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What Happened?
Cincinnati and local labor unions recently reached an agreement that will help the city do away with the $862 million pension system funding gap within the next 30 years.

The Deal
Cincinnati is housing a $2.4 billion pension system with an $862 million funding gap. This deficit, however, is expected to be eliminated by 2045 thanks to a new deal forged between city officials and labor union representatives, Reuters reported.

A federal judge presided over the 10-month negotiation process that resulted in the new agreement which calls for:

  • Shifting city workers to defined contribution plans
  • Transferring $200 million in retiree healthcare savings to the pension fund
  • Suspending cost-of-living increases for three years
  • Calculating cost-of-living increases with simple interest instead of compound interest

Furthermore, Cincinnati will make a 16.25 percent contribution of payroll over the next 30 years to eliminate unfunded liabilities in the pension system, which is currently only 63 percent funded.

Prior to the deal being struck, Cincinnati was facing a 49 percent payroll contribution requirement which it was unable to meet. In 2012, the city’s annual required contribution was $50 million, but Cincinnati could only pay $33.6 million toward the fund. This led Standard & Poor to downgrade the city’s rating to AA- last spring, Reuters reported.

Memphis Reform
Memphis City Council members passed a pension reform plan that will save the city about $5 million annually while helping refund its weakened pension system. Memphis was facing a pension system funding gap of $700 million. The city was unable to meet its annual obligations, so the gap was expected to continue to grow without a reform plan.

Furthermore, Tennessee passed a law in 2014 requiring all municipalities to pay the annual requirement payment into their pension funds starting in the next five years. Since the initial announcement, the city’s funding gap shrank minimally to $551 million, Memphis Flyer reported.

The Memphis City Council devised a hybrid pension reform plan that found a compromise between the 401(k)-style plans found in the private sector and the pension-style plans that have been available to city workers since 1948.

The new plan will divert employees with 7.5 years of service or less, and new hires starting in 2016, into the new plan. These employees can freeze their own contributions and city contributions to the existing pension plan and collect when they retire, Memphis Daily News reported.

In Jacksonville, Florida, a new pension reform bill has been submitted in response to several back-and-forth negotiations with local police and fire union representatives. The most significant aspects of the pension reform bill include:

  • Changes to the interest rate that current police and firefighters would receive on deferred retirement option program accounts
  • Cost-of-living adjustments for pensions
  • Time frame for changing pension benefits for current workers

The bill would set a three-year limit on all collective bargaining agreements to ensure pension plans are more responsive, Florida-Times Union reported.

Pension Pandemonium
EfficientGov has followed the pension reform struggles felt across the country, as well as the more recent successes.