The City Council of Birmingham has offically endorsed House Bill 510, a bill introduced to the Alabama State House that would mandate Birmingham to fully fund the city’s pension system, in Tuesday’s council meeting.
“We have a fund that is not fully funded,” said Lester Smith, the Finance Director for the city of Birmingham. “The city as well as the employees have not fully benefitted from the plan itself.”
HB510, sponsored by former assistant chief of the Birmingham Police Department Rep. Allen Treadaway (R-Morris), would force the city to fully fund the chronically underfunded city pension system, increase employee contributions, with the exception of the city fire and police departments, from 7% to 7.5%, and reduce benefits for future employees.
In the Tusday meeting, Birmingham’s Finance Director Lester Smith argued that the city’s pension debt is only getting larger and needs to be addressed if the city is to rebound with the pension system intact.
“Within the outstanding debt of bonds, warrants, and leases in line debt perspective the city averages around the same as Birmingham’s sister cities,” Smith said. “When the pension is added it significantly increases the debt compared to other cities.”
Smith said this is an area of extreme concern to credit agencies that see this debt.
“When you add the outstanding debt with the pension the total dollar amount per capita goes to $7,962,” Smith said. “This is what concerns credit agencies, that the debt is getting out of control.”
Smith said that one difference between Birmingham and other cities was that other cities were a part of the Retirement Systems of Alabama which help with pensions.
“Joining RSA was a recommendation by the transition team to the pension board,” Smith said. “The reason why is primarily cost, the transition team noted that to even get to a level playing field the city of Birmingham would have to identify $12 million in taxpayer dollars to get us level.”
However, Mayor Randall Woodfin said that the pension board for Birmingham will not be joining RSA anytime in the near future.
“The pension board has soundly rejected or does not entertain the idea of going into the RSA,” Woodfin said. “That conversation is dead, the city’s pension will not be a part of the RSA.”
When asked by Councilman Steven Hoyt why the pension board would not join RSA considering their many benefits, Woodfin said it said it came down to trust.
“There was not enough trust for the city of Birmingham, who has been managing our own pension board, to go to the RSA,” Woodfin said. “Even if the RSA has the opportunity to close that gap. I think you have a pension board that says, ‘Hey we know how to make the best decision through majority vote to solve our pension issues.’”
Woodfin said there are rumors that the city was using the pension money for other projects and this is what caused the debt, but he said this is false due to it being illegal to do so.
“The money was not used for development for the city due to it being illegal and was only used for the pension,” Woodfin said. “The issue can be traced to investment returns from the crash of 08’. By law that money can only be used for the pension.”
Smith said the pension plan will consist of three main points in which it will help the city:
- Married participants will have the option at retirement which is actuarially equivalent to the life only annually payable to non-married participants.
- For all current participants and future hires, increase member contributions by 0.5% of pay, from 7% to 7.5%.
- The city shall contribute from its general funds an amount each month equal to the actuarially determined contribution as determined by the actuary for the prior year.
Hoyt said the pension plan was thought out and would be beneficial to city employees in the future.
“The mayor and his team is to be commended,” Hoyt said, “ this certainly looks out for the future of city employees.”