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Oalkand Municipal Employees Retirement System
City of Oakland
Majority Approval Required
Pass: 62256 / 73.59% Yes votes ...... 22346 / 26.41% No votes
Index of all Measures
|Results as of Dec 28 11:38am, 100.00% of Precincts Reporting (275/275)|
|Information shown below: Summary | Fiscal Impact | Impartial Analysis | Arguments | Full Text|
Shall the Charter of the City of Oakland be amended to authorize the City Council to adopt an ordinance by a 4/5 vote, that would eliminate the costs of administering the Oakland Municipal Employees' Retirement System ("OMERS") by purchasing annuities to pay all retirement benefits due to OMERS retirees and beneficiaries, provided the City holds all remaining OMERS assets in a trust for the benefit of retirees and beneficiaries until all benefits have been paid?
Measure to Amend the City Charter to Authorize the City Council to Eliminate the Costs of Administering the Oakland Municipal Employees' Retirement System ("OMERS") by Purchasing Annuities to Pay All Retirement Benefits Due to OMERS Retirees and BeneficiariesThis measure would give the City Council the authority to terminate and wind up the Oakland Municipal Retirement System ("OMERS") by purchasing annuities for the remaining OMERS retirees and beneficiaries.
The Oakland Municipal Employees Retirement SystemOMERS is a pension plan that was established by Oakland Charter Article XX in 1939 to provide defined retirement benefits to non-sworn City employees and their beneficiaries. Non-sworn employees include all City employees except police officers and firefighters (sworn personnel). In 1970 OMERS was closed to new members. The City contracted with California Public Employees' retirement system (CalPERS) to provide retirement benefits for all non-sworn employees who were hired after OMERS was closed to new members. OMERS members were given the option to transfer to CalPERS. OMERS continues to provide retirement benefits to members, who did not transfer to CalPERS, and their beneficiaries. In August 2014 OMERS had 22 retirees and beneficiaries, with an average age of 90 years. A seven-member Board of Administration ("Board") oversees the OMERS retirement fund and the payment of retirement benefits to the remaining retirees and beneficiaries.
The Proposed City Charter AmendmentIf the voters approve this measure, the City Council will have the ability to wind up and terminate OMERS by purchasing annuities for the surviving retirees and beneficiaries from an annuity provider. The annuity provider then would be responsible for paying each retiree and beneficiary the retirement benefits that OMERS provides. The City would purchase the annuities with existing OMERS funds. After purchasing the annuities, the City would hold in trust any money remaining in the fund until the last retiree and beneficiary die. OMERS would be terminated after the annuity provider takes over the payment of benefits.
The OMERS pension plan is governed by a seven member Board of Administration (Board) that serves without compensation. The Board is recommending conversion of the OMERS pension plan into a group annuity because it appears to be the most practical and cost efficient way to wind down the plan. Many of the costs associated with City administration of the plan can increase in the future while the beneficiary population continues to decline. Converting the plan to an annuity would eliminate the need for the Board, and the costs associated with City staff salaries and benefits, actuarial services, audit services, trust fund custodians, investment managers, and investment consultants.
If the measure is approved, the Board intends to purchase a single premium group annuity from an "A" rated insurance company that will provide the same benefits, rights, and features to retirees and beneficiaries, as provided under OMERS. While the most current estimate to purchase the group annuity is $1.9 million, the actual cost will depend on the number of retirees and beneficiaries at the time of purchase and on prevailing market conditions.
After purchasing the group annuity, the City will remain the ultimate guarantor of benefits payments in the unlikely event the selected insurance company becomes insolvent. The excess pension funds remaining after the purchase will be held in a temporarily restricted reserve fund for unanticipated expenses and to protect against insurer insolvency. Then, after the final payment of benefits has been made, the reserved funds would revert to the City.
OMERS is a tax-qualified pension plan under the federal Employee Retirement Income Security Act of 1974 ("ERISA"). It must comply with California public pension laws, including provisions in the California Constitution pertaining to public retirement systems. Those laws require that a Board administer public retirement systems. Applicable federal and state pension laws provide that a qualified retirement system, such as OMERS, can be terminated by purchasing an annuity contract with a qualified insurance provider; each retiree or beneficiary receives an Individual annuity. The annuity provider must guarantee and administer the individual annuities and provide for the full payment of all accrued benefits.
This measure would authorize the City Council to pass a resolution, by a four-fifths vote, to terminate OMERS by purchasing annuities. The OMERS Board would select an annuity provider and use OMERS funds to purchase the annuities. The Board would have the legal duty to choose a highly rated annuity provider because the OMERS Board owes a fiduciary duty to retirees and beneficiaries under the California Constitution, Article XVI, Section 17. This existing legal duty is reiterated in the measure. After the annuities are purchased, the Board would be dissolved and OMERS would be terminated.
