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

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 2

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 3

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. 4

5. 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 6

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 7

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

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 9

10. Projected CRS 2011 Cash Flow CategoryDollars Outflows: Expenses and Benefits$207,500,000 Inflows: Employer Contributions, Employee Contributions and Medicare Reimbursements $48,400,000 Trust earnings if assets earn 7.5%$150,000,000 Projected Trust earnings to 12/31/2011 (@ 1%)$20,000,000 Projected net outflows as of 12/31/2011$139,100,000 10

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. 11

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

13. CRS Was Not Stable, Sustainable or Affordable The generosity of CRS provisions, several years of insufficient City contributions, poor market performance and falling market expectations Stability? Without City Council action, the Pension trust would have run out of assets within the next 21 years Meaning today’s workers and future Cincinnati workers would come directly to the City for benefits after the CRS trust ran dry Sustainability? By 2013 workers will contribute 9% of pay to CRS The City’s contribution requirement was huge ~ but without City Council action, funding requirements would only increase Affordability? 13

14. What’s Within the City’s Control? We asked City Council to moderate the level of benefits; only then could the City have hope of attaining a stable and sustainable System Moderating Benefits The City must plan toward making it’s annual required contributions Without this commitment CRS will fail Making Required Contributions 14

15. What’s Within the City’s Control? City Council enacted Plan changes in March, 2011 Moderating Benefits City Council enacted a schedule to increase contributions to 24% of Payroll in November, 2011 Making Required Contributions 15

16. Financial Impact of Plan Changes PlanDecrease in Accrued Liabilities Decrease in Annual Required (Employer) Contributions Pension$111,000,000$16,700,000 Health Care$231,000,000$20,700,000 Total$342,000,000$37,400,000 16

17. Financial Impact of Actuarial Assumption Changes Pension Plan Before Assumption Changes After Assumption Changes Accrued Liability$2,086,000,000$2,131,000,000 Actuarial Value of Assets$1,566,000,000 Unfunded Accured Liability $520,000,000$565,000,000 Funded Percentage75.1%73.5% 17

18. Financial Impact of Actuarial Assumption Changes Health Care Plan Before Assumption Changes After Assumption Changes Accrued Liability$657,000,000 Actuarial Value of Assets$726,000,000 Unfunded Accrued Liability $(69,000,000) Funded Percentage110.6%100.6% 18

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. 19

20. Pension Changes (Cont.) Link COLA to index and lower maximum rate Moderate pre and post retirement death benefits Increase number of years for average salary calculation Increase retirement age and service requirements Lower rates of pension accrual Change COLA from compound to simple interest 20

21. 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. Pension Changes (Cont.) 21

22. 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. Pension Changes (Cont.) 22

23. 23 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 Normal Retirement Age and Service Rules Prior Rules 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 New Rules 23

24. 24 Early Retirement 15 years of service, age 57 Actuarial reduction applies Early Retirement Age and Service Rules Prior Rules 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 New Rules 24

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. Pre & Post Retirement Death Benefit Changes 25

26. Solvency Projections (Pension) 26

27. Solvency Projections (Pension) 27

28. Contribution Projections (Pension) 28

29. Contribution Projections (Pension) 29

30. Solvency Projections (Pension) 30

31. Retiree Health Care Changes Move all retirees to 80/20 PPO, the same as the active plan Dental and Vision benefits to be entirely retiree funded Eliminate the Medicare Part B subsidy for retirees Eliminate the Medicare Part B subsidy for spouses 31

32. 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. Retiree Health Care Changes (Cont.) 32

33. Solvency Projections (Health Care) 33

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. 34

35. APPENDIX 35

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38. 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% 38 Allocation of Contributions by City Groups

39. 39 Comparison of CRS, OPERS and STRS

40. 40