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Proposed Charter Amendment (By Petition)
City of Cincinnati
Majority Approval Required
Fail: 12397 / 21.78% Yes votes ...... 44527 / 78.22% No votes
Index of all Issues
|Results as of Jan 15 7:15pm, 100.0% of Precincts Reporting (175/175)|
|Information shown below: Summary | Impartial Analysis | Arguments ||
A majority affirmative vote is necessary for passage.
An Amendment to the Charter of the City of Cincinnati to Add Provisions Relative to Pension and Retirement Plans for City Employees.
Shall the Charter of the City of Cincinnati be amended to add Article XVII that would:
1. Require the City of Cincinnati to pay forecasted pension obligation shortfalls by creating sufficient new revenues, which may include new or additional taxes and fees, and/or other revenue sources, and/or by implementing sufficient cost savings, which may include cuts to city programs or services, to fund any projected shortfall of the Cincinnati Retirement System which, as determined by an independent financial audit, would result in insufficient funds being available to pay forecasted future obligations of the Cincinnati Retirement System within ten years from the date of the audit's completion;
2. Require current City employees to choose to continue to participate in a defined benefit plan with maximum allowable percentages of salary provided pursuant to retirement benefits of individual employees or enroll in a defined contribution plan under which the aggregate retirement benefits paid by the Cincinnati Retirement System may not exceed the aggregate of: a) the employee's individual contributions, which can be made at any level, b) the City of Cincinnati's contributions, which shall not exceed the employee's individual contributions, and shall not exceed nine percent; and c) the return on an investment plan to which employee and employer contributions are made. Employees may increase or decrease their retirement savings through investments.
No employee hired after the date of the Amendment shall maintain a property or contractual right to any retirement funds above and beyond those which he or she has contributed, along with the investment return earned by those funds. City Council and Voters maintain the right to reduce future benefits, as required by this Amendment or otherwise. Even the first dollar of City investments is entirely voluntary, and the City can decide at any time to end its contributions, even retroactively.
3. Provide future City employees with only the defined contribution plan described herein;
4. Provide that no past or present City employee shall be entitled to collect retirement benefits while simultaneously earning income from the City or any other political subdivision or government agency or entity;
5. Provide for a potential cost of living adjustment for beneficiaries of the Cincinnati Retirement System not to exceed the increase in the consumer price index, but which shall not exceed a simple rate of 3% per annum, which cost of living adjustment may be temporarily suspended when necessary at the discretion of the City of Cincinnati;
6. Provide for enforcement of this amendment to the extent permitted by law and further provide that any Cincinnati resident, whether injured or not, shall have the right to bring a civil or equitable action to enforce this amendment, and be entitled to have their attorneys fees and expenses paid by the City if they prevail?
SHALL THE PROPOSED CHARTER AMENDMENT BE ADOPTED?
This amendment would place certain provisions regarding retirement benefits into the City Charter. Currently, rules and regulations about City employees' retirement benefits and their administration are contained in the Municipal and Administrative Codes of the City.
This proposed Charter amendment was placed on the ballot by City Council as required by law in response to the collection by Cincinnati for Pension Reform Committee of a sufficient number of valid signatures on an initiative petition.
The Cincinnati Retirement System (CRS) is overseen by a Board of Trustees which operates with a mix of appointed financial professionals, and elected City workers and retirees. The Trustees administer the system and invest its assets. The Board reports to City Council annually and makes recommendations for changes to the pension plan to City Council, which must approve the changes.
CRS is a qualified benefit plan under the U.S. Internal Revenue Code, allowing the City to opt out of Social Security. CRS currently includes 4,500 retirees and their survivors and is the main retirement benefit for 3,000 of the city's current employees. These employees do not pay into or receive Social Security and do not have an employer-sponsored 401(k) plan. CRS does not include police and firefighters who participate in Ohio's Police and Fire Pension Fund. Retiree health care benefits are paid from a Health Care trust which is now separate from pension funds but under the overall defined benefit plan of the City.
System Finances Incoming Funds: City workers contribute 9% of their pay to the CRS pension fund through payroll deduction. In calendar year 2013 the City is contributing 20% of its $160 million payroll of which 1.88% is paid on behalf of current employees and the remainder goes towards the unfunded liability in the pension fund. This $32 million City payment into the pension fund is one of the largest line items in the City's annual $350 million operating budget.
Expense: CRS Retirement Benefits: Under the Defined Benefit Plan, retired employees receive a set monthly amount guaranteed for life. An employee's normal retirement benefit is based on his/her Final Average Salary (average of their highest five consecutive years of compensation), qualified years of service, and a Benefit Multiplier ranging from 2.2-2.5%. For an employee with 30 years of service the expected retirement benefit would be 66% of final average salary; the maximum allowed is 90% of final average salary.
Pension Fund Shortfall An actuary performs an annual evaluation of the pension fund using complex predictions and calculations which take into account investment returns, the number of retirees, and their life expectancy. As of the end of 2012 the actuary's report projected the CRS pension fund is underfunded by about $862 million going forward for 30 years. The fund has about 61 cents of assets for every dollar of expected liability. This unfunded pension liability was a factor in the City's bond rating recent downgrade by Moody's Investors Service.
