City of Oakland Municipal Retirement System Termination, Measure EE (November 2014)

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A City of Oakland Municipal Retirement System Termination, Measure EE ballot question was on the November 4, 2014 election ballot for voters in the city of Oakland in Alameda County, California. It was approved.

Measure EE authorized the city council to approve, given a 4/5 majority vote of council members, the elimination of the Oakland Municipal Employee's Retirement System (OMERS). The city would, under these circumstances, be responsible for purchasing annuities from a top-rated insurance company to continue paying the same retirement benefits to the remaining retirees in the OMERS system.

The Oakland Municipal Employees Retirement System (OMERS) fund was created in 1939 to provide retirement benefits to non-public safety city employees. In 1970, the fund was made unavailable for new hires, as the city chose to contract with CalPERS for its retirement system. As of June 2014, the fund was fully funded and provided benefits to 22 remaining retirees and beneficiaries, which had an average age of 91 years old. The plan had total assets equaling $4.8 million.

The system's seven-member board recommended that the city terminate OMERS by contracting with a private insurance company. The board's actuary estimated that to wind down the OMERS system would cost about $2.8 million, including payment of remaining retirement benefits and administration costs. It was estimated, on the other hand, that the city could purchase a group annuity from a top-rated private insurance company to pay the same retirement benefits to the same retirees for about $1.9 million. This would mean that the city would receive back from the system about $2.9 million once the fund was closed, rather than just $2 million if the fund continued to operate under OMERS, saving the city about $900,000.

Election results

Measure EE
Result		Votes	Percentage
a Yes		62,256	73.59%
No		22,346	26.41%

Election results via: Alameda County Elections Office

Text of measure

Ballot question

The question on the ballot:

“

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?

”

Ballot title

The following ballot title was provided for Measure EE by the city attorney:

“

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 BENEFICIARIES

”

Ballot summary

The following ballot summary was provided for Measure EE by the city attorney:

“	This 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 System OMERS 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 Amendment If 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.	”
—Barbara J. Parker, Oakland City Attorney

 

Full text

The full text of Measure EE is available here.

Reports and analyses

Impartial analysis

The following impartial legal analysis of Measure EE was provided by the city attorney:

“	Article XX of the City Charter and City Ordinance 713 together establish the rules and guidelines for the maintenance and operation of the Oakland Municipal Employees Retirement System ("OMERS") fund and payment of benefits. OMERS is governed by a seven-member Board of Administration ("Board"). The Board administers a fund of approximately $4.5 million in trust assets. Administrative support is provided by City staff and various consultants who provide advice regarding the investment of OMERS retirement funds. 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 § 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.	”
—Barbara J. Parker, Oakland City Attorney

Financial analysis

The following impartial financial analysis of Measure EE was produced by an independent accountant:

“	Should the proposed measure be approved, it would in and of itself, have no financial impact on the cost  of City government. However, the pension plan is winding down operations and the conversion of this  City administered plan to a group annuity administered by a private sector insurance company could  increase the amount of funds that eventually reverts to the City after all benefits due retirees and  beneficiaries are paid. The Oakland Municipal Employees Retirement System (OMERS) is a fully funded  pension plan that, as of June 2014, was providing pension benefits to 22 retirees and beneficiaries with  an average age of ninety‐one years old. At the end of June 2014, the plan had cash and investments  totaling about $4.8 million. The Plan actuary estimated the cost to wind down the plan under City  administration would be $2.8 million versus about $1.9 million under a group annuity policy.    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.	”
—Macias Gini & O'Connell LLP

   

See also

• Local pensions on the ballot
• Alameda County, California ballot measures
• November 4, 2014 ballot measures in California

External links

Suggest a link

• Alameda County Elections Office website