Mayor Teresa Tomlinson to pitch proposals for city’s pension plan to Columbus Council Tuesday

Board helps mayor with 2 options to present Tuesday

mowen@ledger-enquirer.comMarch 18, 2012 

The Columbus Consolidated Government Pension Board is proposing aggressive changes to the city’s pension plan to avoid a potentially calamitous situation in the near future, Mayor Teresa Tomlinson said.

“Just like in our personal lives, you don’t want to have to make hard financial decisions when you’re literally over a barrel,” Tomlinson said. “The time to reassess your family’s budget is not two days before you declare bankruptcy. The same goes for government.”

Several things have put the city’s pension plan in its current state, Tomlinson said.

In the 1990s, when the stock market was in an unprecedented climb, the city’s pension fund was growing so quickly, Columbus Council opted to stop making annual contributions to it. At the time, it wasn’t necessary.

Also in the 1990s, council voted to stop making employees contribute to the plan. This was done in lieu of a pay raise.

In the mid-2000s, council lowered the top pension benefit to 45 percent from 60 percent, but then reversed that decision.

The recent Great Recession and the havoc it wreaked on the stock market have cut returns on pension fund investments greatly.

These factors meant the city had to pay $28 million into its pension fund this year to maintain its viability. If nothing changes, it will have to pay $30.75 million next year and, if investment returns remain low, the city could have to pay $50 million or more a year to maintain the fund.

“The status quo is not an option … not a responsible option,” Tomlinson said.

Since August, Tomlinson, the rest of the city’s Pension Board of Trustees, and representatives for city employees have been meeting at least once a month to develop a plan to maintain a viable pension fund while not implementing draconian changes.

At Tuesday’s special called council work session, Tomlinson will present a two-pronged plan to councilors and ask that it be included in the fiscal year 2013 budget. The plan would treat current employees and future employees differently.

Current city employees accrue a pension value of 2 percent of their annual salary per year, up to 30 years. So, if an employee works for 30 years, he or she would get a pension worth 60 percent of their salary. A worker earning $40,000 a year would get a pension of $24,000. An employee is vested in the pension plan after five years.

Under the pension board’s proposal, current employees would maintain the five-year vesting period and the 60 percent top limit, but would pay 4 percent of their salary into the pension fund. To offset that, the city would give all employees a 4 percent raise.

The pay raise would cost the city $2.3 million, but it would reduce the amount the city has to pay into the pension fund by $4.2 million, resulting in a net savings to the city of $1.9 million a year.

Chuck Carr is a principal with Southern Actuarial Services in Atlanta, which provides actuarial services for the Consolidated Government. Carr said by giving the $2.3 million to the workers and then having them place it in the fund, rather than the city paying it in, the city’s portion of the future pension obligation shrinks.

“When you have no employee contribution at all, which is the situation we’re in right now, all the future pension liability is paid for by the city,” Carr said. “As soon as you implement an employee contribution, it allows me to take a big chunk of pension liability off the table. It’s sort of taking money from one pocket and putting it in the other. But the advantage to the city is that they get to recognize today some of the savings that will occur over the long term of having that four percent going into the fund and compounding.”

While current employees would see little change in their paychecks or future benefits, future employees are a different story. They would have to work 10 years to be vested, would have a maximum 45 percent pension and would have to contribute 6 percent of their salary to the pension fund.

Going into Tuesday’s work session and looming budget sessions, Tomlinson said she’s optimistic about the pension board’s plan. “I think it’s a very responsible solution,” Tomlinson said. “This really has three prongs: It protects the retirement benefit of our employees; it reduces dramatically our pension obligation; and it’s going to save the taxpayers millions of dollars.”

Councilor Judy Thomas, who attended two employee meetings last week, said she thinks council will need more than one work session to come to a decision. “I know that we have to do something about our pension plan. I don’t know what they have proposed is the answer, because we’ve not had a chance to look at it and study it,” Thomas said. “I think we’ll need more than one work session before we vote on it.”

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