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The Ohio Patrolmen's Benevolent Association (O.P.B.A)

Taking Full Advantage of Your Available Pension Benefits

As many of you are aware, while you work as a police officer in your city, at the end of your career you are entitled to benefits through the Ohio Police & Fire Pension Fund.  Most officers and fireman are aware of the basic benefits but many don’t know how to take advantage of the great pension system we have.

Minimum benefits start at 25 years of service.  Whether you fall under the old benefit structure of your three years highest average (benchmarked) or your highest five years average it is important to know the difference in working beyond 25 years.  After 25 years of working, should you decide to work beyond that date you will receive a multiplier of 1.5% per year of your average annual salary to a maximum amount of 72% after 33 years of service.

After 25 years of service, you also have the option of entering the deferred retirement option program (you must meet age requirements of 48 under the old system or 52 under the new system).  The deferred retirement option program allows you to freeze your benefits and have those benefits deposited into a tax deferred account upon entering into a service retirement (maximum eight years).

To maximize the benefit, if you were to work until you received the maximum of 72% and enter the deferred retirement option program completing it until the maximum of eight years you would be entitled to a very optimal retirement program.  Purchasing of prior service also counts toward the years of service you work.  You are also entitled to receive benefits that are any combination of 25 plus years of service and the minimum required time in the deferred retirement option program (minimum 5 years to collect interest).

These are only a portion of the benefits available that most members are aware of.  You are also entitled to participate in a deferred compensation program.  The most popular program is the Ohio Deferred Compensation Program.  You can contribute a maximum of $17,500 for 2014.  If you were able to contribute just a small amount per day throughout your career and balanced a portfolio along the way, you would have a nice little savings account upon your retirement.  Should a deferred compensation program not be of your liking you can contribute to an Individual Retirement Account (Roth or Traditional) which contribution limits of $6,500 for 2014.

Currently the Ohio Police & Fire Pension Fund also offers health care benefits at competitive rates for the member (spouse and children make the cost a lot higher).  OP&F covers 75% of the benefit cost for the participant.  The fund also offers prescription, dental and vision coverage.

I encourage everyone to revisit the benefits you have available to you and to take advantage of the full complement of options.  Please visit www.op-f.org to review the retirement benefits you have available to you.  You can download or request the service retirement brochure which explains your benefits in greater detail.

Scott Huff, Trustee

Ohio Police & Fire Pension Fund

 

The Changing Real Estate and Interest Rate Environment

Interest rates have been at historic lows but have since started to rise in 2013. However, it still may make sense to act quickly before they continue to escalate.  Real estate prices have started to reverse their steep decline and long slump; so if you are thinking about selling, buying, or refinancing, now might be a good time to be aware of your options.

According to the S&P 500/Case Shiller Home Price Index, home prices nationally have risen at their fastest annual rate in seven years, with some markets seeing double-digit price gains as buyers compete in a market with dwindling inventory of properties. Many areas of the country, including some vacation-home markets, are recovering at a slower pace; and the choices for buyers remain plentiful. Not only have prices started to turn, mortgage rates have started to increase.  Average U.S. rates on fixed mortgages jumped in late May to their highest levels in a year, signaling slightly higher costs for homebuyers and fueling buying demand, according to the Mortgage Bankers Association. But rates still remain low by historical standards.

Due to the real estate crisis and the lack of any recovery, many potential sellers have been on the sidelines, not wanting to sell at depressed prices. Buyers have also been on the sidelines, waiting for prices to fall further, and for interest rates to drop. Sales activity is increasing due to a combination of increasing rates and rising prices and/or if there is an uptick in mortgage rates. If you have been on the sidelines, either as a seller or a buyer, be aware of the changes in the market. You're never going to time the market exactly right. What you want to see in front of you is that prices are starting to appreciate, which is where we are today.

If you are considering tapping into some of your savings to pay down your mortgage debt, make sure you keep in mind the following things.  Mortgage rates could be higher or lower in the future, as could savings rates, and your mortgage interest may be tax deductible, potentially lowering your after-tax effective rate. Don’t use too much debt, but don’t use too much of your liquid emergency fund either. Just like most things in life, the proper balance is important.

Another way to potentially take advantage of the low interest rate environment is to consolidate and refinance higher interest debt.  During these tough economic times, many people have had to resort to racking up expenses and bills on high-interest credit cards.  If you are only able to make the minimum payments on these cards, it may take an extremely long time to pay them off and your interest charges could well exceed the original expenses.

