Pass: 62256 / 73.59% Yes votes ...... 22346 / 26.41% No votes

See Also: Index of all Measures

Summary Prepared by 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

The Oakland Municipal Employees Retirement System

The Proposed City Charter Amendment

Fiscal Impact from Macias Gini & O'Connell LLP:

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.

Impartial Analysis from 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 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

• Link to printed Pros & Cons of this measure, see pp. 8-9
• Link to Oakland Easy Voter Guide, See page 12

East Bay Express

• The Push for Oakland's Progressive Ballot Measures - 10/8/2014