CHICAGO — Cincinnati reached a pension agreement with its employees in an effort to resolve a festering problem that has sparked downgrades and an extended court fight.
As part of the deal, the city will be allowed to dip into its retiree health care benefits fund to transfer $200 million to the pension fund.
The deal was hammered out in federal court and, once signed by the parties, will be a binding and enforceable consent agreement, meaning the city will not be able to reduce future contributions during the next 30 years.
Mayor John Cranley called it a "historic deal" that will "secure the city's financial house."
"It will guarantee that the pension will be there for current workers, future workers and today's retirees," Cranley said Tuesday night in a press conference announcing the deal. "There is a lot of sacrifice that people have made for the greater good."
Cincinnati's unfunded pension liability totals roughly $862 million, with a funded ratio of 61%. The settlement aims for a fully funded pension plan in 30 years.
The deal calls for the $200 million transfer from the retiree health care fund in 2016 into the pension fund. The city will make a one-time contribution of $38 million in 2015 and will increase its contributions starting in 2016 to total 16.25% of the annual operating budget — compared to 14% now — over the next 30 years.
Employees agreed to suspend cost-of-living increases for three years and then transfer the COLA increases to a simple interest structure from a compounded interest structure.
"We're elated," the president of the Cincinnati AFL-CIO told local reporters after the agreement was announced. "We look forward to a workforce that can retire with dignity."
The deal ends 10 months of negotiations in U.S. District Court, where U.S. District Court Judge Michael Barrett helped broker the deal.
Standard & Poor's in March downgraded the Ohio city two notches to AA-minus citing concerns about the high pension debt and other liabilities. Moody's Investors Service in July 2013 downgraded the general obligation bond rating to Aa2 from Aa1, also largely due to the pension debt.
Cranley, a bond attorney who won the office in November 2013, made resolution of the city's pension problem one of his top priorities. A group of retirees had sued the city in federal court in 2013 over the city's proposed pension changes, which included an increased retirement age and cutting COLAs to 2% from 3%.
Cranley proposed that all the retirees be combined into one class action lawsuit and negotiate with the city to create a global consent agreement in federal court.