Issues contributing to the shortfall include:
City Council and the CRS Trustees have known about this pension shortfall for years, and have appointed Task Forces to review the situation and suggest steps to address the liability. Following the recommendations of recent Task Force reports, City Council, in 2009 and 2011, made significant changes in benefits to reduce the projected underfunding in the CRS Pension Fund including:
Current retirees would keep their pensions but the amendment would lower cost of living adjustments (COLAs).
Under the amendment, current employees would have the option to participate in the new defined contribution plan described below or to remain in the City's defined benefit plan with reduced benefits. In the defined benefit plan, the benefits multiplier would be reduced to 2% and capped at 1.5% for years of service after June 1, 2014. The maximum benefit would be capped at 60% of final average salary (a reduction for many employees).
Future employees would be eligible only for a defined contribution plan. This plan would allow employees to contribute a portion of their salary (no limit) to a pre-tax account. The employee would be provided a variety of investment options and be responsible for choosing how the funds in his/her employee account are invested. The plan would vest immediately, so the employee would be entitled to the retirement funds he or she contributed, along with the investment return earned by those funds. The City could contribute up to 9% of the employee's annual base pay toward the employee's retirement fund but the amendment would not require a contribution by the City. City Council and voters would maintain the right to reduce future benefits.
Cost of Living Adjustments (COLAs) would be revised. Currently, retirees and their beneficiaries receive COLA's of 3% per year compounded annually, while future retirees are promised a COLA of no more than 2%. Under this proposed amendment, COLA's for current and future retirees would be based on the Consumer Price Index (CPI) and capped at a simple non-compounding rate of 3% per year. In the proposed amendment, the City may not raise taxes or reduce services to fund COLA's and may suspend COLA's when necessary.
Other Provisions The proposed amendment does not include any means for providing for disability retirement benefits and makes no reference to retiree health care benefits or survivor benefits, both of which are offered in the current CRS. Under the proposed amendment, no past or present City employee would be entitled to collect retirement benefits while simultaneously earning income from the City or any other political subdivision or government agency or entity. The proposed amendment would allow a City resident, whether injured or not, to bring legal action against the City to enforce the Amendment, with the burden of proof being placed on the City, and would require the City to pay "reasonable attorney fees" to successful litigants.
Board of Elections
League of Women Voters
|Arguments For Issue 4||Arguments Against Issue 4|
Cincinnati's pension fund is the City's largest long term liability and needs to be addressed. The proposal provides for a fiscally responsible way to address this liability.
City employees are entitled to a sustainable City retirement system that presents an opportunity for promised benefits to be paid.
Retirement benefits for City employees must be adjusted to protect the City's viability, essential City services, and the household incomes and savings of Cincinnati families.
The City has been facing a crisis in its retirement system for a long time but has not done enough to solve the problem; this plan forces the City to make funds available to pay projected future benefits.
Defined contribution plans allow individuals to make their own choices about how much they choose to invest in their retirement account and how they wish to invest their retirement savings. New younger employees may prefer to have more flexibility in how much they save for retirement.
This plan more closely resembles the private market and makes public employees' benefits more similar to their private workforce counterparts. Many businesses moved to defined contribution plans a long time ago in order to reduce company risk. It is time for the City to do the same.
Taxes and fees should not be raised and vital City services should not be reduced in order to afford the retirement benefits of past or current City employees.
The mandate to fund forecasted pension obligations within ten years will cause increased financial stress to the City budget. The City would be required to make significant cuts in City services, sell assets, or raise taxes in order to meet the required payments set out in the amendment.
The Cincinnati Retirement System Board continues to seek ways to provide more solid backing for the pension fund. With reforms to the system in 2011, the City has already addressed the issue of future pension costs and is making plans to pay off the accrued liability over the coming 30 years. Changes made several years ago should be given time to work.
CRS has counted on the funds paid into the defined benefit plan by current and future employees to meet its obligations to retirees. If current employees opt out and future employees are not allowed to participate, the City would have to take even more money out of the general fund to meet existing retiree obligations.
This amendment significantly reduces retirement benefits for current and future employees. Limiting the defined benefit plan final benefit to 60% of base compensation would decrease retirement pensions for a majority of employees; this is income these workers have been counting on. Also, employees in the defined contribution plan may retire with little or nothing if their investments fail.
The proposed plan would have to be submitted to the IRS for approval. If the plan does not meet IRS requirements for the City to remain exempt from Social Security, employees and the City would both have to pay 6.2% of the employees' wages into Social Security. This would be significant added cost to the City beyond what is currently being contributed to the Retirement System on behalf of current employees.
The language of the amendment is vague, confusing, contradictory, and full of uncertainties which would lead to difficulties in implementation and would probably invite litigation.
By placing retirement plan details in the Charter, another Charter Amendment would be required to make any changes.