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I am writing to notify all city workers, retirees, and tax payers about my assessment of the current condition of the Cincinnati Retirement System (CRS). This is an issue that I raised in 2004/2005. At that time, I expressed my concern to the pension board, the administration, the retirement leadership and members of council which it completely ignored.
In 2004, my office estimated that the unfunded liability of the CRS was $80 million. Since 2004, this dollar amount has exploded to more than $1 billion. My office was assured that the pension had $.90 cents for every $1.00 of liability. These calculations, like today, are based on a “house of cards” of assumptions that very rarely materialize.
The estimated total value of the CRS should be around $3 billion. This amount will cover the monthly payments to current and future retirees. The estimated present value (PV) of the pension is only $2 billion. This means the pension is underfunded by $1 billion. I could argue that the pension value should be at $3.2 billion; however, no reasonable person can argue that $3 billion is not a fare estimate of what is needed to meet our future obligations to retirees.
Each year CRS is sending an estimated amount out of $200 million in payments to current retirees. The current value of the pension being only $2 billion and not the needed $3 billion means the pension plan is sending out 10% of its value on an annual basis. This is not sustainable. The health of a pension is defined as its ability to pay its future obligations not its present obligations. If you accept this definition, the CRS is not solvent.
I have introduced motions containing potential solutions to this problem. Each motion has been rejected by a majority of Council. One exampled rejected was the idea to borrow $500 million in pension obligation bonds while interest rates are at historic lows because 10 year bond rates will not remain below 2% forever. As interest rates climb, the solution of pension obligation bonds become less attractive.
I have also recommended to the 2012 City Council that we terminate our relationship with the current fund advisors. It is beyond my financial understanding that we would continue to compensate advisors $12 million per year for failure. An additional recommendation is to divide the CRS pot of money between three separate teams that compete to keep the accounts based on performance.
I do not support the reduction of any benefits, which I predict this council will recommend, unless City Council fully funds its pension obligation. This would start with a present value infusion of $500 million and an annual commitment of making the City of
It is very important that you pay close attention in 2013. The national Debt Ceiling Debate in
The financial elephant in the room that public policy makers must address is the Cincinnati Retirement System. I understand that workers have given 30 years of their life to service this city and deserve the contractual agreement made to all of you at the time of retirement. My office is not disconnected from understanding our moral obligation in meeting our commitments. Transferring the risk to workers, who did what they were supposed to do, at a time when they are most vulnerable is unethical. The taxpayer must understand that 60% of any shortfall in the pension is directly attributable to all 350,000 citizens that live in