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  #411  
Old 03-04-2019, 02:51 PM
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"California Rule" - judges don't consider the ability of taxpayers to change their deal.
But the CA Supreme Court has ruled that some extra benefits are not covered, specifically AIR-TIME.
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  #412  
Old 03-04-2019, 03:30 PM
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Interesting re: air time (thank goodness)

I'll find the coverage on that.
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  #413  
Old 03-05-2019, 06:25 AM
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CALIFORNIA

https://www.modbee.com/news/state/ca...226992009.html
Quote:
California public employees’ pension perks can be taken away, court rules

Spoiler:
The California Supreme Court on Monday upheld a pension law that stripped a retirement perk from public employees, issuing a narrow ruling that sidestepped a bigger question about whether employers can reduce pension benefits for current workers.

The court held that the perk at issue in the case was distinct from an employee’s core pension rights, such as the formula used to calculate retirement income, and not protected by the state constitution.

Therefore the benefit could be “altered or eliminated at the discretion of the Legislature,” the court ruled.

The case, Cal Fire Local 2881 vs. CalPERS, was seen as a test of the legal precedents known as the “California Rule” that have prevented government agencies from reducing promised pension benefits for decades.

Both unions and government agencies in court briefs cast the fight as a challenge to the California Rule. Unions argued benefits could not be withdrawn unless workers receive new compensation; government agencies countered that they need flexibility to manage their budgets.

The court stressed that its decision did not address the California Rule. Instead, the court limited its decision to a perquisite known as air time that government agencies offered until 2013.

“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said in the decision.

The case turned on a challenge to former Gov. Jerry Brown’s 2012 pension law. The law, passed in the Great Recession amid concern about mounting pension debts, required public employees hired after Jan. 1, 2013 to kick in more money to fund their pensions. It also capped the amount of money they could earn in retirement.


Aside from those big changes for new employees, Brown’s law sought to rein in pension expenses by eliminating some lesser benefits that had been offered to employees.

One of them was air time, a perk that allowed public employees to buy up to five years of credit that would boost their pensions as if they had worked that time. Cal Fire Local 2881 sued to reinstate the perk for employees hired before Brown’s law took effect, arguing that the right to purchase air time could not be withdrawn without breaking the California Rule.

“We’re disappointed,” said Gregg McLean Adam, an attorney who argued the case for the Cal Fire union. “We felt the benefit we were arguing for was protected under the precedents we had been citing.”

On Monday, a labor-backed group that supported the Cal Fire union in court briefs said it was reassured that the court’s decision did not undo the California Rule.

“There was always some question about whether air time was a vested benefit,” said Ted Toppin, chairman of Californians for Retirement Security. “The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”

Other groups that advocate for reductions in pension benefits also celebrated the ruling.

“The court said that just because you have an expectation doesn’t mean you’re going to get what you expect,” said Dan Pellissier, president of California Pension Reform. “On its face, it was a good decision. It’s probably just a building block on what we hope to get from the other cases.”

California’s largest public pension funds, CalPERS and CalSTRS, each are considered underfunded because their assets are worth about 70 percent of the benefits they owe to workers and retirees.

Brown argued that government agencies must have flexibility to reconsider benefits.

”In order to maintain the defined benefit, there has to be the power of management to make modifications,” he told The Sacramento Bee in December. “If we do it right, people who have a pension and what they’ve earned will never be changed. But you can’t say that five minutes after you sign your employment application, for the next 30 or 35 years that not one benefit can be changed. That’s a one-way ratchet to fiscal oblivion.”

The court in its ruling likened air time to other benefits public employees receive that are not considered core contractual benefits, which would be protected under the constitution.

“In addition to their salary or hourly pay, it is not unusual for public employees to be offered the opportunity to purchase different types of health insurance benefits from a variety of providers; to purchase life and long-term disability insurance; and to create a flexible spending account, by which certain medical and child care expenses can be paid with pre-tax income. We have never suggested that this type of benefit is entitled to protection under the contract clause,” the court wrote.

The Supreme Court could still address in future cases whether the state may alter benefits for current workers. The court is set to schedule oral arguments in an Alameda County case that addresses whether salary adjustments from things like cashing out vacation or sick leave should count as pensionable benefits, said Harvey Leiderman, a Reed Smith attorney representing Alameda County in the case.

“I think that going forward, what this court is going to be looking at very carefully is they recognize pensions have a special place in California law, but they’re not going to just assume that everything that could affect your pension is in fact a pension right,” Leiderman said.

New Gov. Gavin Newsom told at least one union during his campaign last year that he would uphold the California Rule precedent. However, he has a record as a former San Francisco mayor and University of California regent of supporting policies that allow adjustments to pension plans for new employees.


https://www.sanluisobispo.com/news/s...227070889.html

Quote:
California’s Supreme Court upholds pension rollback

Spoiler:
The California Supreme Court on Monday upheld a decision by state lawmakers to roll back one way for public workers to pad their pensions, but avoided ruling on the larger issue of whether retirement benefits can be taken away once promised.

At issue in the unanimous decision was a provision of a 2012 pension reform law that ended the ability of public workers to pay for more years of service for a more lucrative pension when they retire. The law, backed by former Gov. Jerry Brown, sought to rein in costs and end practices viewed as abuses of the system.

Attorneys for a union argued that the elimination of additional retirement service credits violated a long line of California court rulings that have made pension benefits for existing employees sacrosanct. Those court decisions established the "California Rule," which says workers enter a contract with their employer on their first day of work that entitles them to retirement benefits that can never be diminished unless replaced with similar benefits.

Critics of the rule, along with employee unions, were keeping a close eye on the case because it had the potential to upend the California Rule. But the justices sidestepped the issue by ruling that additional retirement service credits were not "core pension rights" that lawmakers were contractually bound to honor.

"In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature" and the court had "no occasion in this decision to address, let alone to alter, the continued application of the California Rule," Chief Justice Tani Cantil-Sakauye wrote in an opinion joined by the six other justices.

A group representing public employee unions downplayed the court's decision to uphold the elimination of retirement service credits.

"The decision was not unexpected," Ted Toppin, chairman of Californians for Retirement Security, said in a statement. The group had filed a brief in the case. "More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired."

The opinion was balanced and showed no inclination on the part of the court to repudiate the California Rule in any future decisions, said Gregg McLean Adam, an attorney for the union representing state firefighters that challenged the elimination of service credits.

"I don't see anything in this decision that suggests that the court wants to make a radical break from the last 70 years of California law," he said.

The California Rule gives workers security that their retirement will be safe and predictable after a career in public service. But it also ties lawmakers' hands in responding to exploding pension costs — a problem for the state, cities, counties, schools, fire districts and other local bodies.

Roughly a dozen states observe a variation of the California Rule, so a decision to alter it could have implications beyond California.

Pension reform advocates blasted the court for failing to address the rule.

"We're disappointed that the liberal California Supreme Court once again is serving as a barrier to common-sense reform of unsustainable and indefensible gold-plated government pension payouts," Carl DeMaio, chairman of Reform California, said in a statement. "These government pension abuses must be reformed or California taxpayers will face a future of higher taxes, fewer services, and bankruptcy in our cities and school districts."

The justices said the ability to purchase additional years of service, unlike traditional pension benefits, was optional and not a form of deferred compensation tied to the amount of a time an employee works. The court equated service credits to other "optional benefits" such as health care and life insurance.