Police Officers and Firefighters may also have another alternative.  Some 457 deferred compensation plans allow for an emergency loan feature, where you can borrow some of your funds to help you out of your current situation.  This is not treated as a distribution, it is a loan because you are promising to pay it back at a reasonable rate of interest.  This is not a cure-all solution, and you want to make sure it makes sense for your personal situation before dipping into your retirement savings.  Not all plans allow for this, and there are restrictions and guidelines that must be followed.  At Lineweaver Financial Group, we currently work with several cities; and our deferred compensation plans do allow this loan feature.  If it’s something that you feel could help your current situation, let us know and we’d be happy to discuss your options.

While low interest rates can have a negative impact on your savings and checking accounts, you can still take advantage of them with your personal and household debts.  As the real estate and interest rate environment continues to change, your choices and opportunities to take advantage of the current situation could also be modified. Make sure you consult a professional before making any big decisions.  If you have further questions, feel free to give us a call.

Lineweaver Financial Group s 9035 Sweet Valley Drive s Valley View, OH 44125 s 216.520.1711

Securities offered through Sigma Financial Corporation. Member FINRA/SIPC

Lineweaver Financial Group is independently owned and operated.

Investment advisory services are offered through Sigma Planning Corporation, a registered investment advisor.

 

 

 

How to make the Employee premium contribution for health insurance benefits: “Very fair and very balanced”

With the Affordable Care Act (Obama Care) coming into our lives, perhaps Governor Kasich’s opinion about the government employees’ share of health of care cost not being “fair” was right. (Did I really just write that?).

During the Senate Bill 5/Issue 2 fiasco, in an interview at the Fox Toledo studios, the Governor said about health care:

“What we are asking government workers to do is to help share in the solution here and we’re asking them to pay 15% for their health care…”. (Open the attached YouTube site and listen @ 24 seconds http://www.youtube.com/watch?v=X6TxuiXHz_o)

During the same interview he justifies his idea of employees paying 15% by saying:

“So, I think it’s very reasonable and very balanced”. (YouTube above @ 56 seconds).

During this interview, and in many other interviews and commercials, the Governor used the phrase “it is only fair”. Well Governor Kasich, you got my attention.  First of all, there is a need for change.  There is also a need to re-examine the way health care costs are shared by the government employees.  Of course, this change may not be acceptable to many employees, but it will definitely make the higher paid employees reevaluate the Governor’s take on fairness.

Using the City of Cleveland as an example, I think it is only fair that employees of the City pay their fair share of taxes, whether that employees is earning $35,000.00 per year or $150,000.00 per year.

  • Each employee pays 2% of their wages in city income tax:  That is fair.
  • Each employee pays 10% of their wages to PERS or a little more to Police and Fire and PERS-LE. That is fair.
  • Each employee pays 1.45% of their wages for Medicare. That is fair.
  • Each employee pays 3% of their wages for Ohio income tax. That is fair.
  • Each pays 12% of their wages in Federal withholding. That is fair.

*(State income tax and Federal withholding may vary, but similarly situated people are paying the same).

Additionally, consumers in Cuyahoga County pay the same rate of sales tax. A person buying a Rolls Royce will pay much more in sales tax than another person buying a Chevy Cruze.  However, the tax rate is equal, so it is fair.

The same holds true in property tax rates.  For example, I looked at the Kent school system tax millage of 102.73.  As you know, the vast majority of property tax is for the school millage.

The owner of one house in the Kent school system, valued at $315,000.00, paid $4,622.00 in property tax.   The owner of another house in the same school district, valued at $130,000.00 paid $2,554.00 in property tax.  Needless to say, the family in the mobile home park down the road paid even less.  However, all are paying towards the schools and regardless of the value of your house, or the number of children you have in the school system, if any, the formula is equal and therefore; that is fair.

In fact, if you do not want to pay the above property tax rate, move from Kent to the next town over, Ravenna.  The Ravenna school millage is only 66.22.

With the Governor’s quest for fairness in mind, I went to the websites http://buckeyeinstitute.org/state-salary and http://buckeyeinstitute.org/local-salary .  Many of you are aware this is the location where you can find out the pay of “some” public employees.  The salaries posted are total compensation, including bonus and overtime.

I first looked at the local level salary site. I obtained information as to how many employees fell into a particular pay range in the City of Cleveland during the year 2010. (Most recent data available).  Keep in mind, I am not comparing the pay people receive, just how much they pay towards their health care.

