Atlanta makes major changes to pensions.

July 7, 2011

The Economist reports that Atlanta had made changes to its pension system that will help to control pension costs.

Pension problems in Atlanta, a $1.5 billion shortfall, are not any different than the ones affecting most of the public sector plans in Canada. We saw recently Canada Post with its $3 billion pension shortfall and Air Canada with a $1.6 billion shortfall.

The changes made are ones that I first saw discussed earlier this year in California at the Pension Bootcamp for elected Officials. The plan is called a hybrid pension plan and it appears to be an effective solution to solving the severe underfunding problem plaguing all public sector pensions not only in the US but Canada as well.

The new legislation, unanimously approved by the city council, distributes the pain relatively evenly. Current employees keep their defined-benefit pensions but must contribute an additional 5% of their salaries toward pension costs. (That contribution will decline as the pension plan’s funding rises with the forecast savings.) New employees will be enrolled in a hybrid scheme consisting of a traditional defined-benefit pension and a defined-contribution plan similar to a 401(k). Eight percent of their salaries will go toward the former; at least 3.75% must go to the latter (the city will match employees’ contributions up to 8%). Retirement ages will also rise, from 55 to 57 for police and firefighters and from 60 to 62 for other workers. Gina Pagnotta, who heads a union representing some of Atlanta’s municipal employees, says “new employees will really be crucified”, but that is only by the generous standards of existing public-sector pensions.

Lets hope that Canadian politicians get onto the band wagon soon and realize that the solutions  pension problems must include the public sector employees as well.

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