"We have never suggested that this type of benefit is entitled to protection under the contract clause," Cantil-Sakauye said.

The justices are considering several other pension cases, so they may address the California Rule in another case.


https://www.wsj.com/articles/califor...ce-11551730361

Quote:
California Court Approves Retiree Cut but Keeps Larger Worker Protections in Place
Justices didn’t alter longtime rule that has treated government pensions as sacrosanct
Spoiler:
The California Supreme Court affirmed the state's ability to roll back a specific pension benefit but left in place an influential rule offering public workers protection against cuts.

The case was closely watched due to California's outsize influence over how public pension benefits are perceived across the country.

The "California rule" has for decades treated government pensions as sacrosanct. Other states across the U.S. operate under the same rule, making it difficult to impose cuts on existing public workers. Many prior efforts to reduce these benefits have been blocked by courts.

The decision from the California Supreme Court on Monday left that core protection intact. But the court also ruled the state acted lawfully in 2013 when it curtailed the ability of public workers to add more years of service to their employment record by paying a fee -- an "air time" benefit.

"It isn't this big game-changing opinion that a lot of people were hoping for," said University of Minnesota Law School professor Amy B. Monahan.

The case was brought by Cal Fire Local 2881, a union representing state-employed firefighters. The firefighters claimed the new 2013 state law had run afoul of the state constitution, which prohibits state laws from impairing existing contracts. The California Supreme Court allowed the cuts to stand, saying the "air time" benefit didn't amount to a constitutionally protected contract with workers.

California and many states across the U.S. are struggling with large retirement funding deficits due to lengthening lifespans, over-optimistic return assumptions and deep losses during the 2008 recession.

Estimates of that collective gap in the U.S. range from $1.6 trillion to $4 trillion, according to the Boston College Center for Retirement Research and Moody's Investors Service.


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  #414  
Old 03-05-2019, 06:35 AM
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MARYLAND

https://www.mdpolicy.org/library/doc...iabilities.pdf

Quote:
HOW TO REDUCE
MARYLAND’S
PENSION
LIABILITIES
Lessons From the 30-Largest
U.S. Public Pension Funds

OVERVIEW
On June 30, 2017, the 30-largest public pension funds in the United States, with combined assets of
$2.65 trillion, reported a group median funded status of 75.32 percent. At that time, the Maryland State
Retirement and Pension System (MSRPS), the 22nd-largest public pension fund in the country, reported
a funded status of 69.4 percent.
To categorize and compare Maryland’s pension status with similar large public pension funds and
develop policy recommendations to reduce the state’s pension liabilities, the Maryland Public Policy Institute conducted a study of the 30-largest public pension funds in the country by comparing the funds’
discount rates, 10-year investment returns, and member contribution rates. The study identified three
main problems underlying Maryland’s pension crisis: undervalued pension liability, underperforming
investment, and inadequate cost sharing.
Until today, Maryland legislators have largely neglected these pension problems, which merit immediate attention. Meanwhile, other states with large public pension funds that face similar problems
have implemented various reforms over the years to fix their pension systems. Drawing on lessons from
other large pension funds that are back on the track to being fully funded, this report recommends these
pension reforms for Maryland: a lower discount rate, passive investment strategy, and DB+DC and cash
balance plans.
more at link
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  #415  
Old 03-05-2019, 06:37 AM
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https://www.valuewalk.com/2019/03/pu...unds-bankrupt/

Quote:
Public Pension Funds Going Bust Unless Urgent Changes Are Made

Spoiler:
Late last year it looked like the public pension funds crisis was getting a little bit less bad, in the sense that funding levels had improved a bit. However, the extreme market volatility experienced in the last three months of 2018 may have undone most of the improvements, and any further volatility this year threatens to wipe out the rest.

public pension funds
pasja1000 / Pixabay
In fact, public pension funds appear to be their own worst enemies because the harder they try to rack up gains against their massive amounts of unfunded liabilities, the harder it’s becoming for them to make any progress. Essentially, volatility begets more volatility, which erases the high returns they desperately need.

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Changes urged at public pension funds
Moody's Investors Service Analyst Thomas Aaron warned in a recent note that the late-2018 stock market losses will likely result in bigger-than-expected public pension funds cost increases for many governments in 2021. He also warned that unless investment returns change course, the market losses for the 2018-2019 fiscal year could undo most of the recent improvements in funding levels.

Moody's estimates that governments which release June 30 annual pension funding snapshots recorded losses for the first half of fiscal 2019. The firm also found that governments with Dec. 31 pension reports probably recorded negative returns for 2018. Aaron warns that if the first half of this year brings additional declines, some governments could see investment losses amounting to one-quarter of their revenues or even more.

Incidentally, Moody's uses that 25% figure in its pension "asset shock" indicator, which suggests many governments in the U.S. could see an asset shock in their pensions this year.

Public Pensions

Here's why long-term views aren't helping public pensions
He also said that even though public pension funds in the U.S. generally take a long-term view in their investments, the recent losses in the equity market "highlight the uphill credit challenge facing governments that rely on high-return/high-risk pension assets to cover a large portion of their pension benefit promises."

The Moody's report appears to point out something very similar to what we read from Canaccord Genuity last week. Canaccord blamed pensions for the ongoing string of boom and bust cycles in recent years. The firm's analyst warned that unless lawmakers do something to reign in public pension funds, these cycles could get stronger and stronger until the next financial crisis hit.

Moody's approaches this issue from a slightly different angle but came up with a similar viewpoint. Aaron explained that public pension funds' "heavy investments" in equity and alternative assets have resulted in volatile returns. He also clarified that public pension funds usually have annual investment return targets of 7% or more, which is why they generally feel the need to maintain such "large allocations in asset classes that carry high expected volatility."

He also said that for this year, Moody's investment volatility expectations for portfolios seeking high returns along the lines of what most public pension funds seek are a little lower than last year but still "elevated."



Public Pensions

Public pensions are going bust
He warned that if the first six months of this year bring significant investment losses for public pensions again, then some "very poorly funded" public pension systems could see their assets depleted.

Public Pensions

"Systems with significantly negative non-investment cash flow (NICF) relative to plan assets and rapidly growing benefit payments will be most exposed to depletion risk without offsetting increases in contributions from governments and/or employees," he emphasized.

He also warned that some governments could soon find their unfunded pension liabilities to be "unaffordable" this year if the markets end up delivering "another round of significant investment losses."

Public Pensions

Aaron pointed out that pension costs have gone up a lot over the last 10 years, but despite the increases, most governments have been able to delay serious damage to their budgets and cash reserves, thanks to strong revenue growth and deferring public pension funds contributions'. However, he warned that the extreme volatility could steepen the cost growth trends even further. If that happens at the same time a recession hits, then some governments could face "a severe affordability challenge," he said.


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  #416  
Old 03-05-2019, 10:07 AM
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CALIFORNIA

https://reason.com/blog/2019/03/04/c...hard-c#new_tab
Quote:
California Supreme Court Dodges a Hard Call in Pension Ruling
One pension-spiking tool can be scaled back now, but the California Rule remains intact.
Spoiler:
The California Supreme Court may have saved taxpayers some money today, but it also nimbly dodged the question of whether public employees' pension benefits can ever be scaled back.