Below are the pay ranges and how many employees fell into each range.

PAY RANGE NUMBER OF EMPLOYEES IN RANGE

$25,000.00 - $30,000.00                                  382

$30,000.00 - $40,000.00                                  1522

$40,000.00 - $50,000.00                                  1616

$50,000.00 - $60,000.00                                  1327

$60,000.00 - $70,000.00                                  1243

$70,000.00 - $80,000.00                                  594

$80,000.00 - $90,000.00                                  311

$90,000.00 - $100,000.00                                157

$100,000.00 -$100,000.00 PLUS                     129

The next step in this equation is that the City of Cleveland offers their full-time employees, regardless of position held or rate of pay, six (6) choices for health care.  The monthly contribution per plan is as follows:

Individual Family

Coverage Coverage

Monthly cost Monthly cost

MMO Plus                           $52.50                                   $105.00

HMO Health Ohio                $62.50                                   $125.00

Kaiser                                $67.50                                   $135.00

Next, I took the medium pay  of each earnings group. The lowest paid group, $25,000 - $30,000 has a medium of $27,500.00 and the second highest range of $90,000.00 - $100,000.00 is $95,000.00.

I then found the percentage of the employees’ annual income each group was paying for medical insurance. With the monthly premium selection outlined above, the percentage of the annual income of an employee in the $27,500.00 range would pay per year is:

Single Rate % of Employee’s Family Rate % of Employee’s

Per month Annual Income Per month Annual income

MMO Plus                               $52.50                   2.26% $105.00 4.58%

HMO Health Ohio                    $62.50                   2.72% $125.00 5.45%

Kaiser                                   $67.50                    2.95% $135.00 5.89%

Again, from the table of monthly heath care contribution, employees in the $55,000.00 range paid as follows:

% of Employee’s % of Employee’s

Single Rate Annual income Family rate annual income

Monthly for health care Monthly for health care.

As you can see, the lowest paid employees paid twice as much of their annual income for health care as the group of employees earning twice as much per year.

The employees that are making $105,000.00 paid the following percentage of their annual income for health care.

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly for health care Monthly for health care

MMO Plus                           $52.50                   .59% $105.00             1.20%

HMO Health Ohio                $62.50                   .71% $125.00             1.43%

Kaiser                                $67.50                   .77% $135.00             1.54%

The lowest paid group paid three (3) times as much of their annual salary as a person earning $105,000.00 did.


Mayor Jackson earns $132,000.00 per year and pays the following:

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly for health care Monthly for health care

MMO Plus                           $52.50                   .47% $105.00 .95%

HMO Health Ohio                $62.50                   .56% $125.00 1.13%

Kaiser                                $67.50                   .61% $135.00 1.22%


Finally, Mr. Ricky Smith, the City of Cleveland’s Director of the Port Control earned $208,000.00.  His percentage of annual earnings for health care is:

% of employee’s % of Employee’s

Single Rate annual income Family Rate annual income

Monthly          for health care Monthly for health care

MMO Plus                           $52.50                   .30% $105.00 .60%

HMO Health Ohio                $62.50                   .36% $125.00 .72%

Kaiser                               $67.50                    .39% $135.00 .77%

Clearly, when looking at the percentage of annual earnings paid towards health care, fairness does not exist. Would the Governor feel each group paying the same percentage of their annual income towards health care as the lowest paid group would be fair?  If so, this is a sample of what the monthly premium would be if paid at the same annual percentage:


Annual wage          $27,000.00 Vs.  $55,000.00 $27,500.00 Vs.        $55,000.00

Single Single Family Family

Monthly Monthly Monthly Monthly

MMO Plus                $52.50                      $103.58                                 $105.00                       $209.91

HMO Health Ohio      $62.50                     $124.66                                  $125.00                       $249.79

Kaiser                     $67.50                      $135.00                                  $135.00                      $269.96


How about the employee making $105,000.00?

Single Single Family Family

Monthly Monthly Monthly Monthly

Annual wage $27,000.00 Vs.  $105,000.00 $27,500 Vs.          $105,000.00

MMO Plus                 $52.50                    $197.75                                  $105.00                        $400.75

HMO Health Ohio      $62.50                     $238.00                                 $125.00                        $476.87

Kaiser                      $67.50                    $258.12                                  $135.00                        $515.37


How about Director Smith?

