City of Atlanta Pension Reform Presentation

August 16, 2011

City of AtlantaPension Reform Presentation

August 2011

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Purpose

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Agenda

• Why pension reform?

• Who is impacted?

• What are the changes?

• When will the changes take place?

• What are the next steps?

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Why Pension Reform?

• Reduce the City’s annual pension costs

• Diversify and balance the City’s and the employee’s risk

• Be competitive with other local governments

• Retain existing retirement benefits for current employees

• Encourage saving for healthy retirement

“If your money’s not right, then you’re not right!”

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Definitions

Pension/Defined Benefit Plan (DB)•Employee pays percentage of salary into DB Plan each pay period•City pays pension benefit to employee from start of retirement through end of life, and to surviving qualified beneficiary (if any)•Benefit calculated based on set formula

Defined Contribution Plan (DC) •Employee pays percentage of salary into DC Plan each pay period•City pays percentage into employee DC Plan each pay period•Employee determines how to invest DC funds•Retiree receives benefits until DC funds depleted

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No Impact

No change

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Current Employees* in DC Plan* Throughout this presentation, “Current Employees” are employees hired before 9/1/11

No Change

Employee contributes 6% of Salary into DC Plan Retirement

Account

Employer contributes 6% of salary into DC Plan Retirement

Account

DC Retirement Acctis an investment acct. Employee directs how

money is invested. Value at retirement is

based on amount invested and

performance of investment.

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Current Employees in DB Plan

City will hold election prior

to 11/1/11

Employee will be unable to

reverse decision

Employees may remain in current DB Plan or switch to DB Hybrid

Plan

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Contribution increases by 5% of Salary

No change in

benefit

If employee chooses

current plan

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Benefits accrued prior

to 11/1/11 remain the

same

Beginning 11/1/11,

Retirement Plan has DB component

and DC component

If employee switches to DB Hybrid

Plan

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How the DB pension benefit is calculated

Annual Compensation X

Years of Service (YOS)

X Multiplier %(YOS x Multiplier)

Annual Comp x %

Annual Pension Amount

$25,000 X 30 X 2.5% 75% $25,000 x 75% $18,750

$25,000 X 25 X 2.5% 62.5% $25,000 x 62.5% $15,625

Your Annual Pension Amount will be a percentage of your annual salary.

The percentage is based on your years of service with the City and a “multiplier”.

The multiplier is set in your pension plan. It is either 2%, 2.5%, or 3%.

The Pension Benefit Formula* is: Annual Compensation x (Years of Service x Multiplier)

* The Pension Benefit Formula does not include adjustments such as age penalty and vesting percentage.

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How the DB pension benefit is calculated

Your Annual Pension Amount will be a percentage of your annual salary.

The percentage is based on your years of service with the City and a “multiplier”.

The multiplier is set in your pension plan. It is either 2%, 2.5%, or 3%.

The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)

Annual Compensation X (Years of Service (YOS) X Multiplier)

$25,000 X 30 X 2.5%

$25,000 X 75%

$18,750

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Current Employees in DB Plan Contributions Before and After 11/1/11

DB Plan Before Nov. 2011

Current Contributions through October 31, 2011

DB Plan Before Nov. 2011

Current Contributions through October 31, 2011

Employee Contribution

Current

7% of salary with no beneficiary

8% of salary with designated

beneficiary

DB Plan Starting Nov. 2011

Effective 11/1/11 for employees hired prior to

9/1/11, unless employee opts into DB Hybrid Plan

DB Plan Starting Nov. 2011

Effective 11/1/11 for employees hired prior to

9/1/11, unless employee opts into DB Hybrid Plan

Employee Contribution Increases by 5% Salary

on 11/1/11

12% of salary with no beneficiary

13% of salary with designated

beneficiary

DB Hybrid Plan Effective 11/1/11

DB Hybrid Plan Effective 11/1/11

DB Plan ComponentEmployee Contribution

8% of Salary_ _ _ _ _ _ _ _ _ _ _ _ _ _

DC Plan ComponentEmployee Contribution

3.75% of salary mandatory4.25% of salary voluntary*

City Contribution100% match of Employee contribution

Not to exceed 8% total_ _ _ _ _ _ _ _ _ _ _ _ _ _

Total Mandatory Employee Contribution DB Contribution: 8% salary

Plus

Min. DC Contrib.: 3.75% salary Total Contribution= 11.75% salary

*Employee may make additional voluntary contributions w/o City match up to the maximum amt. allowed by IRS

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All Employees May Make Voluntary Contributions to a Retirement Account

Contributions Type Post-Retirement Withdrawal

Pre-tax Traditional Contribution & growth taxed

Post-tax Roth Neither contribution nor growth taxed

Employee decides contribution amount and whether to use pre-tax or post-tax dollars. Employee may make voluntary contributions up to the maximum amount allowed by the IRS

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Retirement Plan for Employees Hired on or After September 1, 2011 (“New Employees”)

DC PlanDC Plan

All employees hired at PG19 and above except

for Sworn Police and Fire personnel

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Identical to current DC

Plan

Employer contributes 6% of salary into DC Plan Retirement Account

Employee contributes 6% of Salary into DC Plan Retirement

Account

Future Employees in DC Plan

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Future Employees in Combination Plan