The ruling leaves intact what is known as the "California Rule," a series of court precedents that have set up a legal regime where the state and its municipalities are only able to alter pensions benefits in one direction: more. Even as pension obligations threaten to bankrupt cities and even the entire state, courts have consistently ruled that pension benefits for employees cannot be scaled back once they have been offered.

In this particular case, the state's Supreme Court was asked to determine whether local governments could end the practice of "airtime purchases." This is the pension-spiking practice where public workers were permitted to "buy" an additional five years to attach onto their total time as a government employee. So, for example, a firefighter who worked for 20 years could be credited as working for 25 years, which jacks up the total pension that firefighter will be paid in retirement.

In 2011, Gov. Jerry Brown, who saw the state's pension crisis ballooning, pushed through reforms allowing local governments to end this practice if they wanted. This prompted Cal Fire Local 2881, a union representing firefighters, to sue on the basis that this reform counted as an impermissible rollback of pension benefits.

Today the Supreme Court ruled unanimously against the fire union. That's good news for anybody who cares about the state's fiscal sustainability. But the California Rule remains intact. The court ruled that airtime purchases are not contractually protected benefits under the state's pension regulations. Thus, the state can alter the rules for airtime purchases at it sees fit without violating the "California Rule." It's not a contractual benefit—it's a bonus.

That means the Supreme Court wasn't obliged to decide whether the "California Rule" is a constitutionally protected right of public employees. And so they punted that part entirely. The old precedents are still in place, and the state and its municipalities are stuck: They're unable to reduce what their financial commitments, even though the state's pension fund may be underwater and carrying more than $360 billion in unfunded liabilities.

Giving governments a chance to cut one type of pension spiking is a win. But keeping the California Rule intact is a loss.

Bonus link: Just last week, Steven Greenhut predicted the Supreme Court would "create yet another unresolved mess" with its ruling. He was right. Read his piece here.


https://edsource.org/2019/california...ensions/609428
Quote:
California Supreme Court stops short of allowing school districts to modify existing pensions
Supreme Court does uphold pension reform law's elimination of 'air time' benefit

Spoiler:
In a highly anticipated but narrow decision on pensions for teachers and other state and local public employees, the California Supreme Court on Monday upheld the elimination of a retirement benefit in the 2012 pension reform law that then-Gov. Jerry Brown championed.

The seven justices also made clear in the unanimous ruling that they were taking no position on the bigger issue that attorneys for Brown and others had asked it to consider: Whether school districts can modify vested pension benefits granted to teachers and other public workers.

School districts have been hoping that the court’s ruling in Cal Fire Local 2881 v. CalPERS would at least partially release them from long-term pension commitments that have caused their pension expenditures for teachers, administrators and hourly employees to nearly triple in the past five years. (See related story.) But districts will have to wait for other cases to persuade the court to permit changes to their pension obligations. And then they will have to persuade the Legislature and the governor to allow them to alter the benefits they approved or require employees to pay more toward their pensions.

UPCOMING WEBINAR: CALIFORNIA'S PENSION CRISIS
Join us Wednesday for a live discussion, moderated by EdSource’s Louis Freedberg and John Fensterwald, as leading experts explore the challenge of rising pensions costs, address the root causes and explore potential solutions.
Speakers include:
Cory Koedel, associate professor of economics at the University of Missouri and author of Pensions and California Schools, a study for the research project Getting Down to Facts.
Grant Boyken, public affairs executive officer at the California State Teachers’ Retirement System.
Chad Aldeman, senior associate partner with Bellwether Education Partners.
Denise Bradford, incoming board member of the California State Teachers’ Retirement System, representing pre-kindergarten to 12th grade educators.
When: Wednesday, March 6 at 1 pm
Where: Online – Click here to register

“The court has yet to answer the fundamental question that keeps educators up at night: Is my pension safe? For that, we must wait for the Supreme Court to decide a forthcoming series of cases,” said Derick Lennox, a lawyer and advocate with Capitol Advisors Group in Sacramento, which represents school districts.

The court’s decision in the Cal Fire case covers public pensions through CalSTRS, the pension fund covering about 950,000 current and past teachers and administrators and retirees; CalPERS, the nation’s largest public pension fund covering other school employees in California like bus drivers and secretaries, as well as state, county and local government employees in California and smaller pension funds in the state.

The Cal Fire ruling is the first of four pension-related lawsuits that the court has agreed to hear. In the other cases, too, lawyers for the state and other public employers are asking the state Supreme Court to reconsider its decisions — dating back seven decades — collectively known as the California Rule. It says that pension benefits in effect when employees are hired create a contractual right that employers can change only under rare circumstances. The California Rule partly got its name because, as the Supreme Court noted in its ruling, few courts outside of California have adopted it.

In their lawsuit, members of a local firefighters union for the California Department of Forestry and Fire Protection, or Cal Fire, charged that Brown’s pension reform law illegally rescinded a decade-old benefit they were entitled to. Called “air time,” it allowed employees to purchase up to five years of credit for work they had not actually done by paying both their own and their employer’s pension contributions. Since a public employee’s pension benefit is partly based on length of time worked, adding “service credit” would create a bigger pension on retirement.

Air time turned out to be more expensive than the Legislature assumed. As a result, the 2012 Public Employees Pension Reform Act, commonly called PEPRA, eliminated it. The law also abolished “spiking” — the subject of another pending lawsuit — that allowed employees to increase the calculation for pensions by adding the value of unused vacation, leave time and other benefits.

Gregg Adam, the attorney for Cal Fire, argued to the Supreme Court that air time and other pension benefits are a form of deferred compensation that employees have earned and rely on in deciding whether to make public service a career. Just as they can’t violate terms of other contracts, governments cannot renege on promised pensions, he said.

Related

Jerry Brown Awaits His Day In Court On Pension Reform
Brown was so interested in the case that his legal counsel took charge of the defense from the state attorney general’s office. His attorneys argued that air time didn’t count as a vested right because employees didn’t actually work the time. “Spiking,” though not air time, also created an unfunded liability for CalPERS and CalSTRS by creating retirement benefits that government employers had not contributed toward throughout the employees’ careers.

Both the trial court and the court of appeal agreed with the state’s argument, and so did the Supreme Court. In her decision, Chief Justice Tani Cantil-Sakauye wrote that because air time involved no actual work, it differed from other core pension benefits granted as deferred compensation for work performed. There was also no evidence that the Legislature was conferring a permanent right that would be a constitutionally protected contract. Without that intent, the Legislature had the “discretion” to alter or eliminate the benefit, she wrote.

“We disagree with the decision that the air time didn’t qualify for constitutional protections,” said Adam, “but the court did not take our argument lightly (in its 48-page decision). Stay tuned for the next installment.”

The next case will likely be Alameda County Deputy Sheriff’s Association v. Alameda County Employees Retirement Association, in which deputy sheriffs sued Alameda County for denying their right to calculate the value of unused vacation and in-service leave toward retirement benefits. Three counties interpreted PEPRA as permitting their elimination.

California Rule untouched
Brown’s attorneys and others who filed briefs made a second argument that focused on an earlier court decision that employees do not have an absolute “right to any fixed or definite benefits but only to a substantial or reasonable pension.” That would have opened up the California Rule to scrutiny regarding what constitutes “reasonable” and under what conditions can an employer change the terms of a deal made with employees.

Cal Fire and unions argue that pension benefits can be modified only if a public pension system itself is facing a financial threat, and then changes can only be temporary, until the pension fund is restored to health.

