A Path to a Sustainable Retirement System December 16, 2011

1. Cincinnati Retirement System Board of Trustees Presentation To Cincinnati Budget & Finance Committee A Path to a Sustainable Retirement SystemDecember 16, 2011

2. Introduction to CRS • Established in 1931, before Ohio PERS • Governed by a Board of Trustees • CRS not subject to same requirements as employers covered by OPERS • City Council determines benefit and contribution levels, not the State of Ohio • This provides flexibility for the City, but carries a greater level of responsibility and stewardship • Includes a Pension Trust & Health Care Trust

3. Introduction to CRS (Cont.) • Ratio of 1:00 active to 1.35 retirees • CRS Membership as of 12/1/11 • 3290 active employees • 4450 pensioners (members receiving pension checks) • 6800 retirees, spouses & children enrolled in health care • City employees do not contribute to Social Security • Many career employees & retirees are not eligible for a Social Security pension benefit

4. CRS Board of Trustees • In October 2010, City Council changed the governance structure of the Cincinnati Retirement System (CRS) Board of Trustees to include member elected trustees and appointed professional trustees. • The new Board’s first assignment – Determine a solution to stabilize and sustain the Retirement System for current and future generations. • The Board’s recommendations recognized and built upon the efforts of Task I and Task Force II. • The Board held three Community Meetings in December 2010 to present ideas and gather input from various stakeholders. • Final recommendations were adjusted based on input from stakeholders.

5. CRS Board of Trustees (Cont.) Appointed • Madelynn Matlock, Sr. VP Huntington Asset Advisors – CRS Board Chair • William Partridge, Retired Sr. Consultant & Pension Actuary, Watson Wyatt Worldwide – CRS Vice Chair • Mark Berliant, Senior Partner, Strauss & Troy, a Legal Professional Association • Christopher Meyer, CFA, Managing Principal Fund Evaluation Group LLC • Roger Sims, Retired Corp. Dir., Compensation, Benefits & Employee Health Svcs., Health Alliance • Vacant position Elected • Karen Alder, Risk Manager, City of Cincinnati • Don Beets, Retired Supervisor of Field Services, Greater Cincinnati Water Works • Mike Fehn, Building Inspector II , Dept. of Community Development, City of Cincinnati • Brian Pickering, Retired Principal Engineer, Greater Cincinnati Water Works • Mike Rachford, Retired Automotive Crew Chief, City of Cincinnati

6. CRS Board of Trustees (Cont.) • Committees • Investment Committee • Benefits Committee • Governance Committee • Elections Committee • The full Board held 14 meetings since Oct. 2010 to address the System’s challenges • CRS Board made recommendations to Council that were approved in March 2011 making significant progress toward system stabilization

7. Authorities of CRS Board & City Council • CRS Board • Makes recommendations to Council regarding benefit and contribution levels • Manages investments and determines the investment and discount rates of return & other actuarial assumptions • Oversees the management of the Cincinnati Retirement System • City Council approves benefit levels and employer & employee contribution levels

8. Management of CRS Investments Presented by Brett Christenson, Marquette Associates

9. Recent Board Actions • Conducted Actuarial Experience Study (employee turnover, mortality, salary scales, etc.) and modified actuarial assumptions to better reflect actual and expected experience • Result: $57M reduction in Pension liabilities • Result: $33M reduction in Health Care liabilities • Performed Asset Allocation Study that resulted in revision of long term asset return assumption from 8% to 7.5% per annum. • Result: $102M increase in Pension liabilities • Result: $ 33M increase in Health Care liabilities • Net Result: • $45M increase in Pension liabilities, • $0M increase in Health Care liabilities

10. Projected CRS 2011 Cash Flow

11. State of Affairs Before CRS Plan Changes Adopted in February, 2011 • The status quo approach (same benefits and employer contributions of 17%) will fully drain the pension trust in 21 years and the healthcare trust in 15 years. • In 2010, CRS’ expenses (pension, healthcare and operating costs) exceeded revenues (employer and employee contributions, and Medicare Rx reimbursements) by $145 million. • City employees currently contribute 8% of salary for 2011, and will contribute 8.5% in 2012, capping at 9.0% in 2013.