The City of Oakland is currently the ultimate guarantor of OMERS retiree and beneficiary payments; this duty would not change even if OMERS is terminated. Under California public pension law, OMERS retirees and beneficiaries have vested rights to their pensions. This means that even if the City purchases annuities and OMERS is terminated, the City of Oakland would continue to be the ultimate guarantor of all retiree and beneficiary payments and would be required to fund all unpaid accrued benefits.
Therefore, the City of Oakland will be responsible for making any remaining payments in the event that the annuity provider has insufficient funds to pay all retiree and beneficiary benefits, due to insolvency or other reasons. In accordance with the City's duty, the measure provides that the City will hold in a trust account any OMERS funds in excess of the amount needed to purchase the annuities until the last retiree and beneficiary die. Once the last accrued benefit had been paid, the measure provides that any remaining, surplus funds would belong to the City for its use for any public purpose; this is permitted by IRS Regulation sec. 1.401-2(b)(1).
This measure was placed on the ballot by the Oakland City Council. Approval of this measure requires an affirmative vote by the majority of the voters who cast ballots.
League of Women Voters
East Bay Express
|Arguments For Measure EE||Arguments Against Measure EE|
|The 'Oakland Municipal Employees' Retirement System (OMERS) is a retirement pension plan that provides retirement payments to non-sworn Oakland employees. OMERS' retirement plan was established by the Oakland City Charter in 1939 and was closed to new members in 1970. The Systems is governed by a seven member Board of Retirees and appointees.
OMERS has 22 members with the average age of 91 years old. Based on most recent actuarial valuation, dated July 1, 2012, OMERS is over funded with assets of$4,448,000 and a funded ratio of 122.5%.
With only 22 members, the annual administrative costs have become disproportionate relative to the cost of annual pension payments. Many of the administrative costs are mandated by the Charter. With an annuity Contract, the administrative functions would transfer to the annuity provider, thus eliminating the City's administrative costs.
After extensive analysis by staff, legal counsel, actuary and consultants, the OMERS Board concluded that substantial costs can be saved by using a portion of the trust fund (approximately $1.9m of the $4.8m in assets) to purchase a group annuity contract. The excess funds of approximately $2.9m will be put in a trust fund for any unanticipated expenditures and to protect against insurer insolvency.
Transitioning to an annuity will not impact the amount of the existing OMERS pensions. Retirees will continue to receive all of their current pension provisions, including future Cost of Living Adjustments. Furthermore, the proposed Charter change would not remove the City of Oakland as the ultimate guarantor of the retiree payments. The proposed Charter change would eliminate the City's administration costs, while protecting the retirees from any possible insurance company insolvency.
s/ William C. Russell President, Oakland Municipal Employees' Retirement System
s/ Katano Kasaine Plan Administrator
No arguments against Measure EE were submitted.
|Full Text of Measure EE|
Termination and Winding Up of Retirement System
Section 2017. Notwithstanding any contrary provision herein, the Council may by an ordinance adopted by four-fifths of the Council terminate the Retirement System and in connection therewith direct the Retirement Board to wind-up said Retirement System by performing the following actions:
(a) Purchase life annuities for retired members, former members or other persons currently receiving Benefits under the Retirement System through a reputable and stable annuity provider provided that such annuities provide payments that are equal to the Benefits due under the Retirement System;
Notification of Termination and Winding UpSection 2018. The City must give notice, or cause notice to be given, of its intention to terminate and wind up the Retirement System, in writing, to the following:
(a) Each retired member and former member; orThe notice required under subsection (1) must give the effective date of termination and start of the winding up process, explain the manner in which Benefits will continue to be provided, and be given at least 60 days before the effective date of the ordinance terminating the Retirement System.
Reversion of AssetsSection 2019. Notwithstanding any contrary provision herein, in the event the Retirement System is terminated pursuant to Section 2017 herein, none of the assets of the Retirement System shall revert to the benefit of the City until provision has been made for the funding or purchase of Benefits accrued but unpaid under the Retirement System. Any remaining surplus shall revert to the City provided that such surplus shall be held in a reserve account with the necessary restrictions to ensure that the assets thereof shall not be used by the City, other than to satisfy any liabilities of the Retirement System which are not fulfilled by the selected annuity provider, until such time as the last retired member, former member or beneficiary thereof dies. For this purpose, the term "surplus" shall mean the assets of the Retirement System remaining after satisfaction of all liabilities.
Effect of Termination and Winding UpSection 2020. If the Council adopts an ordinance to terminate and wind up the Retirement System, the Retirement System shall continue to be subject to the requirements of this Article XX and Ordinance 713, as amended, until all the assets of the Retirement System have been disbursed. Once the assets have been disbursed, the Retirement System shall terminate and the Retirement Board shall be dissolved." ;and be it