A proposed bill to revise the city of Birmingham’s pension plan gained the official support of the City Council Tuesday. HB510, which is pending in the Alabama Legislature, would compel the city to fully fund its pension obligation and increase employees’ contributions to the fund. Not doing so, Mayor Randall Woodfin argued, could spell future financial disaster for the city.
The city’s pension had been underfunded since 2002, and when Woodfin took office in 2017, the pension liability stood at $750 million. Since then, Woodfin has nearly doubled the city’s annual contribution to the pension. but its liability has continued to increase and as of 2019 stood at $900 million. It would still take the changes proposed in HB510 to put the pension fund “on solid ground,” Woodfin said.
As reported last week, HB510 would increase current employees’ contributions from 7% to 7.5% and would reduce retirement benefits for new employees hired after July 1, 2021. The bill would also reduce disability allowances for new employees and replace spousal survivors’ benefits with the option for an “actuarially reduced retirement benefit.”
The bill, Smith said, would place the city on track to fully fund its pension by 2051.
During Tuesday’s council meeting, Woodfin and members of his administration, including Finance Director Lester Smith, delivered a lengthy explanation of the proposed changes, which Woodfin said he hoped would combat widespread misinformation about the bill.
“It has been quite interesting watching this conversation become public, watching a lot of nonpension board members and a lot of non-city employees not only interject their opinion, but patently false information to politicize this pension, when everything we’ve tried to do is protect our pension,” Woodfin said. “Everything we’re doing is supporting making sure this pension is solvent for our existing employees and our existing retirees.”
Woodfin emphasized that the changes had been recommended and approved by the city’s pension board, of which he is just one member, back in October. He has one appointee on the board as well; the remaining seven members are voted on by various groups of city employees, such as the police, public works and general services departments.
The board had rejected proposals to join the Retirement Systems of Alabama, Smith said, leaving the city “to fix this ourselves.”
“To not do anything is not an option,” he added, offering the example of the city of Pritchard, which had a pension crisis in 2009. “Retired employees one day did not receive a check,” he said. “They showed up at City Council, and the City Council had to inform them that the pension was bankrupt. If these funds dry up, then there is no recourse. The only recourse, from my understanding, is for those dollar amounts to be paid out of the general fund … . We don’t have those types of reserves to pay this out of the general fund.”
“You’re almost going down a slope that’s going to be extremely difficult to get back from,” Smith said.
Woodfin’s presentation came after the council’s vote to reinstate two paid holidays for city employees, Good Friday and Memorial Day, which were cut last year due to the financial stresses of COVID-19. Woodfin has argued that this vote, as well as to-be-passed restoration of merit pay raises, COLA and longevity pay, would offset the increased pension cost for current employees.
Even so, HB510 has proven controversial, drawing the criticism of state Rep. John Rogers, D-Birmingham, and Jefferson County Commissioner Lashunda Scales, who is running against Woodfin in this year’s mayoral election.
But, for the most part, the council appeared convinced by Woodfin and Smith’s arguments.
“I feel more empowered by the information I’ve received,” said District 8 Councilor Steven Hoyt, one of Woodfin’s most frequent critics. District 3 Councilor Valerie Abbott, meanwhile, said Tuesday marked “the first time we have ever had a thorough explanation of the pension plan.”
The council voted to formally endorse the proposed legislation, with all but District 1 Councilor Clinton Woods voting in the affirmative. Woods abstained from the vote, remarking that he was still absorbing the information. “My brain is full,” he said. District 6 Councilor Crystal Smitherman was absent from the meeting.