Atlanta's City Council passed an ordinance Wednesday to consolidate the city's three pension fund boards, although it will likely be challenged.
Mayor Kasim Reed's office in a news release announcing the passage of the ordinance cited the consolidation of the boards of the Atlanta General Employees' Pension Fund, Atlanta Firefighters' Pension Fund and Atlanta Police Officers' Pension Fund as the result of a recommendation by a city Blue Ribbon Commission on Waste & Efficiency in Government in 2014.
The news release said the ordinance "will result in an improved governance structure in line with best practices for pension boards nationwide, bringing financial expertise to the pension investment decisions, reducing administrative costs of servicing three separate boards and ensuring investment performance is optimized so that the annual pension contribution cost from the (city's) General Fund is the lowest it can be in all financial cycles."
However, the attorney for the general employees' fund board, Morgan, Lewis & Bockius, plans to challenge the ordinance on the basis that the city did not have the authority to pass it.
"The General Employees Pension Fund board, as well as the fire and police boards, are creations of the state of Georgia General Assembly, and the state did not delegate to the city the authority to alter the governance of the GEPF, or any other independent board," said Daniel T. Fahner, partner at Morgan Lewis, in an emailed statement. "The ordinance would consolidate the GEPF, fire and police boards into one 'super-board' and would grant the mayor of Atlanta the authority to appoint a majority of the members. The effect would be to strip the funds' stakeholders, the beneficiaries, of their voice in making decisions with regard to the investment of their funds. That is, to say the least, improper."
"Beyond that, there does not appear to be any reasonable justification for the city's rush to hastily pass legislation at the end of the mayor's administration, and the optics of the City Council's efforts to pass this ordinance appears all the more troubling in light of the council's failure to follow its own procedures," Mr. Fahner said. For example, Mr. Fahner in an earlier letter to the city attorney said the GEPF board requested a legal assessment and analysis of components of the ordinance as part of the GEPF board's comprehensive fiduciary review, before making any recommendations.
Mr. Reed is leaving office after two terms due to term limits.
"The city of Atlanta is proud to have litigated this issue and received a unanimous decision from the Supreme Court of Georgia in the 2015 decision of Borders vs. City of Atlanta, 298 Ga. 188 (2015)," a spokeswoman for Mr. Reed said in an emailed statement. "The court upheld the city of Atlanta's independent authority to modify its pension plans. Yesterday's vote by the Atlanta City Council is another historic step to ensure the strength and viability of the city's pension plans."
That 2015 decision dismissed a lawsuit challenging the constitutionality of higher employee contributions for participants in Atlanta's three pension funds.
According to a copy of the ordinance, the new City of Atlanta Defined Benefit Pension Plan Investment Board would be made up of 15 trustees, consisting of an independent chair appointed by the mayor for a five-year term, a vice chair who would be the mayor or a designee, three City Council members appointed by the mayor, a participant in one of the three pension plans appointed by the mayor, as well as the city's chief financial officer and commissioner of the department of human resources, both of whom are in mayoral-appointed positions. The remaining seven would be either elected by participants or appointed by other city officials.
Yvonne Cowser Yancy, commissioner of the city's department of human resources and a member of the three current boards, said in the mayor's office's news release: "Reforming the city's three pension boards into one strong, streamlined and effective board will benefit city workers, taxpayers and the public. As a trustee for the employee pension plans, I am proud to have been a part of this reform process, and I am thankful to the Atlanta City Council and all stakeholders for their collaboration to improve our pension boards and performance."
In a Nov. 7 letter to the City Council from Douglas I. Strachan, chairman of the general employees' fund board, he criticized the then-proposed ordinance's creation of a new board whose majority would consist of mayoral appointees.
"The proposed ordinance's provision to give the mayor the power to appoint a majority of the trustees of a consolidated board is particularly troubling as there are significant risks to giving any single individual such an amount of power over billions of dollars of pension assets," Mr. Strachan said in the letter. Mr. Strachan also expressed concern regarding whether investment performance would be improved by the board consolidation.
"The board recommends that the city complete a study, among other things, of the difference between investment manager fees with the proposed consolidation compared with the sum of investment manager fees across the three current individual plans. The board eagerly awaits the results of such a study or other studies that may be in the works," he said in the letter.
The general employees pension fund's board currently has nine members, and the police and firefighters' boards have six members each. How each trustee is elected could not be immediately learned.
According to the city's most recently available comprehensive annual financial report, the Atlanta General Employees' Pension Fund, Atlanta Police Officers' Pension Fund and Atlanta Firefighters' Pension Fund had $1.3 billion, $957 million and $617 million in assets, respectively, as of June 30, 2016.
Mr. Strachan referred questions to Mr. Fahner.