Despite unanimous opposition, City Council on Sept. 3 fulfilled duties dictated by the City Charter and voted to allow a controversial pension amendment to appear on the ballot this November.
Vice Mayor Roxanne Qualls explained that all council members oppose the amendment, but it’s part of City Council’s ministerial duties to allow ballot initiatives if petitioners collect enough signatures to put the issue to a public vote. The Hamilton County Board of Elections confirmed on Aug. 12 that pension amendment petitioners had enough signatures.
The amendment would privatize Cincinnati’s pension system so future city employees — excluding police and fire personnel, who are in a different system — contribute to and manage individual 401k-style accounts. Currently, the city pools pension contributions and manages the investments through an independent board.
Officials say the amendment will cost the city more and hurt benefits for city employees.
One new concern: As written, the amendment could force the Internal Revenue Service (IRS) to revoke tax-exempt status for city employees’ retirement plans. Paula Tilsley, executive director of the Cincinnati Retirement System, says the new tax burden would force someone in a lower tax bracket with $100,000 in retirement savings to immediately pay $15,000 in taxes.
Supporters of the amendment, including out-of-state tea party groups, argue it’s necessary to address Cincinnati’s growing pension liability, which currently stands at $862 million.
The current liability is a result of two issues: City Council has underfunded the pension system by varying degrees since at least 2003, and economic downturns have hurt investments in the city’s pension system.
The liability was one of the factors that led credit ratings agency Moody’s to downgrade Cincinnati’s bond rating on July 15.
City officials say they’ve already taken steps to resolve future costs and the only remaining concern is how to pay for the current liability. In 2011, City Council raised the retirement age and reduced pension benefits for city employees and retirees.
Tilsley says the pension board will make recommendations to City Council within a month to address the current pension liability. The board estimates the changes would keep the system 100 percent funded after 30 years.