cuts, wage freezes and layoffs since the recession.

"The workers that supported Mayor Reed are being betrayed," said state senator Vincent Fort, a Democrat and a supporter of the unions.

Ms. Adrean's plan needs at least 10 votes from the 15-member council for passage. As of last week, seven members had signed on to the legislation.

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