The Birmingham City Council has officially endorsed pending legislation in the Alabama Statehouse that would force Birmingham to fully fund its pension system, while also increasing employee contributions by half a percent and reducing benefits for city workers hired after July 21, 2021.
The near-unanimous endorsement came after a presentation by Mayor Randell Woodfin and finance director Lester Smith, who each explained the current situation with the city pension system and gave an update on the present status of House Bill 510, the bill to rework the city pension system.
HB510 — sponsored by former assistant director of the Birmingham Police Department Rep. Allen Treadaway, R-Morris — would mandate Birmingham fully fund the city pension system each year, while also increasing employee contributions from 7 percent to 7.5 percent. It would reduce retirement benefits for future city employees’ from 2.25 percent to 1.75 percent of the participant’s final average salary multiplied by years of employment. It would also reduce disability allowances for new employees from 2 percent to 1.75 percent, and remove spousal survivor’s benefits, replacing it with the option to select “an actuarially reduced retirement benefit,” that would provide as a survivor’s benefit, according to the bill.
Each of the proposed changes exempts both Birmingham fire and police departments, with the one exception being the spousal survivors’ benefits, which would be removed.
These changes, according to the mayor’s office, will not affect benefits for current employees, only current employee’s contribution rate.
According to the bill, the city’s contribution rate to the system, which statutorily is 9 percent at present, be determined by the city actuary “at the level necessary to fully fund the system and amortize the unfunded accrued liability” over a close period ending in 2051.
Since 2017, the city has doubled its contribution rate from 7 percent to 14.5 percent, while employee contributions have remained at 7 percent since 2016.
“When I first became mayor, it was clear to me more had to be done for the pension. The city made a promise to you as an employee and we must keep that promise,” Woodfin said in a letter endorsing the bill March 22. “It’s the right thing to do.”
Woodfin also assured current employees that their benefits “will not change under the plan.”
During his presentation Tuesday, Smith said his concerns over the pension system come from both the financial sustainability of the current pension plan and the financial impact that the system has and will continue to have on the city.
“This is something that was identified by the mayor’s administration, as well as his transition team, when he came into office,” Smith said. “This is something that all municipalities are facing. Corporate America had this issue many, many years ago, and they have dealt with it. This is something now that a lot of municipalities, both local as well as state entities, are having to deal with.”
“This is a situation that if we do not address this now, if we do not get it taken care of, it’s going to eventually get out of reach. The city’s not going to be able, on an annual basis, to fund the amount of money it needs to fund in order to satisfy this obligation,” Smith said.
In recent weeks, state Rep. John Rogers, D-Birmingham; Jefferson County Commissioner Lashunda Scales; and the People’s Budget Birmingham are among others highly critical of the mayor’s support of HB510. Woodfin, in turn, spent time addressing some of the criticisms during the presentation.
“It has been quite interesting watching this conversation become public,” Woodfin said. “Watching a lot of non-pension board members and a lot of non-city employees not only interject their opinion but patently false information to politicize this pension. Everything we’re doing is supporting, making sure this pension is solvent for our existing employees and our existing retirees.”
At the end of the presentation, Woodfin reiterated his commitment to propose restoring merit pay raises, COLA, longevity pay and peak holidays. The city council recently reinstated Good Friday and Memorial Day as paid city holidays after Woodfin’s recommendation.
Councilor Steven W. Hoyt of District 8, a noted critic on many of the mayor’s proposals in the past, commended the mayor and Smith, stating the discussion was needed.
“I think the mayor and his team need to be commended,” Hoyt said. “I now understand in its totality, and I thought that this public conversation was needed and I feel more in-powered by the information I received.”
HB510 has passed through committee and is currently waiting to be voted on.
