Cincinnati Mayor: Pension Deal Removes “Dark Cloud” From Over City

Cincinnati

Cincinnati Mayor John Cranley took to the newspapers on Thursday to comment on the city’s recently passed pension reform measure.

In a column in the Cincinnati Enquirer, Cranley talks about the effects of the reforms on the city’s pension funding and the compromises made on both sides.

Cranley writes:

The historic agreement reached Dec. 30 among the retirees, unions, active employees and the city – after 10 months of negotiations and a nine-hour marathon session on the final day – will ensure a good pension remains in place for current and future retirees.

Through painful but necessary benefit cuts and increased city contributions, the pension system is now on solid financial footing.

As a result of these actions, by 2016 the pension fund will be 85 percent solvent and rise to 100 percent over the next two decades, which reverses a decadelong trend of worsening solvency. What was an $862 million liability will be reduced to zero; an independent actuary has certified that the math we are using is not fuzzy, but dependable.

This resolution will restore the city’s credit and reputation, and it will allow us to use the restored credit to address other city problems that have been ignored, such as deteriorating roads.

[…]

All parties – the city included – conceded more than they intended to, but it was a rare and wonderful case of shared sacrifice and heeding the “better angels of our nature.”

The Cincinnati Enquirer provides a refresher as to the effects of the reform measure:

Under the pension agreement, the city will:

*Contribute $38 million to the pension system in 2015. The city will pay that over the next seven years by borrowing against future revenue.

*Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

*Make a larger contribution to the pension starting in July 2016 – 16.25 percent of the annual operating budget compared with 14 percent – and continuing for 30 years.

Employees will:

*Take a three-year cost of living adjustment holiday.

*After three years, both current retirees and active employees will receive an annual cost of living adjustment of 3 percent simple interest. Most current retirees receive an increase that is “compounded,” meaning the previous year’s increase is included in the following year’s calculation. Current employees already have a 3 percent simple COLA in place when they retire.

 

Photo credit: “Downtown cincinnati 2010 kdh” by kdh – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Downtown_cincinnati_2010_kdh.jpg#mediaviewer/File:Downtown_cincinnati_2010_kdh.jpg

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

chicago

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

 

Photo by bitsorf via Flickr CC License

Actuaries Call on Obama to Address Aging Issues, Retirement Security in State of the Union

capitol

The American Academy of Actuaries is urging President Obama and the U.S. Congress to tackle retirement security issues through public policy over the next two years.

That includes addressing the solvency of Social Security, improving the governance and disclosure requirements of public pension plans, and ensuring adequate retirement income for seniors who are living longer.

From the AAA:

The American Academy of Actuaries is calling on the president and the 114th Congress to commit to a focus in the next two years on addressing the needs of an aging America. A concerted national strategy on policies to support systems such as retirement security and lifetime income, health care and long-term care for the elderly, and public programs such as Social Security and Medicare, is long overdue.

[…]

As President Obama prepares to address Congress and the American people this evening, the Academy (which celebrates its own 50th anniversary this year) would point out that the state of our union is inextricably linked to the demographic transition of proportionately greater numbers of Americans entering retirement, coupled with increased longevity, or life expectancies, that will compound the fiscal challenges to both private systems and public programs in the years to come.

The AAA goes on to provide specific points that comprise a public policy “wish list”:

* Take immediate steps to address solvency concerns of key public programs like Social Security and Medicare to ensure that they are sustainable in light of changing demographics. The Academy also urges action to allow the disability trust fund to continue to pay full scheduled disability benefits during and beyond 2016.

* Evaluate and address the risk of retirement-income systems not providing expected income into old age, especially in light of increasing longevity. The Academy’s Retirement for the AGES initiative provides a framework for evaluating both private and public retirement systems, as well as public policy proposals.

* Encourage the use of lifetime-income solutions for people living longer in retirement. The Academy’s Lifetime Income initiative supports more widespread use of lifetime-income options.

* Improve the governance and disclosures regarding the measurements of the value of public-sector (state/municipal) employee pension plans. The Academy’s Public Pension Plans Actuarial E-Guide provides information on the nature of the risks and the complex issues surrounding these plans.

* Explore solutions to provide for affordable long-term care financing, and address caregiver needs and concerns through public and/or private programs.

* Address the impact of delayed retirement, either voluntary or through future retirement age changes, on benefit programs, as well as the needs it may create with increased demand for early retirement hardship considerations and disability income programs.

Read the full release here.

Canada Pension Buys Big Stake in San Francisco Office Tower

Golden Gate Bridge

The Canada Pension Plan Investment Board (CPPIB) is buying a major stake in a popular San Francisco office tower, the fund announced on Thursday.

The rest of the property is owned by Hudson Pacific Properties, Inc.

From Bloomberg:

Canada Pension Plan Investment Board agreed to pay about $219.2 million for part of a San Francisco office building where ride-sharing company Uber Technologies Inc. and mobile-payment provider Square Inc. have their headquarters.

The pension fund plans to buy the 45 percent stake in 1455 Market St. from Hudson Pacific Properties Inc., the companies said today in a statement. Los Angeles-based Hudson Pacific has owned the 22-story tower since December 2010 and will continue to oversee management and leasing.

The purchase is the Canadian pension’s first direct investment in San Francisco, where office rents have soared 88 percent in almost five years, according to Jones Lang LaSalle Inc. (JLL) Demand for office space has been buoyed by annual job growth of 3.6 percent in the city, outpacing the U.S. by one percentage point, the brokerage said in a report this week.

San Francisco is “one of the best-performing U.S. office markets and a key strategic market for CPPIB in that country,” Peter Ballon, head of real estate investments in the Americas for the pension, said in today’s statement.

The 1.03 million-square-foot (95,300-square-meter) property, formerly a Bank of America Corp. data center, was built in 1976 and has ground-floor retail.

Read the press release here.

 

Photo by ilirjan rrumbullaku via Flickr CC License