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City Council Overhauls Pension System

Critics say burden falls too heavily on current workers

By Jay Stolkin · March 23rd, 2011 · News
In an effort to fortify Cincinnati’s ailing retirement system for municipal workers, City Council narrowly approved a package of reforms March 16 aimed at reversing the system’s current course toward a projected $1 billion shortfall.

In a 5-4 vote, City Council approved reforms that stiffen eligibility requirements, reduce some benefits and increase the retirement age for current workers.

“This package of reforms is a major first in addressing the outstanding liability in the pension system,” says Vice Mayor Roxanne Qualls, who provided one of the five votes necessary to pass the reforms.

How the shortfall is handled is important because it not only affects thousands of city workers but also could prompt service reductions to residents or — less likely — tax increases.

The next step in the process is finding a way for the city to increase its contribution rate to the pension fund from 17 percent of its payroll to 24 percent. According to Qualls, the 7 percent increase would amount to approximately $4.8 million more annually from the city’s General Fund. Increased contributions from other city funds also would be necessary.

Knowing that Cincinnati’s General Fund has serious budget issues of its own, Qualls says City Council has asked administrators to provide suggestions as to how it could feasibly fund the higher contribution rate.

Coupled with the reform package just approved, “if the city can raise the contribution rates from 17 percent to 24 percent, the system is projected to become fully funded within 30 years,” Qualls adds.

The estimate came from a report presented to City Council’s finance committee by the Cincinnati Retirement System’s (CRS) board of trustees.

The report, from which City Council’s reform package mostly was based, provides a comprehensive layout of recommended changes. It notes that, without significant changes, the system will remain solvent for only 21 years. With insolvency looming in the near-future, one would be hard pressed to find anyone opposed to making some adjustments to the system.

But whether the system was adjusted effectively has stirred contentious debate.

City Councilman Chris Bortz, who voted against the basic reform package but supports some changes to retirees’ health plans, opposed the reform for several reasons.

Bortz thinks the reforms were rushed through and that City Council didn’t have enough information in time for review before the vote.

“Part of that is a sense of urgency and that’s important,” Bortz says. “The system needs reform. But I think there were some political issues driving this. Coming into an election season … I think there was some urgency to get it done while the votes are there.”

While Bortz says that he would support the “bulk of the reforms” suggested, the progression of the vote itself, a few specific items in the package and the sweeping nature of the reform ultimately led to his “no” vote.

“My primary concern is that these reforms generate about $100 million in savings against the unfunded liability in the pension system,” he says. “Virtually all of the savings are being achieved through reduction in benefits and changes in retirement eligibility for current and future employees. There are virtually no savings generated through changes to the benefits of existing retirees.”

Also, Bortz singled out changes to the “30 and out provision,” calling them “particularly unnecessary and draconian.”

Before the latest reforms, city employees could — regardless of age — retire after 30 years of service and receive their full pensions.

“Now, employees are finding that they have to work extra years, for reduced benefits … and these changes were put in place with a very short 2-1/2 year transition or grandfather period.”

Michael Fehn, an elected member of the CRS board of trustees since 2006 and a steward for the American Federation of State, County and Municipal Employees Local 223, reiterated these issues and raised many others.

As a member of the CRS board of trustees, Fehn and four other elected trustees opposed the proposal that eventually was presented to City Council. The six “yes” votes came from the trustees appointed by the mayor.

Like Bortz, Fehn says the reforms place far too heavy a burden on current employees, and he advocated strongly for cuts to be divided more equally among the retirees, the current employees and the city itself.

One change that Bortz would like to see made involves the yearly Cost of Living Adjustments (COLA) for retirees. Bortz said the retirees’ COLAs should be changed from compounding COLAs to simple COLAs. As a result of the reforms passed, current employees’s COLAs will be changed from 3 percent compounding COLAs to simple COLAs capped at 2 percent and tied to inflation as determined by the Consumer Price Index.

Qualls counters that there are legal reasons that the retirees’ pensions are virtually untouched by the reform.

“Once an employee retires with their pension, legally the council can’t change it,” she says. “We can change the health care benefits, which we did. The only place we could legally make changes was on future pensions … while I’m sympathetic that current employees are taking on a greater burden, that is the unfortunate reality based on the law.”

As for adjusting the COLAs of current retirees, Qualls says the issue is being explored in court in six different states and Cincinnati might examine the issue further once rulings have been made in those cases.

Meanwhile, Fehn says the reforms are harming the morale of current workers. Many city employees could be earning higher salaries in the private sector, and the main incentive to stay in the public sector is the competitive benefits packages.

With these reforms in place, Fehn isn’t sure the benefits are enough to offset the lower salaries provided by city jobs.

 
 
 
 

 

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