Brown’s attorneys indicated that “reasonable” also applies to the burden on public employers to sustain the pension system. Partly because of the Great Recession, both CalPERS and CalSTRS lost about 25 percent of the value of their investment holdings and their income plummeted. The Legislature imposed sharp rate increases (see accompanying story) to pay down CalSTRS’ long-term unfunded liability — pension obligations it can’t pay — which was $107 billion in the most recent valuation.

In an off-the-cuff comment last year, Brown said he hoped the court would reconsider vested pension rights so that “when the next recession comes around the governors will have the option of considering pension cutbacks for the first time.”

But any attempt to change benefits will face fierce opposition from the California Teachers Association and the California School Employees Association. And districts also may have trouble persuading Gov. Gavin Newsom to change the status quo anyway. Last fall, during the campaign, he told unions that he didn’t support changing the rules for pension benefits they already had been promised.

In a statement on the Cal Fire decision, Ted Toppin, chairman of Californians for Retirement Security, a coalition representing California public employees and retirees, said, “There was always some question about whether air time was a vested benefit. The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”

With one decision in and more to come, groups favoring curbs on public pensions — such as Retirement Security Initiative and Reform California — must now decide whether to move forward with initiatives, possibly for the 2020 ballot, that would amend the state Constitution to override the California Rule to allow flexibility to change employees’ future benefits and convert to 401-K type pension systems.


https://www.sacbee.com/news/politics...226992009.html
Quote:
California public employees’ pension perks can be taken away, court rules

Spoiler:
The California Supreme Court on Monday upheld a pension law that stripped a retirement perk from public employees, issuing a narrow ruling that sidestepped a bigger question about whether employers can reduce pension benefits for current workers.

The court held that the perk at issue in the case was distinct from an employee’s core pension rights, such as the formula used to calculate retirement income, and not protected by the state constitution.

Therefore the benefit could be “altered or eliminated at the discretion of the Legislature,” the court ruled.

The case, Cal Fire Local 2881 vs. CalPERS, was seen as a test of the legal precedents known as the “California Rule” that have prevented government agencies from reducing promised pension benefits for decades.

Both unions and government agencies in court briefs cast the fight as a challenge to the California Rule. Unions argued benefits could not be withdrawn unless workers receive new compensation; government agencies countered that they need flexibility to manage their budgets.

The court stressed that its decision did not address the California Rule. Instead, the court limited its decision to a perquisite known as air time that government agencies offered until 2013.

“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said in the decision.

The case turned on a challenge to former Gov. Jerry Brown’s 2012 pension law. The law, passed in the Great Recession amid concern about mounting pension debts, required public employees hired after Jan. 1, 2013 to kick in more money to fund their pensions. It also capped the amount of money they could earn in retirement.


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THE-STATE-WORKER
What does the California Supreme Court pension ruling mean for you?
MARCH 04, 2019 5:31 PM
Aside from those big changes for new employees, Brown’s law sought to rein in pension expenses by eliminating some lesser benefits that had been offered to employees.

One of them was air time, a perk that allowed public employees to buy up to five years of credit that would boost their pensions as if they had worked that time. Cal Fire Local 2881 sued to reinstate the perk for employees hired before Brown’s law took effect, arguing that the right to purchase air time could not be withdrawn without breaking the California Rule.

“We’re disappointed,” said Gregg McLean Adam, an attorney who argued the case for the Cal Fire union. “We felt the benefit we were arguing for was protected under the precedents we had been citing.”

On Monday, a labor-backed group that supported the Cal Fire union in court briefs said it was reassured that the court’s decision did not undo the California Rule.

“There was always some question about whether air time was a vested benefit,” said Ted Toppin, chairman of Californians for Retirement Security. “The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”

Other groups that advocate for reductions in pension benefits also celebrated the ruling.

“The court said that just because you have an expectation doesn’t mean you’re going to get what you expect,” said Dan Pellissier, president of California Pension Reform. “On its face, it was a good decision. It’s probably just a building block on what we hope to get from the other cases.”

California’s largest public pension funds, CalPERS and CalSTRS, each are considered underfunded because their assets are worth about 70 percent of the benefits they owe to workers and retirees.

Brown argued that government agencies must have flexibility to reconsider benefits.

”In order to maintain the defined benefit, there has to be the power of management to make modifications,” he told The Sacramento Bee in December. “If we do it right, people who have a pension and what they’ve earned will never be changed. But you can’t say that five minutes after you sign your employment application, for the next 30 or 35 years that not one benefit can be changed. That’s a one-way ratchet to fiscal oblivion.”

The court in its ruling likened air time to other benefits public employees receive that are not considered core contractual benefits, which would be protected under the constitution.

“In addition to their salary or hourly pay, it is not unusual for public employees to be offered the opportunity to purchase different types of health insurance benefits from a variety of providers; to purchase life and long-term disability insurance; and to create a flexible spending account, by which certain medical and child care expenses can be paid with pre-tax income. We have never suggested that this type of benefit is entitled to protection under the contract clause,” the court wrote.

The Supreme Court could still address in future cases whether the state may alter benefits for current workers. The court is set to schedule oral arguments in an Alameda County case that addresses whether salary adjustments from things like cashing out vacation or sick leave should count as pensionable benefits, said Harvey Leiderman, a Reed Smith attorney representing Alameda County in the case.

“I think that going forward, what this court is going to be looking at very carefully is they recognize pensions have a special place in California law, but they’re not going to just assume that everything that could affect your pension is in fact a pension right,” Leiderman said.

New Gov. Gavin Newsom told at least one union during his campaign last year that he would uphold the California Rule precedent. However, he has a record as a former San Francisco mayor and University of California regent of supporting policies that allow adjustments to pension plans for new employees.




https://moorlach.cssrc.us/content/se...nsion-decision
Quote:
Senator John M. W. Moorlach Reacts to California Supreme Court Pension Decision

Spoiler:
State Sen. John Moorlach, R-Costa Mesa, has been closely monitoring the arguments in CalFire Local 2881, et al. v. CalPERS before the California Supreme Court. Here is his comment on the ruling:

“Today, the Court missed a major opportunity to resolve an inferred untenable doctrine that has become one of the most pressing issues of our time – prospectively addressing massively underfunded pension obligations. For decades, California elected officials have been making promises on retirement benefits that they could not keep and the debt is catching up with them.

“Granting future benefits should not be an elevator that only goes up. While the California Supreme Court settled the case before them – ruling that what the legislature gives, it can take away as long as it is not unconstitutional – it did not give direction on how this court would deal with the California Rule as it applies to so many other cases. This half loaf result leaves elected officials to still wonder what is unconstitutional about negotiating reduced pension benefits going forward. And California State, school and municipal governments will continue to face ever-growing massive unfunded pension liabilities. This may endanger the retirement income of all current and future pensioners.

“We will have to wait to see where the court heads in the other California Rule cases before it. As time is money, it is time to stop the uncertainty and fix the California Constitution.”

BACKGROUND
Specifically, the CalFire case involves the elimination of airtime credit purchases by "classic" members of CalPERS resulting from Gov. Jerry Brown’s Public Employees' Pension Reform Act of 2013 (PEPRA). The California Supreme Court was asked to determine if airtime credits are a vested right to be protected under PEPRA. On appeal, it was declared there was no vested right to airtime since the statute creating airtime purchases did not mention this was supposed to be a vested right.

