Pension Reform Presentation City of Atlanta Pension Reform Presentation August 2011

Purpose Familiarize employees with the changes made to the City of Atlanta retirement system Explain how the changes impact each employee Update employees on the timeline of changes and available resources Respect your time by keeping the presentation short. This presentation is an overview. Answer employee questions

Agenda Why pension reform? Who is impacted? What are the changes? When will the changes take place? What are the next steps?

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

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

No change No Impact Employees who retire before November 1, 2011 Current employees hired before 1984 Employees who retire before November 1, 2011 No change Employees hired before 1/1/1984 are not affected by the changes AND will not be able to opt into the DB Hybrid Plan

Current Employees. in DC Plan 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 Acct is an investment acct. Employee directs how money is invested. Value at retirement is based on amount invested and performance of investment.

Current Employees in DB Plan Employees may remain in current DB Plan or switch to DB Hybrid Plan City will hold election prior to 11/1/11 Employee will be unable to reverse decision

Current Employees in DB Plan If employee chooses current plan Contribution increases by 5% of Salary No change in benefit Stress that if you stay in the current plan, the only change you will see is the increase in contributions

Current Employees in DB Plan If employee switches to DB Hybrid Plan Benefits accrued prior to 11/1/11 remain the same Beginning 11/1/11, Retirement Plan has DB component and DC component

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) Multiplier % (YOS x Multiplier) Annual Comp x Annual Pension Amount $25,000 30 2.5% 75% $25,000 x 75% $18,750 25 62.5% $25,000 x 62.5% $15,625 Understanding the calculation of the DB plan is important. * The Pension Benefit Formula does not include adjustments such as age penalty and vesting percentage.

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 Breaking the benefit calculation into two separate parts may make it easier to understand.

Current Employees in DB Plan Contributions Before and After 11/1/11 Before Nov. 2011 Current Contributions through October 31, 2011 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 Hybrid Plan Effective 11/1/11 Employee Contribution Current 7% of salary with no beneficiary 8% of salary with designated beneficiary Employee Contribution Increases by 5% Salary on 11/1/11 12% of salary with no beneficiary 13% of salary with designated beneficiary DB Plan Component Employee Contribution 8% of Salary _ _ _ _ _ _ _ _ _ _ _ _ _ _ DC Plan Component 3.75% of salary mandatory 4.25% of salary voluntary* City Contribution 100% 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

All Employees May Make Voluntary Contributions to a Retirement Account 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 Contributions Type Post-Retirement Withdrawal Pre-tax Traditional Contribution & growth taxed Post-tax Roth Neither contribution nor growth taxed All employees may participate in 457 Plan. However, employees in the DB Hybrid plan or the Combination plan will receive a match to that contribution up to 4.25%. These notes apply to any employee who chooses to make a voluntary contribution. Pre-tax Contribution--Employees do not pay any tax until withdrawal during retirement Post-tax Contribution (Roth)--Employees contribute funds after tax New plan offered as of November 1, 2011 Contributions and investment earnings are withdrawn tax free

Retirement Plan for Employees Hired on or After September 1, 2011 (“New Employees”) DC Plan Combination Plan Employees hired at PG18 and below, Sworn Police and Fire personnel, and other employees not hired at PG 19 and above All employees hired at PG19 and above except for Sworn Police and Fire personnel

Future Employees in DC Plan Identical to current DC Plan Employee contributes 6% of Salary into DC Plan Retirement Account Employer contributes 6% of salary into DC Plan Retirement Account 457 Info In addition to employees required Defined Benefit or Defined Contribution amounts, employees have the voluntary option to save money in a 457 plan 457 plan contributions are pre-tax, and employees do not pay any tax until withdrawal during retirement If employees do not have a 457 plan set up and would like to, contact the Benefits department 457b Info New plan offered as of November 1st Roth 457(b) plan contributions are made after-tax, meaning employees pay tax on the contribution as it is going in Upon withdrawal in retirement, everything is tax free – so employees investment grows tax free employees can set up a Roth 457(b) plan by contacting the Benefits department after November 1st

