The unfunded liability in Cincinnati’s pension fund grew again last year to $803 million. The retirement system for city workers has been in trouble for several years.
The Cincinnati Retirement System Board of Trustees told Council Monday the city needs to immediately increase how much is put into the fund each year.
"We really pushed the proposal that the board had presented with that incremental increase and hopefully, when the budget gets passed, it will include some type of increase for the retirement system," said CSR Board Interim Director Karen Alder. She is also the city's Finance Director.
A federally-mandated settlement agreement requires the city to put no less than 16.25% of active salaries into the fund each year. The retirement board recommends increasing that contribution 1.5% every year until the fund is fully solvent in 2045.
The projections presented Monday were grim, and several council members expressed support for increasing the city's contribution.
Council Member Jeff Cramerding said it's possible to make the fund healthy again, but doing that will require addressing other problems in the budget, like the fact that the general fund pays more into the pension than other departments.
"When it comes down to difficult decisions, Water and MSD are going to have to pay their fair share into the pension plan," Cramerding said. "And that probably is going to mean a rate increase, which this council — any council —doesn't like to talk about. But if we're serious that there's nothing more important than our employees' pension, then we should raise rates to the degree that those enterprise funds can pay into the pension plan."
Rates for both Greater Cincinnati Water Works and the Metropolitan Sewer District went up this year for unrelated reasons.
The City Manager’s Office is working on the first budget draft now. Council will pass a final budget by the end of June.
'What a difference a year makes'
Payments into the retirement fund come from three sources:
- Contributions from active employees (9% of salary)
- Contributions from employer (minimum 16.25% of active salaries)
- Investment income
The "liability" comes from retirees collecting benefits from the pension fund. This fund does not include the Fire Department or Police Department; as of 2022, there were:
- about 2,700 active full-time employees
- about 1,200 active part-time employees
- About 4,500 former employees now collecting benefits
The pension fund reached a crisis point about 11 years ago with only 61% of the system funded. A one-time transfer of funds from the health benefits fund in 2015 boosted that to 77%, but it's declined nearly every year since then.
Last year the fund reached 71.6% funded, thanks to an especially good year for investment returns and a $2 million additional deposit in the carryover budget.
So how did the fund go back down to 69% this year? Actuaries explained to the CRS Board Thursday afternoon, with more recent data than what was available Monday.
"What a difference a year makes," said Kevin Woodrich of Cheiron. "The biggest driver of these pension plans is the markets."
The retirement fund is expected to get an average 7.5% return on investments every year, but the actual return rate varies widely.
The return in 2021 was 18.06%, but the investments went negative in 2022: a loss of 8.68%. The 10-year compound average is still 7.32%, but the one-year loss significantly impacts future projections. Woodrich says if the city continues to contribute only 16.25% a year, the fund will be only 15% funded by 2045.
The CRS Board presented Council with a plan Monday for incremental increases to the annual contribution. In order to reach full funding by 2045, the city would need to contribute nearly 45% of active salaries by 2042. The recommendation was based on an estimated -10% investment return for 2022.
The CRS Board's meeting Thursday included the final investment return for last year (-8.68%). The Board will submit a slightly modified recommendation to council within the next week or so.