The California Rule stems from a 1955 court ruling, Allen v. City of Long Beach. It held that pension benefits in place when a public employee was hired cannot be changed without the consent of the employee’s union or for a commensurate replacement benefit (which is an untenable straightjacket).



document of the ruling:
https://www.documentcloud.org/docume...?sidebar=false
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Old 03-05-2019, 10:08 AM
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CALIFORNIA

https://reason.com/blog/2019/03/04/c...hard-c#new_tab
Quote:
California Supreme Court Dodges a Hard Call in Pension Ruling
One pension-spiking tool can be scaled back now, but the California Rule remains intact.
Spoiler:
The California Supreme Court may have saved taxpayers some money today, but it also nimbly dodged the question of whether public employees' pension benefits can ever be scaled back.

The ruling leaves intact what is known as the "California Rule," a series of court precedents that have set up a legal regime where the state and its municipalities are only able to alter pensions benefits in one direction: more. Even as pension obligations threaten to bankrupt cities and even the entire state, courts have consistently ruled that pension benefits for employees cannot be scaled back once they have been offered.

In this particular case, the state's Supreme Court was asked to determine whether local governments could end the practice of "airtime purchases." This is the pension-spiking practice where public workers were permitted to "buy" an additional five years to attach onto their total time as a government employee. So, for example, a firefighter who worked for 20 years could be credited as working for 25 years, which jacks up the total pension that firefighter will be paid in retirement.

In 2011, Gov. Jerry Brown, who saw the state's pension crisis ballooning, pushed through reforms allowing local governments to end this practice if they wanted. This prompted Cal Fire Local 2881, a union representing firefighters, to sue on the basis that this reform counted as an impermissible rollback of pension benefits.

Today the Supreme Court ruled unanimously against the fire union. That's good news for anybody who cares about the state's fiscal sustainability. But the California Rule remains intact. The court ruled that airtime purchases are not contractually protected benefits under the state's pension regulations. Thus, the state can alter the rules for airtime purchases at it sees fit without violating the "California Rule." It's not a contractual benefit—it's a bonus.

That means the Supreme Court wasn't obliged to decide whether the "California Rule" is a constitutionally protected right of public employees. And so they punted that part entirely. The old precedents are still in place, and the state and its municipalities are stuck: They're unable to reduce what their financial commitments, even though the state's pension fund may be underwater and carrying more than $360 billion in unfunded liabilities.

Giving governments a chance to cut one type of pension spiking is a win. But keeping the California Rule intact is a loss.

Bonus link: Just last week, Steven Greenhut predicted the Supreme Court would "create yet another unresolved mess" with its ruling. He was right. Read his piece here.


https://edsource.org/2019/california...ensions/609428
Quote:
California Supreme Court stops short of allowing school districts to modify existing pensions
Supreme Court does uphold pension reform law's elimination of 'air time' benefit

Spoiler:
In a highly anticipated but narrow decision on pensions for teachers and other state and local public employees, the California Supreme Court on Monday upheld the elimination of a retirement benefit in the 2012 pension reform law that then-Gov. Jerry Brown championed.

The seven justices also made clear in the unanimous ruling that they were taking no position on the bigger issue that attorneys for Brown and others had asked it to consider: Whether school districts can modify vested pension benefits granted to teachers and other public workers.

School districts have been hoping that the court’s ruling in Cal Fire Local 2881 v. CalPERS would at least partially release them from long-term pension commitments that have caused their pension expenditures for teachers, administrators and hourly employees to nearly triple in the past five years. (See related story.) But districts will have to wait for other cases to persuade the court to permit changes to their pension obligations. And then they will have to persuade the Legislature and the governor to allow them to alter the benefits they approved or require employees to pay more toward their pensions.

UPCOMING WEBINAR: CALIFORNIA'S PENSION CRISIS
Join us Wednesday for a live discussion, moderated by EdSource’s Louis Freedberg and John Fensterwald, as leading experts explore the challenge of rising pensions costs, address the root causes and explore potential solutions.
Speakers include:
Cory Koedel, associate professor of economics at the University of Missouri and author of Pensions and California Schools, a study for the research project Getting Down to Facts.
Grant Boyken, public affairs executive officer at the California State Teachers’ Retirement System.
Chad Aldeman, senior associate partner with Bellwether Education Partners.
Denise Bradford, incoming board member of the California State Teachers’ Retirement System, representing pre-kindergarten to 12th grade educators.
When: Wednesday, March 6 at 1 pm
Where: Online – Click here to register

“The court has yet to answer the fundamental question that keeps educators up at night: Is my pension safe? For that, we must wait for the Supreme Court to decide a forthcoming series of cases,” said Derick Lennox, a lawyer and advocate with Capitol Advisors Group in Sacramento, which represents school districts.

The court’s decision in the Cal Fire case covers public pensions through CalSTRS, the pension fund covering about 950,000 current and past teachers and administrators and retirees; CalPERS, the nation’s largest public pension fund covering other school employees in California like bus drivers and secretaries, as well as state, county and local government employees in California and smaller pension funds in the state.

The Cal Fire ruling is the first of four pension-related lawsuits that the court has agreed to hear. In the other cases, too, lawyers for the state and other public employers are asking the state Supreme Court to reconsider its decisions — dating back seven decades — collectively known as the California Rule. It says that pension benefits in effect when employees are hired create a contractual right that employers can change only under rare circumstances. The California Rule partly got its name because, as the Supreme Court noted in its ruling, few courts outside of California have adopted it.

In their lawsuit, members of a local firefighters union for the California Department of Forestry and Fire Protection, or Cal Fire, charged that Brown’s pension reform law illegally rescinded a decade-old benefit they were entitled to. Called “air time,” it allowed employees to purchase up to five years of credit for work they had not actually done by paying both their own and their employer’s pension contributions. Since a public employee’s pension benefit is partly based on length of time worked, adding “service credit” would create a bigger pension on retirement.

Air time turned out to be more expensive than the Legislature assumed. As a result, the 2012 Public Employees Pension Reform Act, commonly called PEPRA, eliminated it. The law also abolished “spiking” — the subject of another pending lawsuit — that allowed employees to increase the calculation for pensions by adding the value of unused vacation, leave time and other benefits.

Gregg Adam, the attorney for Cal Fire, argued to the Supreme Court that air time and other pension benefits are a form of deferred compensation that employees have earned and rely on in deciding whether to make public service a career. Just as they can’t violate terms of other contracts, governments cannot renege on promised pensions, he said.

Related

Jerry Brown Awaits His Day In Court On Pension Reform
Brown was so interested in the case that his legal counsel took charge of the defense from the state attorney general’s office. His attorneys argued that air time didn’t count as a vested right because employees didn’t actually work the time. “Spiking,” though not air time, also created an unfunded liability for CalPERS and CalSTRS by creating retirement benefits that government employers had not contributed toward throughout the employees’ careers.

Both the trial court and the court of appeal agreed with the state’s argument, and so did the Supreme Court. In her decision, Chief Justice Tani Cantil-Sakauye wrote that because air time involved no actual work, it differed from other core pension benefits granted as deferred compensation for work performed. There was also no evidence that the Legislature was conferring a permanent right that would be a constitutionally protected contract. Without that intent, the Legislature had the “discretion” to alter or eliminate the benefit, she wrote.