Future Employees in Combination Plan DB Plan Component DC Plan Component Employee Contribution 8% of Salary Employee Contribution 3.75% of Salary Mandatory 4.25% of Salary Voluntary* City Contribution 100% match of Employee Contribution Not 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

Details 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) Current DB Plan DB Hybrid Plan Combination Plan Employees who stay in Current DB Plan and benefits of Hybrid members before 11/1/ 11 Benefits for November 1, 2011 through retirement Starting September 1, 2011 Multiplier 3.00%. 2.5% or 2% as defined by participant’s current DB Plan 1.00% Annual Compensation Average of 3 highest consecutive years of compensation over entire career Average of 10 highest consecutive years of compensation over entire career Average of 10 highest consecutive years of compensation Annual Leave 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 An earlier slide talked about how to calculate the DB benefit. Here are the details associated with the multiplier, annual compensation, and years of service.

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) Current DB Plan DB Hybrid Plan Combination Plan Employees who stay in Current DB Plan and benefits of Hybrid members before 11/1/ 11 Benefits for November 1, 2011 through retirement Starting September 1, 2011 Vesting Period 10 yrs- hired before 7/1/10 15 yrs- hired 7/1/10 or after 15 Years Minimum Retirement Age None Age 47 (Sworn APD/AFRD) Age 52 (General Employees) Normal Retirement Age (NRA) Age 55 (Sworn APD/AFRD) Age 57 (Sworn APD/AFRD) Age 60 (General Employees) Age 62 (General Employees) To retire under the DB Pension Plan, the employee must satisfy the vesting period. Current employees do not have a minimum retirement age although future employees will. In order not to suffer an age penalty, employees must reach the normal retirement age or have 30 years of creditable years of service.

Details of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan DB Hybrid Plan Combination Plan Employees who stay in Current DB Plan and benefits of Hybrid members before 11/1/ 11 Benefits for November 1, 2011 through retirement Starting September 1, 2011 COLA Up to 3% Up to 1% Long Term Disability Included in pension benefit Included in pension benefit (Equivalent to Current DB Plan) Survivor Benefits (Pre-Retirement Death) 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. This slide provides additional information associated with the DB Pension Plan

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

Additional Contribution Total Future Contribution Impact of Increased Contribution for DB Participants Currently Paying 8% of Salary Impact of 5% of salary increase on bi-weekly DB Plan pre-tax contribution amount 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 $200 $45,000 $136 $87 $225 $50,000 $154 $96 $250 -This chart shows the impact of the increased contribution amount on current Defined Benefit employees who do not move into the Hybrid Plan. -Based on employees yearly salary, an additional amount of money will be contributed from employees salary to the pension fund each pay period.

Example of Proposed Changes to Bi-weekly Deduction for Current DB Participants 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**) 13% $175 Employees who Switch to the DB Hybrid Plan (Mandatory Amt as of Nov 1, 2011) 11.75% $158 Employees who Switch to the DB Hybrid Plan (Mandatory, plus Voluntary City-matched amt as of Nov 1, 2011) $35000 16% $202 -This chart shows the impact of the increased contribution amount on current Defined Benefit employees who do not move into the Hybrid Plan. -Based on employees yearly salary, an additional amount of money will be contributed from employees salary to the pension fund each pay period. *Employee without designated beneficiary will have 7% contribution ** Employee without designated beneficiary will have 12% contribution

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 Determine impact of increased contribution Calculate future after-tax & benefit compensation 12% contribution without beneficiary; 13% with beneficiary Take this opportunity to review employees retirement Plans Current age and planned retirement age Non-COA benefits accrued (spousal, prior work, etc.) Expected retirement expenses and necessary income Ensure employees have correct beneficiary (or no beneficiary) listed Consider the Combination Plan opt-in and employees 457 plan savings Attend group retirement planning sessions in September/October Meet individually with an advisor in September/October Review employees current 457 plan savings and consider changes Consider utilizing new Roth 457(b) plan option starting Nov 1st

Questions For questions send email to pension.questions@atlantaga.gov ; or Contact Sherri Dickerson, Department of Human Resources, at 404.330.6653.