12. Downward Spiral Threatened CRS 8 Generous Benefit Enhancements Implemented 1999 Poor Asset Performance 2001 Accelerating Health Care Costs Higher Contribution Requirements 2006 - 2009 Insufficient City Contributions 2002-2010 Generous Early Retirement Window Implemented 2007 Terrible Asset Performance 2008 $125,571,000 Contribution Requirement (Pension and Health Care) 2010 Insolvency

13. CRS Was Not Stable, Sustainable or Affordable 13

14. What’s Within the City’s Control?

15. What’s Within the City’s Control?

16. Financial Impact of Plan Changes

17. Financial Impact of Actuarial Assumption Changes

18. Financial Impact of Actuarial Assumption Changes

19. Pension Changes • The pension changes include a comprehensive set of grandfather and transition rules. • The impact of these changes on individual employees depends on their proximity to their Normal Retirement age. • For all employees hired prior to 1/1/2011, their earned pension benefit is protected up to the effective date of the change, 7/1/2011. • These employees will also be able to retire under the current age and service rules with adjustments to benefits earned after the change, if applicable.

20. Pension Changes(Cont.) 20

21. Pension Changes (Cont.) 21 • Cost of Living Adjustment (COLA) for future retirees will be based on simple interest, not compound. • COLA will no longer be guaranteed at 3% but will be indexed to the CPI-U to a maximum of 2% per year. • The salary used for benefit calculations will be changed from the highest consecutive 3 year average to the highest consecutive 5 year average.

22. Pension Changes (Cont.) 22 • Rate of pension accruals will be reduced from 2.50% (and 2.22% for a closed group) to 2.20% of base pay for all employees for future years of service. • First 30 years of service will accrue at 2.20% rate of pay. Years beyond 30 will accrue at 2.00% rate of pay.

23. Normal Retirement Age and Service Rules Prior Rules New Rules • Normal Retirement (Hired before 7/1/2011) • 30 years of service, age 60 • 5 years of service, age 65 • Normal Retirement (Hired on or after 7/1/2011) • 30 years of service, age 62 • 5 years of service, age 67 23 23 • Normal Retirement (Hired before 1/1/2010) • 30 years of service, any age • 5 years of service, age 60 • Normal Retirement (Hired on or after 1/1/2010) • 30 years of service, age 55 • 5 years of service, age 65

24. Early Retirement Age and Service Rules Prior Rules New Rules • Early Retirement • 15 years of service, age 57 • Actuarial reduction applies 24 24 24 • Early Retirement (Hired before 1/1/2010) • 25 years of service, age 55 • Early Retirement (Hired on or after 1/1/2010) • 25 years of service, age 60 • Actuarial reduction applies

25. Pre & Post Retirement Death Benefit Changes 25 25 • $7,500 death benefit for current retirees is reduced to $5,000. It is eliminated for future retirees. • Pre-retirement lump sum death benefit equal to 50% of salary is eliminated. • This type of death benefit is uncommon in DB plans. • Usually provided through employer or individual life insurance. • Social Security and OPERS do not provide a similar benefit.

26. Solvency Projections (Pension)

27. Solvency Projections (Pension)

28. Contribution Projections (Pension)

29. Contribution Projections (Pension)

30. Solvency Projections (Pension)

31. Retiree Health Care Changes

32. Retiree Health Care Changes (Cont.) 32 Move all retirees and other recipients to 80/20 PPO medical plan and pay same percent of “retiree plan” premium as actives. Eliminate Medicare Part B subsidy for retirees. Eliminate Medicare Part B subsidy for spouses, and other recipients of CRS retiree health care coverage. Require retirees to pay 100% of premiums for dental and vision benefits if they choose to continue coverage.  

33. Solvency Projections (Health Care)

34. Transition Approach • Pension benefits earned to the effective date of the change are protected: • All components of the prior formula apply, • The earliest normal retirement age available under the prior plan continues to be available, • At that same date, benefits earned under the new benefit formula are also payable – in an actuarially reduced amount if applicable, and, • Retiree health benefits are available at the same date.

35. APPENDIX

38. Allocation of Contributions by City Groups • Allocation of 2010 employer contributions at 17% contribution rate DollarsPercent • General Fund $12.7 MM 40% • Metropolitan Sewer District $6.0 MM 19% • Cincinnati Water Works $5.2 MM 16% • Other Funds $7.7 MM 25% TOTAL $31.4 MM 100%

39. Comparison of CRS , OPERS and STRS