“We disagree with the decision that the air time didn’t qualify for constitutional protections,” said Adam, “but the court did not take our argument lightly (in its 48-page decision). Stay tuned for the next installment.”

The next case will likely be Alameda County Deputy Sheriff’s Association v. Alameda County Employees Retirement Association, in which deputy sheriffs sued Alameda County for denying their right to calculate the value of unused vacation and in-service leave toward retirement benefits. Three counties interpreted PEPRA as permitting their elimination.

California Rule untouched
Brown’s attorneys and others who filed briefs made a second argument that focused on an earlier court decision that employees do not have an absolute “right to any fixed or definite benefits but only to a substantial or reasonable pension.” That would have opened up the California Rule to scrutiny regarding what constitutes “reasonable” and under what conditions can an employer change the terms of a deal made with employees.

Cal Fire and unions argue that pension benefits can be modified only if a public pension system itself is facing a financial threat, and then changes can only be temporary, until the pension fund is restored to health.

Brown’s attorneys indicated that “reasonable” also applies to the burden on public employers to sustain the pension system. Partly because of the Great Recession, both CalPERS and CalSTRS lost about 25 percent of the value of their investment holdings and their income plummeted. The Legislature imposed sharp rate increases (see accompanying story) to pay down CalSTRS’ long-term unfunded liability — pension obligations it can’t pay — which was $107 billion in the most recent valuation.

In an off-the-cuff comment last year, Brown said he hoped the court would reconsider vested pension rights so that “when the next recession comes around the governors will have the option of considering pension cutbacks for the first time.”

But any attempt to change benefits will face fierce opposition from the California Teachers Association and the California School Employees Association. And districts also may have trouble persuading Gov. Gavin Newsom to change the status quo anyway. Last fall, during the campaign, he told unions that he didn’t support changing the rules for pension benefits they already had been promised.

In a statement on the Cal Fire decision, Ted Toppin, chairman of Californians for Retirement Security, a coalition representing California public employees and retirees, said, “There was always some question about whether air time was a vested benefit. The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”

With one decision in and more to come, groups favoring curbs on public pensions — such as Retirement Security Initiative and Reform California — must now decide whether to move forward with initiatives, possibly for the 2020 ballot, that would amend the state Constitution to override the California Rule to allow flexibility to change employees’ future benefits and convert to 401-K type pension systems.


https://www.sacbee.com/news/politics...226992009.html
Quote:
California public employees’ pension perks can be taken away, court rules

Spoiler:
The California Supreme Court on Monday upheld a pension law that stripped a retirement perk from public employees, issuing a narrow ruling that sidestepped a bigger question about whether employers can reduce pension benefits for current workers.

The court held that the perk at issue in the case was distinct from an employee’s core pension rights, such as the formula used to calculate retirement income, and not protected by the state constitution.

Therefore the benefit could be “altered or eliminated at the discretion of the Legislature,” the court ruled.

The case, Cal Fire Local 2881 vs. CalPERS, was seen as a test of the legal precedents known as the “California Rule” that have prevented government agencies from reducing promised pension benefits for decades.

Both unions and government agencies in court briefs cast the fight as a challenge to the California Rule. Unions argued benefits could not be withdrawn unless workers receive new compensation; government agencies countered that they need flexibility to manage their budgets.

The court stressed that its decision did not address the California Rule. Instead, the court limited its decision to a perquisite known as air time that government agencies offered until 2013.

“We have no occasion in this decision to address, let alone to alter, the continued application of the California Rule,” the court said in the decision.

The case turned on a challenge to former Gov. Jerry Brown’s 2012 pension law. The law, passed in the Great Recession amid concern about mounting pension debts, required public employees hired after Jan. 1, 2013 to kick in more money to fund their pensions. It also capped the amount of money they could earn in retirement.


READ NEXT
THE-STATE-WORKER
What does the California Supreme Court pension ruling mean for you?
MARCH 04, 2019 5:31 PM
Aside from those big changes for new employees, Brown’s law sought to rein in pension expenses by eliminating some lesser benefits that had been offered to employees.

One of them was air time, a perk that allowed public employees to buy up to five years of credit that would boost their pensions as if they had worked that time. Cal Fire Local 2881 sued to reinstate the perk for employees hired before Brown’s law took effect, arguing that the right to purchase air time could not be withdrawn without breaking the California Rule.

“We’re disappointed,” said Gregg McLean Adam, an attorney who argued the case for the Cal Fire union. “We felt the benefit we were arguing for was protected under the precedents we had been citing.”

On Monday, a labor-backed group that supported the Cal Fire union in court briefs said it was reassured that the court’s decision did not undo the California Rule.

“There was always some question about whether air time was a vested benefit,” said Ted Toppin, chairman of Californians for Retirement Security. “The decision was not unexpected. More importantly, the Supreme Court leaves intact the California Rule, holding that vested benefits cannot be impaired.”

Other groups that advocate for reductions in pension benefits also celebrated the ruling.

“The court said that just because you have an expectation doesn’t mean you’re going to get what you expect,” said Dan Pellissier, president of California Pension Reform. “On its face, it was a good decision. It’s probably just a building block on what we hope to get from the other cases.”

California’s largest public pension funds, CalPERS and CalSTRS, each are considered underfunded because their assets are worth about 70 percent of the benefits they owe to workers and retirees.

Brown argued that government agencies must have flexibility to reconsider benefits.

”In order to maintain the defined benefit, there has to be the power of management to make modifications,” he told The Sacramento Bee in December. “If we do it right, people who have a pension and what they’ve earned will never be changed. But you can’t say that five minutes after you sign your employment application, for the next 30 or 35 years that not one benefit can be changed. That’s a one-way ratchet to fiscal oblivion.”

The court in its ruling likened air time to other benefits public employees receive that are not considered core contractual benefits, which would be protected under the constitution.

“In addition to their salary or hourly pay, it is not unusual for public employees to be offered the opportunity to purchase different types of health insurance benefits from a variety of providers; to purchase life and long-term disability insurance; and to create a flexible spending account, by which certain medical and child care expenses can be paid with pre-tax income. We have never suggested that this type of benefit is entitled to protection under the contract clause,” the court wrote.

The Supreme Court could still address in future cases whether the state may alter benefits for current workers. The court is set to schedule oral arguments in an Alameda County case that addresses whether salary adjustments from things like cashing out vacation or sick leave should count as pensionable benefits, said Harvey Leiderman, a Reed Smith attorney representing Alameda County in the case.

“I think that going forward, what this court is going to be looking at very carefully is they recognize pensions have a special place in California law, but they’re not going to just assume that everything that could affect your pension is in fact a pension right,” Leiderman said.

New Gov. Gavin Newsom told at least one union during his campaign last year that he would uphold the California Rule precedent. However, he has a record as a former San Francisco mayor and University of California regent of supporting policies that allow adjustments to pension plans for new employees.




https://moorlach.cssrc.us/content/se...nsion-decision
Quote:
Senator John M. W. Moorlach Reacts to California Supreme Court Pension Decision

Spoiler:
State Sen. John Moorlach, R-Costa Mesa, has been closely monitoring the arguments in CalFire Local 2881, et al. v. CalPERS before the California Supreme Court. Here is his comment on the ruling:

“Today, the Court missed a major opportunity to resolve an inferred untenable doctrine that has become one of the most pressing issues of our time – prospectively addressing massively underfunded pension obligations. For decades, California elected officials have been making promises on retirement benefits that they could not keep and the debt is catching up with them.