Single Single Family Family

Monthly Monthly Monthly Monthly

Annual wage $27,000.00 Vs.  $208,000.00 $27,500 Vs.       $208,000.00

MMO Plus                $52.50                   $392.74                                 $105.00                         $795.91

HMO Health Ohio     $62.50                   $472.00                                 $125.00                         $947.00        

Kaiser                     $67.50                   $512.65                                $135.00                          $1,023.55


I cannot believe this, but I not only find myself agreeing with Governor Kasich, but I also agree with the Americans for Tax Reform (and other conservative groups) that the ACA is a tax.

Governor Kasich was looking for the government workers to help find the solution in making premium payments fair. Well, obviously HEALTH CARE CONTRIBUTIONS SHOULD BE TREATED THE SAME WAY AS A TAX, BY A PERCENTAGE OF INCOME.

The great news is that everyone does not have to pay 5.89% of their annual income for the highest cost health package.  Actually, they can pay less than 3.3%.

In 2010, if all 7,561 employees listed on the Buckeye Institutes’ site paid the current rate for the Kaiser family coverage at $135.00 per month, the City would collect $12,248,820.00 dollars in 2010.    Of course the City did not collect nearly this amount because many employees are single or chose a lower cost plan.

However, if all 7,561 employees actually paid 3% of their pay towards health care in 2010, the City would have collected over $12,000,000.00.  On the other hand, if all employees paid 5.89% of their annual earning, like the people in the $27,500.00 range did, then the City would have collected over

$23,350,000.00. Please remember that the highest wage I used was $105,000.00 and there were 129 employees who earned more than $105,000.00 in 2010.

If health care is a tax, and I am prone to believe it is, then health care premium deductions should be based on a percentage of earnings just like:

PERS                                      10%

Medicare                                 1.45%

City income tax:                      2%

State income tax:                    3%

Health care insurance:              ?%   Well, I’m not sure, but whatever percentage it is, it would be more fair than it is now.

The government entities know how much money they receive in insurance contributions each year.  Therefore, they should have a pretty good idea of how much they should expect year to year.  I’m clearly not an accountant nor a mathematician, however, with the current computer programs and in the hands of a professional accountant, I’d bet my life that Cleveland could meet their needs for employee contributions and still charge the employees less than 5.89% of the employees annual wages.  Actually, I suspect 2.5% would cover the tab.

Let’s be fair.

 

Contract Interpretation: What Do The Words Of A Contract Mean And How Do We Determine That Meaning?

Contracts govern many relationships in our lives.  Our relationships with banks, with businesses, with cellular phone service providers, with utility companies, and with each other are often based on contracts.  We rely on the sanctity of contract performance to insure the good order of society.  The Roman Law maxim pacta sunt servanda (agreements are to be kept) reflects this characteristic in human nature.  The concept of an enforceable contractual relationship is particularly important for those public employees whose employment relationship is governed by a labor contract.

WHAT IS A CONTRACT

Before delving into the intricacies of interpreting labor contracts, one should understand what a contract is, as a legal term of art.  On its most basic level, a contract is formed when:

1)      One party to that potential contract makes an offer;

2)      The other party accepts that offer; and

3)      There exists “consideration,” or a bargained for exchange of value related to the underlying offer and acceptance.[1] 

One court deftly described the peculiar nature of what a contract actually is:

Unfortunately, contracts, like most of the basic terms constituting the intellectual tools of law, is conventionally defined in a circular fashion.  By the most common definition, a contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law recognizes as a duty.  This amounts to saying that a contract is a legally enforceable promise.  But a promise is legally enforceable only if it is a contract.  Thus nothing less than the whole body of applicable precedents suffices to define the term ‘contract.’[2]

HOW TO INTERPRET COLLECTIVE BARGAINING AGREEMENTS

A collective labor contract or collective bargaining agreement (“CBA”) is a contract vehicle, born out of statute, which provides an individual with greater bargaining power than if he or she were to bargain with the employer alone.  Since these CBA’s govern the employment relationship between an employer and perhaps dozens or hundreds of its employees, it is important to take great care in making the final contract product as clear and unambiguous as possible.

However, we all know that, as much as the parties may strive to eliminate ambiguity, there is always more than one way to read a given section in a CBA.  “The language of mathematics is precise.  The English language is not.”[3] It is entirely possible that three experienced, respected labor arbitrators could read the same CBA section and render three different results.