Combination Plan

DB Plan Component

Employee Contribution 8% of Salary

DC Plan ComponentEmployee Contribution

3.75% of Salary Mandatory

4.25% of Salary Voluntary*

City Contribution100% match of

Employee ContributionNot to exceed 8% total

Total Mandatory Employee DB + DC Contribution is 11.75% of salary

* Employee may make additional voluntary contributions (above 4.25% of salary) without City match, up to the maximum amount allowed by the IRS

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Details of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan

Current DB Plan DB Hybrid Plan Combination PlanEmployees who stay in

Current DB Plan and benefits of Hybrid

members before 11/1/ 11

Benefits for November 1, 2011 through

retirementStarting September 1, 2011

Multiplier3.00%. 2.5% or 2% as

defined by participant’s current DB Plan 1.00% 1.00%

Annual Compensation

Average of 3 highest consecutive years of

compensation over entire career


compensation over entire career


compensation

Annual LeaveLump sum payout included

in pension benefit calculation

Lump sum payout included in pension benefit calculation

Lump sum payout included in pension benefit

calculation

Sick Leave Included in pension benefit calculation

All but 80 hours may be included in pre-11/1/11

pension benefit calculation, as designated by employee

Not included in pension benefit calculation

Your Annual Pension Amount will be a percentage of your annual salary. The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)

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Comparison of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan

Your Annual Pension Amount will be a percentage of your annual salary. The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)






Vesting Period 10 yrs- hired before 7/1/1015 yrs- hired 7/1/10 or after

10 yrs- hired before 7/1/1015 yrs- hired 7/1/10 or after 15 Years

Minimum Retirement Age None None

Age 47 (Sworn APD/AFRD)

Age 52 (General Employees)

Normal Retirement Age

(NRA)

Age 55 (Sworn APD/AFRD) Age 55 (Sworn APD/AFRD) Age 57 (Sworn APD/AFRD)

Age 60 (General Employees) Age 60 (General Employees) Age 62 (General Employees)

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Details of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan






COLA Up to 3% Up to 1% Up to 1%

Long Term Disability Included in pension benefit

Included in pension benefit (Equivalent to Current DB

Plan)


Plan)Survivor Benefits

(Pre-Retirement Death)

Included in pension benefitIncluded in pension benefit (Equivalent to Current DB

Plan)


Plan)

Retirement Benefit:

Payment to qualified

beneficiary

75% of retirement benefit upon death of retiree. Employee contributes additional 1% of salary

throughout employment to pay cost of benefit.

75% of retirement benefit upon death of retiree

Employee decides at time of retirement whether to cover

beneficiary. If so, pension amount is recalculated to pay

cost of benefit.

75% of retirement benefit upon death of retiree

Employee decides at time of retirement whether to

cover beneficiary. If so, pension amount is

recalculated to pay cost of benefit.

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Key Factors

• Shared risk: If City DB Plan contribution exceeds a set amount, the City will determine a method for payment of the excess, which could include increasing an employee’s DB contribution by no more than 5% of salary

• Shared benefit: If City’s current pension debt is reduced to a set amount, the City may reduce an employee’s DB contribution

• Employees who separate from City employment and are later reemployed will be required to join the DC Plan or the Combination Plan depending upon type of employment and pay grade at the time of rehire

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Impact of Increased Contribution for DB Participants Currently Paying 8% of Salary

Yearly Salary Current Contribution

Additional Contribution

Total Future Contribution

$20,000 $62 + $38 = $100

$25,000 $77 + $48 = $125

$30,000 $92 + $58 = $150

$35,000 $108 + $67 = $175

$40,000 $123 + $77 = $200

$45,000 $136 + $87 = $225

$50,000 $154 + $96 = $250

Impact of 5% of salary increase on bi-weekly DB Plan pre-tax contribution amount

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Example of Proposed Changes to Bi-weekly Deduction for Current DB Participants

*Employee without designated beneficiary will have 7% contribution** Employee without designated beneficiary will have 12% contribution

Salary Pay period Percentage Total

Employees in Current DB Plan (before Nov 1, 2011 w/beneficiary*)

$35,000 ÷ 26 x 8% $108

Employees who stay in Current DB Plan (after Nov 1, 2011 w/beneficiary**)

$35,000 ÷ 26 x 13% $175

Employees who Switch to the DB Hybrid Plan (Mandatory Amt as of Nov 1, 2011)

$35,000 ÷ 26 x 11.75% $158

Employees who Switch to the DB Hybrid Plan (Mandatory, plus Voluntary City-matched amt as of Nov 1, 2011)

$35000 ÷ 26 x 16% $202

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Your Next Steps

• DC Plan members should consider whether to make voluntary contributions, and whether to make them pre-tax or post-tax

• DB Plan members should meet with Financial Consultants provided by the City at no cost to employees• Determine impact of increased DB contribution• Assess costs and benefits of switching to DB Hybrid Plan• Consider whether to make voluntary contributions and

whether to make them pre-tax or post-tax

• DB Plan members should look for information about the October election to designate staying in the current DB Plan or switching to the DB Hybrid Plan

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Questions

For questions send email to [email protected] ; or Contact Sherri Dickerson, Department of Human Resources, at 404.330.6653.

City of Atlanta Pension Reform Presentation

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