“Granting future benefits should not be an elevator that only goes up. While the California Supreme Court settled the case before them – ruling that what the legislature gives, it can take away as long as it is not unconstitutional – it did not give direction on how this court would deal with the California Rule as it applies to so many other cases. This half loaf result leaves elected officials to still wonder what is unconstitutional about negotiating reduced pension benefits going forward. And California State, school and municipal governments will continue to face ever-growing massive unfunded pension liabilities. This may endanger the retirement income of all current and future pensioners.

“We will have to wait to see where the court heads in the other California Rule cases before it. As time is money, it is time to stop the uncertainty and fix the California Constitution.”

BACKGROUND
Specifically, the CalFire case involves the elimination of airtime credit purchases by "classic" members of CalPERS resulting from Gov. Jerry Brown’s Public Employees' Pension Reform Act of 2013 (PEPRA). The California Supreme Court was asked to determine if airtime credits are a vested right to be protected under PEPRA. On appeal, it was declared there was no vested right to airtime since the statute creating airtime purchases did not mention this was supposed to be a vested right.

The California Rule stems from a 1955 court ruling, Allen v. City of Long Beach. It held that pension benefits in place when a public employee was hired cannot be changed without the consent of the employee’s union or for a commensurate replacement benefit (which is an untenable straightjacket).



document of the ruling:
https://www.documentcloud.org/docume...?sidebar=false
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Old 03-05-2019, 10:14 AM
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ILLINOIS

https://www.ilnews.org/news/state_po...b90d6f4f2.html

Quote:
Bill to force added transparency in pension payouts moves forward

Spoiler:
Many public employees in Illinois are able to save up rolled-over sick days to boost retirement payouts, but lawmakers are moving ahead with legislation that would keep officials from being blindsided by those costs.

The amount that a public pensioner in Illinois receives in retirement is based on their pay in the last years of their career in public service. It’s become common for some workers to save up sick days and cash them out in this window to boost their annual pay, thus boosting their retirement pay as well.

State Rep. David McSweeney’s legislation, which was unanimously approved by a committee, wouldn’t ban the practice, but it would require many of the workers to disclose how many sick says they’re holding onto. The state's constitution prohibits the diminishment for pension benefits.

“There is a law on the books that requires, for end-of-year lump sum payments and for large spikes that the end of a career, for disclosure to occur,” he said. “All I’m doing is adding accumulated sick pay for this IMRF program.”

If signed into law, the bill would only apply to non-union participants of the Illinois Municipal Retirement Fund.

The issue became a headline when Calumet City School superintendent Troy Paraday attempted to cash in more than $1.7 million in sick and vacation days just before his retirement.

Local units of government are required to pay IMRF contributions at a higher priority than any other expenditure. The amounts are set by the pension fund. Large retirement payouts can blindside municipalities that didn’t know a recently retired worker may have qualified for higher compensation, putting a strain on budgets.



http://www.edglentoday.com/news/deta...ons-280342.cfm
Quote:
Objections to Plan to Underpay Pensions

Spoiler:
The Illinois Retired Teachers Association is critical of Gov. J.B. Pritzker’s proposal to pay more than required into the pension system for Chicago teachers while underfunding the pension system that serves the rest of the state's retired teachers.

Pritzker is proposing an overhaul of the state’s payment schedule for its underfunded public retirement accounts. In exchange for paying more in years ahead, he’s proposing shorting the required contribution for teachers outside of Chicago by $500 million.

“Delaying pension payments just kicks the can down the road again and costs future generations of Illinois taxpayers (if any left) billions of dollars,” Illinois Retired Teachers Association President Roger Hampton said in a statement.


Click here for summary
Association Executive Director Jim Bachman said Pritzker's promise of higher payments later is not new. Teachers have heard it before from both Democratic and Republican governors.

“This is the same road that we’ve gone down many times,” he said.

During the campaign, Pritzker repeatedly said he wanted to pay more into pensions. He said that to Crain’s Chicago Business and repeated it during the debates.

“He said it was his intent to be putting more into the system, if possible, to reduce that debt, but in lieu of that we went the opposite way,” Bachman said.

The association said that while Pritzker is proposing a $576 million pension holiday for the Teachers' Retirement System of the State of Illinois, the Chicago Democrat is also proposing a nearly $20 million increase to contributions to the Public School Teachers’ Pension and Retirement Fund of Chicago.

“You’re fulfilling your thoughts or promises to the Chicago teachers, but you’re not doing that for downstate,” Bachman said. “This worries me that we’re going to continue to do this.”

In total, Illinois has more than $135 billion in unfunded pension liabilities. If the state maintained its actuarially required contributions for the coming fiscal year, it would amount to nearly a quarter of the state's budget.

There has been a debate about whether or not to classify the state’s pension underfunding as a “crisis.” Bachman said the amount of money TRS controls will allow the system to continue to make payments to its 417,000 retirees, but he said he thinks the cost to future generations is the real crisis.

“Somebody in the future is going to have to pay for it,” he said. “In that sense, yeah, it is a crisis.”

The IRTA endorsed Pritzker over former Gov. Bruce Rauner in last year’s general election.
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Old 03-05-2019, 10:15 AM
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https://www.npr.org/2019/03/03/69989...-pension-bills

Quote:
Governments Struggle To Find A Way To Pay Retirement Pension Bills
There's a growing fiscal crisis hitting cities, counties and states across the U.S. It's all about generous retiree health benefits that historically haven't been fully funded.


Spoiler:
MICHELE MARTIN, HOST:

Across the United States, there is a growing problem for current and retired government employees. It has to do with retiree packages known as other postemployment benefits. They've been around for decades, but they are often chronically underfunded. And now with the retirement of more baby boomers, it's time to pay up. Houston Public Media's Andrew Schneider reports on how one city is trying to head off a financial crisis.

ANDREW SCHNEIDER, BYLINE: Any city council meeting can be boring, especially when it's about finances. But in Houston, those meetings and what they're wrestling with have forced people to sit up and take notice.

DAVID BERGER: Our initial $2.4 billion liability has been mentioned, but we projected it out over the next 30 years, and it became $9 billion.

SCHNEIDER: David Berger of Segal Consulting talked about the bleak financial outlook for Houston, the nation's fourth largest city. He says that $9 billion projected shortfall is a real problem.

BERGER: That would increase far faster than your revenues, your tax revenues. And so that kind of highlights the need for, not only a current solution, but a longer term. What can we do to control the longer term costs as well?

SCHNEIDER: Houston is far from alone. The Center for Retirement Research at Boston College has been looking at this issue. In 2016, it found that cities counties and states collectively are short more than $860 billion.

ALICIA MUNNELL: The problem is nationwide. The seriousness of the problem varies a lot.

SCHNEIDER: Alicia Munnell is the center's director. Historically, governments have always underfunded pensions and retiree benefits. But it's not been until the last few years that federal accounting rules forced them to admit the shortfalls. And Munnell says some states are really struggling.

MUNNELL: I'm not going to surprise you very much. Illinois, Connecticut, New Jersey, those are the plans where you see the most serious shortfalls and where you have, you know, high debt service and high retiree health care costs as well.

SCHNEIDER: In terms of local governments, she points to counties in California and cities like Chicago and Detroit. And then there's Houston. It's proposing some drastic measures to keep retiree benefits from mushrooming into another crisis. Councilman Dave Martin says they're looking into eliminating some spousal subsidies depending on longevity.