So how does one know what the correct, legally enforceable interpretation of a particular CBA provision is?  Unfortunately, there is no mathematically precise way of knowing.  Disputes often occur because the parties to a CBA have legitimate differences of interpretation.  While one cannot predict with certainty the outcome of a dispute of contract interpretation prior to litigation, it is helpful to understand some concepts and theories which arbitrators use as factors in their decision making process.

  1. A. THE OBJECTIVE THEORY

The objective theory of contract interpretation holds that the meaning of an ambiguous contract term is that which would be attached by a reasonably intelligent person who is acquainted with the operative usages, and knows the circumstances prior to and contemporaneous with the making of the contract.

The legendary judge and judicial philosopher Learned Hand captured the objective theory of contract interpretation in Hotchkiss v. National City Bank, 200 F. 287 (S.D.N.Y. 1911):

A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties.  A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.

In other words, under the objective theory, a judge or arbitrator would essentially insert the intent of the parties based on the usual and customary uses of the words contained within the contract itself.  The parties’ own meaning and intent is not relevant; rather, the words are enforced in accordance with the way in which an ordinary reasonable person would understand and enforce them.

  1. B. TOTALITY OF THE CONTRACT

The American Law Institute’s influential legal treatise Restatement (Second) of Contracts offers us further guidance as to how contract language is to be read and interpreted in context.

§ 202.         Rules in Aid of Interpretation

(1)   Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.

(2)   A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.[4]

Essentially, adherents to this Restatement view of contract interpretation would read a contract as a whole.  Conflicting provisions within the same document must be reconciled and respective contract provisions must be weighed appropriately.

For example, a CBA has one provision which requires shift bidding by seniority.  That same CBA has another provision which infers that it is a management right to determine when, or even if, that shift bidding process ever takes place.  Under the Restatement view, those incompatible provisions must be reconciled in light of the totality of the circumstances.  The union’s position would be that it is incongruous to believe that the parties intended to include shift bidding by seniority language in the CBA, yet allowed for a mechanism which would prevent the implementation of that shift bidding process.

  1. C. EXTRINSIC EVIDENCE TO CLARIFY THE MEANING

In the realm of labor arbitration, parties often raise or attempt to raise evidence as to the intent of the parties when litigating a contract interpretation case.  This extrinsic evidence is that which is not expressly contained within the “four corners” of the CBA, but which may help a neutral arbitrator understand why the CBA says what it says.

Parties may wish to cite the bargaining history of the parties as evidence.  In such an instance, first-hand participants in the bargaining process would be necessary witnesses to advance a party’s interpretation of the bargaining process and that which was born of it.  The contemporaneous notes or minutes of a past bargaining session might also prove valuable.  Keep in mind that the parties may have discussed the disputed language at length, but made a conscious decision not to alter it in an effort to secure agreement on a total agreement.  Often, sources of annoyance and discord between the parties will ultimately be glossed over at the bargaining table in favor of dealing with the greater issues of compensation and health insurance.

A party may also argue that a past practice controls a situation.  Past practice is also a legal term of art.  In order to be considered an enforceable past practice, “a practice must be perfectly clear and unequivocal, consistently followed with frequent repetition over a long period of time so that it is inferable that both parties had accepted the practice as part of their collective bargaining agreement.”[5] It may very well be that, by virtue of a clearly-established past practice, the parties themselves understood a contract provision in a certain way.  Thus, an arbitrator should enforce that long-held understanding.

Ultimately, as the old saying goes, there is more than one way to skin a cat.  There is more than one way to interpret a contract.  The best way to insure a lack of ambiguity is to be clear and precise during the process of contract formation, if that is possible under the bargaining circumstances.  If you have questions of contract interpretation, the first step is consulting with your OPBA representative to help assess the situation.



[1] Restatement (Second) of Contracts (1)  To constitute consideration, a performance or a return promise must be bargained for.  (2)  A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.  (3)  The performance may consist of (a) an act other than a promise, (b) a forebearance, or (c) the creation, modification, or destruction of a legal relation.

[2] Loevinger, J. in Baeh v. Penn-O-Tex Oil Corporation, 258 Minn. 533, 537-39, 104 N.W.2d 661, 664-66 (1960).

[3] Elkouri & Elkouri, “How Arbitration Works,” 6th ed., (Alan Miles Ruben, Editor-In-Chief, 2003) at 441.

[4] Restatement (Second) of Contracts § 202 (1981).

[5] Elkouri, supra, at 608-609.