As reported by Cincinnati.com, there is currently a bill up for referendum tomorrow that will eliminate the public employee pension system and replace the same with a 401(k) style plan. The current situation in Cincinnati is similar to here in New Jersey, wherein the pension system is running an extremely high, unfunded liability. Therefore, a comprehensive review of this bill is appropriate given that a similar measure could eventually be proposed here in New Jersey.
What It’s About:
The future of the $2.1 billion Cincinnati city pension system, which covers about 4,000 current city workers and another 4,350 retirees (a total of 6,300 retirees, family members, and survivors are also on the city’s retiree health care plan).
What It Would Do:
If passed, the proposed amendment to the city charter would essentially eliminate the existing system, force the city to pay off any shortfalls, and replace the old system with a new 401(k)-style plan.
How Things Are Now:
The Cincinnati pension system is running an $870 million unfunded liability, meaning that is how short the plan would be in the future to meet future claims if the hole isn’t filled. The plan is about 61 percent funded, and a pension plan is considered healthy when it is more than 80 percent funded.
It would get Cincinnati city leaders out of the pension business, and end the practice of underfunding the pension system. It would also eventually get the city out from under its liability, strengthening its fiscal foundation.
The proposal includes a disputed requirement to pay off the $870 million liability in 10 years, which opponents and city officials argue means cuts in city services and higher taxes. Officials also argue that other proposed changes and cuts to the plan would make it healthy within 10-12 years.
Whose For It:
A group of local conservative political activists who formed Cincinnati for Pension Reform, using much of the language for the proposal from others that passed in cities such as San Jose, Calif. And San Diego. State workers in Michigan and Alaska have also seen their pensions overhauled. In addition, several are tea party groups have endorsed the measure.
Whose Against It:
Unions representing Cincinnati city workers, the pro-business Cincinnati USA Regional Chamber, all of City Council, both mayoral candidates. Unions and other groups have formed two committees: Cincinnati for Pension Responsibility and Citizens for Responsible and Accountable Government.
Please check this blog periodically to determine the outcome of this referendum as the same could have an enormous impact going forward.