DAVE MARTIN: We have some retirees that are marrying younger men and women - for instance, a 50-year-old man marries a 30-year-old woman or a 50-year-old woman marries a 30-year-old man. The obligation in the retirement goes with the younger spouse.

SCHNEIDER: Houston officials are worried that some of these changes, which include no postretirement health coverage for new employees, could make it more difficult to attract workers to the city. Bill Fulton directs the Kinder Institute for Urban Research at Rice University. Fulton says unfunded retiree benefits could lead to the same problems for cities that had unfunded pensions.

BILL FULTON: Where we've seen bankruptcies so far have been purely a pension problem. That was the problem in Detroit. I do think that we - there will be - I can't say which ones - but I do think probably some jurisdictions will be at similar financial risk as postemployment benefits become a bigger issue and become more expensive.

SCHNEIDER: It's a painful choice to make because when the benefits get more expensive, something else in the budget doesn't get funded. The Houston City Council is expected to vote on the proposal to overhaul retiree benefits soon. For NPR News, I'm Andrew Schneider in Houston.


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CONNECTICUT

https://www.pionline.com/article/201...-minimize-risk

Quote:
New Connecticut treasurer wants to maximize pension fund returns, minimize risk

Spoiler:
As the newly elected Connecticut state treasurer and principal fiduciary of the state's $34 billion Connecticut Retirement Plans & Trust Funds, Shawn T. Wooden has big shoes to fill.

But Mr. Wooden said with a laugh: "I've got big feet."

After taking office in January, Mr. Wooden replaced Denise L. Nappier, who previously served as state treasurer and principal fiduciary of the CRPTF for 20 years. He said in a phone interview his primary goal with regard to the pension funds "is to be very mindful of being a fiduciary."

RELATED COVERAGE
Public plans surf wave of reforms in aftermath of crisis States consider asset transfers as way to shore up plan fundingConnecticut governor proposes reforms to state teachers fund in conjunction with treasurer
As sole trustee of the Hartford-based state pension funds, Mr. Wooden sees it as his job to "maximize the returns of the pension system while minimizing the risk." And with the economic environment looking to be volatile in the future, the state's new treasurer believes that "risk factoring and risk control is going to be key" to achieving strong returns for Connecticut's pension assets.

In addition to working closely with state's investment advisory council, Mr. Wooden hopes to do this "through prudent asset allocation to achieve a diversified portfolio and liquidity management."

He defines risk control as "constructing a diversified portfolio of assets and rebalancing to established asset allocation targets to mitigate the variability and the volatility of investment returns over the long term," adding that risk control "also includes maintaining proper liquidity to manage benefit payments and to support our private market investment programs."

Mr. Wooden plans to hire a principal investment officer responsible for risk management, a position that has been vacant for several years.

"I certainly expect some choppy waters ahead," Mr. Wooden said. Before being elected treasurer, Mr. Wooden was a partner at law firm Day Pitney LLP, where he led its public pension plan investment practice. He was also a member of the investment section of the National Association of Public Pension Attorneys.

Mr. Wooden's office will look to reduce its exposure to public equities while upping its exposure to fixed income. Allocations to private investments, meanwhile, will remain as diversifiers in the overall portfolio and won't change significantly. However, the treasurer's office does plan to increase its exposure to private real assets such as core infrastructure "to further reduce the risk profile of the portfolio and provide an additional hedge against inflation," Mr. Wooden said. CRPTF had an allocation of 50.7% equities, 24.4% fixed income, 21.6% alternatives, and 3.3% cash as of Sept. 30, according to Pensions & Investments data.

When it comes to active vs. passive investing, the treasurer's office hasn't changed its position too much. "In general, we utilize passive strategies in areas that we feel are efficient and will employ active strategies in less efficient markets that have the ability to generate alpha, net of fees," Mr. Wooden said, adding: "We may also use active strategies to take advantage of opportunities that come about through market dislocations."

The treasurer said he believes one way to maximize the state pension funds' returns while minimizing the risk is to form a strong collaborative relationship with the state's investment advisory council. The CRPTF, which was about 45% funded as of April, consists of six state pension funds and nine state trust funds.

"I intend to work very closely with our IAC. I've already had a meeting with the group, I've spent time with the chair, so I expect a very good and collaborative working relationship going forward," Mr. Wooden said. "Council members are required by statute to have experience in matters related to investments, and they actively participate in asset allocation/liability discussions and advice on all aspects of the investment program."

Proposed reforms
Recently, Mr. Wooden worked with Connecticut Gov. Ned Lamont to propose restructuring the $18.7 billion state Teachers' Retirement Fund, which includes reducing the assumed rate of return to 6.9% from its current 8% and stabilizing the state's payments to the plan by extending the payment period to reach full funding to 30 years from 12 years. TRF is 57.7% funded.

The proposed legislation would also create the TRF Special Capital Reserve Fund, which would initially will be funded with $381 million out of the state's current year general fund surplus and provided with a backstop funded by lottery proceeds.

"This proposal for restructuring for our Teachers' Retirement Fund is an example of the degree of collaboration, of working with the governor, and with the office of policy management, that was done within 30 days of entering the office," Mr. Wooden said. "That's the collaborative style of leadership that I think works well."

In response to Mr. Lamont's budget address, Jeff Leake, president of the Connecticut Education Association, the state's largest teachers union, said in a statement that although the CEA "supports … the governor and treasurer's plan to smooth out the state's payments to the fund over a longer period of time and lower the investment earning assumption to a more realistic rate," the union is opposed to an additional proposal from the governor requiring local municipalities to pay 25% of the employer contribution.

"There are solutions to the state's pension debt problem that do not require shifting the burden to local taxpayers," Mr. Leake added. "We intend to have conversations with the governor on this important issue and look forward to working with the administration and legislators to develop a responsible budget that manages future pension costs."

Jan Hochadel, president of Connecticut's American Federation of Teachers, was similarly mixed on the governor's proposed reforms. Although she agreed that "smoothing out future payments will help make up for decades of politicians failing to adequately invest in this public asset and begin to restore stability to educators' pensions," she noted that "there are proposals in the governor's budget package that demand our opposition and protest."

"We've already made clear we're not willing to shift more risk onto the backs of retired state employees, which threatens to pick the pockets of seniors living on fixed incomes," Ms. Hochadel added.

Regarding her expectations of Mr. Wooden going forward, Mr. Hochadel said in an email: "We appreciate the treasurer's collaborative efforts to engage us in adopting solutions for an issue with a direct impact on our members — past, present and future. His work to move this initiative forward shows his commitment to Connecticut's classroom educators and the long-term stability of our state's economy."

Fitch weighs in
In response to Connecticut's proposals to contain the rising cost of pensions on state finances, Fitch Ratings said in a statement issued Feb. 28 that the proposed changes "would alleviate significant fiscal risks to the state over roughly the next 12 years tied to scheduled, escalating contributions to the Teachers' Retirement Fund."

"However," the statement continued, "the funding changes to be made for TRF would increase costs to the state over the long run, in the same manner as funding changes made two years ago for the State Employees Retirement System."

The statement added that the result of the proposals is unlikely to affect Fitch's rating on the state, "as Connecticut's pension burden is unlikely to diminish any time soon absent more extensive changes to funding practices or retirement benefits."


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