As previously written, the City had been exploring potential savings for the CRS. Increasing costs along with stagnant investment returns were having an adverse impact on the retirement fund. No longer was the pension trust fully funded. The City took the position that the pension is protected but everything else (medical insurance, COLA, dental insurance, death benefits, etc.) was not guaranteed and could be modified – or even eliminated. The focus of the reductions was on medical insurance since it had the greatest price tag of all the non-pension benefits. The City based their proposed reductions on a legal opinion issued in 2005 by the City Solicitor.
The national economic crisis of 2008-2012 was the worst since the Great Depression, certainly the worst ever experienced by the Cincinnati Retirement System in over 50 years. Eventually, the economic foundation of our nation and nations around the world were shaken. The value of stocks plummeted. While the Federal Government provided relief to many of the financial institutions and major industries, there was no assistance for pension funds.
The economic situation forced City Council to make some difficult decisions regarding its operating budget. So, at a time when the pension fund needed more funds, the City was unable to provide it. After examining the retirement fund at the end of 2012, the City’s Retirement actuaries recommended a contribution of $78.1M just for 2014 to begin to make the pension fund whole. This amount was still in stark contrast to the recent average contribution of about $4M.
In early 2008, Council considered several benefit reductions for retirees. After much debate, Council passed a Motion in February 2008 to maintain the retiree’s benefits for the time being but established a Task Force to investigate the retirement system. That Task Force made a series of recommendations regarding the medical and prescription plans. They also made recommendations on dealing with the unfunded liability. The choices for medical plans were reduced and a 5/15/30 prescription plan was enacted later that year.
By the fall of 2009, further reductions in the medical benefits were approved. Council did allow some “carve outs” to address concerns of those with lower pension amounts. Reimbursement of Medicare costs was also stopped. In addition, Council formed another Task Force to look at more cuts.
On December 23, 2009, several retirees filed a lawsuit in Federal Court claiming that retirees had a contract with the City and the City could not disregard their obligations under that contract. The plaintiffs also requested a Temporary Restraining Order (TRO) to stop the newly approved changes while the lawsuit proceeded through the court. The TRO was denied on December 31, 2009, thus allowing the City to proceed with the changes on the following day.
During this period, CMERA remained proactive informing retirees of the benefit changes, attempting to discourage additional reductions by the City, and suggesting retirees to contribute to a non-CMERA account to pay for legal services on behalf of retirees.
By the end of January 2010, the plaintiffs made a request to withdraw the lawsuit from Federal Court and re-file in State Court. Eventually, the intention was to include all retirees in the lawsuit by making it a class action suit since every retiree was impacted by the benefit reductions.
The on-going lawsuits did not stop Council from approving even more benefit reductions during 2011. A second Task Force proposed allowing only two medical plans (1 for Medicare retirees and 1 for non-Medicare retirees; implementing an 80/20 medical plan; eliminating the carve outs and payment of the dental and vision insurance; and halting all future contributions into the medical fund account. Even the death benefit was reduced from $7,500 to $5,000. Council approved those additional benefit reductions to be effective in 2012.
The court eventually ruled in favor of the defendant (City). Essentially, regardless of any documents, promises, or statements that existed, there was no contract since it lacked any legitimate enacting legislation. Basically, the Court ruled that the City was under no legal obligation to provide medical benefits to retirees. The retirees quickly filed an appeal of that judgement. Months later, just days after the November 2012 election, the appeals court ruled against the retirees. The Court ruled:
“The information about the so-called permanence of the retirees’ health care benefits was…shown to be repeatedly, clearly, and fully disseminated by city employees in the city’s retirement office. And the city’s leaders and city managers …did nothing to correct the misconception about the unalterability of their health care benefits. But even if the employees had so counseled the retirees, the employees had no authority to bind the city.”
The retirees then took the matter to the Ohio Supreme Court, but it refused to even hear the case. By the end of 2012, the legal process seemingly had run its course. The City was now free to dictate what, if any, medical benefits would be provided to retirees. At least the City could not alter the terms of the pension – or so it was believed.
With the ability to change medical benefits at-will, the City soon began exploring further reductions. The courts had indicated that the City could not change the pension, but the City then took the position that the cost-of-living-adjustment (COLA) was not part of the pension but just another benefit subject to change by the City. The Retirement Board proposed changing the existing COLA from a 3% compound formula to a simple 2% COLA formula.
Across town, in Federal Court, another lawsuit regarding the reduction of pension benefits to future retirees was being heard by Judge Michael Barrett. By February of 2014, the judge realized that any settlement of this case would impact others, including current retirees. The retirees from the 2009 lawsuit were then invited to be part of the settlement process by Judge Barrett. From March through December of 2014, the parties met. On December 31 of 2014, a Memorandum of Understanding (MOU) was reached, becoming effective in 2015.
The term of the MOU is 30 years. It addresses:
- Pensions (including COLA’s)
- Health Care Benefits (co-pays, premiums, etc.)
- Health Care Trust
- Contributions (City and employee) to the pension fund