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  #421  
Old 03-05-2019, 10:18 AM
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Mary Pat Campbell
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VENTURA, CALIFORNIA
https://www.vcstar.com/story/news/lo...rs/2956775002/
Quote:
If all goes well, Ventura's pension debt should level off in 30 years

Spoiler:
Ventura’s policymakers have gotten an in-depth look at the city’s pension obligations, which are expected to grow substantially for the foreseeable future.

This year’s pension payment, projected to be around $19.7 million, is expected to reach $30.7 million, a growth of 56 percent, by 2024-25.

At least for 20 years, the bill will continue to climb, said Mary Beth Redding, a retirement consultant with Bartel Associates.

“In 30 years, you get to really sustainable rates,” she said. “That’s if things go more or less as expected.”

If there’s a sharp decline in market returns or some other situation, things could be far worse, she said.

Redding spoke Monday night during the Ventura City Council’s first budget workshop of the year. It started with a primer on what goes into developing a budget and followed with a discussion on how a capital improvement plan works.

But what generated the most discussion centered on pensions, which for the city are managed by the California Public Employees’ Retirement System. For many cities, pension costs are the fastest-growing expense and will be for years to come.

Paying the piper
A pension is paid for three ways: by employees, by employers and through investment earnings. For the 20-year period ending June 30, employees paid 13 cents on the dollar, employers 28 cents and investments 59 cents, according to CalPERS.

“In 30 years, you get to really sustainable rates. That’s if things go more or less as expected.”

Mary Beth Redding, retirement consultant
Such a heavy reliance on the market is problematic in that taxpayers make up any shortfall. A combination of drastic losses during the recession and benefits that in some cases in the early 2000s ballooned retirements by 50 percent (and were retroactive to an employee’s first day on the job) has meant Ventura and other cities are now facing sky-high bills.

The city is better off than some cities in that it doesn’t offer post-retirement health benefits. That perk, now rarely seen in the private sector, can add millions to a city’s annual retirement payout.

But it’s worse off because its retirees outnumber active workers at a higher rate than the state average, Redding said.

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Statewide, 55 percent of miscellaneous employees and 65 percent of safety employees hold retiree liability; in Ventura, it’s 58 percent and 71 percent.

MORE: Santa Paula’s homeless population has downtown business owners on edge

Because of that, a downturn in the market “more than other places will impact you more quickly and more adversely,” she said.

She also noted the city’s unfunded ratio, which is the value of what’s already been earned by workers not covered by money set aside. For miscellaneous, it’s 76.5 percent while for safety, it’s 60.7 percent.

Council member Jim Friedman said that from a practical standpoint, not being fully funded was “nothing to get upset about because we’re never going to pay that all in one day.”

Redding agreed. The issue becomes the size of the payment and whether the city will be in a position to pay it, she said.

MORE: The fourth utility: How Ventura County is working to increase broadband

David Grau, president of the Ventura County Taxpayers Association, said Ventura’s contribution costs as a percentage of payroll were particularly problematic and a cause for alarm. He said in five years, it will reach 51 percent, the highest of any city in the county.

Put another way, for every $1 a person earns, the city will need to pay 51 cents more for retirement.

The rising costs mean cities will need to raise taxes, lay people off or cut services, Grau said.

“These are the situations we’re talking about,” he said. “Budgeting is going to be very challenging.”

Redding recommended making ad-hoc payments to CalPERS as money became available, opening a supplemental trust that gives the city more flexibility with investments, paying the unfunded liability upfront (which the city already does) or having employees pay more toward their retirements.

Staff recommended making ad-hoc payments and continuing to pay the unfunded liability at the beginning of the year.

Watch a video of the meeting at https://bit.ly/2Vxb7lk.


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  #422  
Old 03-05-2019, 10:20 AM
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NEW MEXICO

https://www.lcsun-news.com/story/new...su/3032290002/
Quote:
New Mexico Senate bill aiming to fix pension mess clears committee

Spoiler:
SANTA FE - A state senate bill seeking to remedy the situation that befell the widow of a New Mexico State University employee cleared the Senate Public Affairs Committee early Friday evening with a "do pass" recommendation to the full Senate.

Libby Leask is the surviving spouse of Steven Leask, an administrator at the university who died in 2016. Since his death, Leask has been struggling to collect his retirement benefits because the form that would designate her as the beneficiary is missing.

Within days of a Sun-News report about her situation, over 1,000 NMSU employees contacted the ERB to check their own accounts, with many reporting that their own beneficiary designations were missing or declared invalid.

The legislation, SB 664, would amend the Educational Retirement Act in three places pertaining to retirement benefit options. It was introduced on Feb. 21, after the deadline to introduce new legislation, by way of a substitute bill.


Under the new language, if an ERB member dies without a valid beneficiary designation on file, the ERB may consider the member's surviving spouse or domestic partner as a beneficiary.

At NMSU, domestic partnerships must be documented through affidavits signed by "both individuals" for the transfer of benefits.

More: New Mexico widow kept from claiming husband's pension due to missing form

The legislation is sponsored by state Sen. Jeff Steinborn, D-Las Cruces, and was drafted with the assistance of Jan Goodwin, executive director of the New Mexico Educational Retirement Board.

A fiscal impact report prepared by the Legislative Finance Committee said the bill would not alter distributions from the educational retirement fund, and stated that the new language would mirror a similar provision in the Public Employees Retirement Act.

Goodwin appeared before the committee on behalf of the bill but was not asked any question by senators. The vote for a "do pass" came quickly, with no debate.

Reacting to the committee vote Friday night, Leask said she hoped "people will not have to go through the hell I have gone through."

The bill, however, still must pass both houses of the state legislature before the session ends on March 16.


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  #423  
Old 03-05-2019, 10:21 AM
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OKLAHOMA

http://www.news9.com/story/40052337/...cted-officials

Quote:
Unpopular Ex-Law Beefs Up Pension Of Elected Officials

Spoiler:
Lawmakers passed it 30 years ago, repealed it ten years ago, and yet still today Oklahoma taxpayers are feeling the impact of a bill that has been called "morally wrong" and "fiscally irresponsible."

The bill made major and, for some, very lucrative changes to state retirement benefits, and now one very recent state retiree is becoming the latest to cash in.

Mary Fallin was trashed by both Democrats and her own Republican party during the 2018 gubernatorial campaign, and then was largely ignored during the transition. But Oklahoma's unpopular ex-governor may get the proverbial last laugh through this unpopular ex-law.

"We call it the roll up, or the tag-along provision," said Joe Fox, Executive Director of the Oklahoma Public Employees Retirement System (OPERS).

Fox says the provision was tucked into a large 1988 pension bill, HB 1588, which allowed state and county elected officials to roll up any time in a nonelective state or county job with their elective time.

"So it was a pretty significant benefit increase for those elected officials," Fox stated in a recent interview.

Here's why:

Nonelective OPERS members pay 3.5 percent of their salary into the system, for which they get a 2 percent multiplier in calculating their pension
Elected officials get to use a 4 percent multiplier, but they also pay in more -- 10 percent
Prior to HB 1588, retirees with both elective and nonelective service would calculate each portion separately and add them together
HB 1588 meant nonelective years of service could be counted as elective years and get the four percent multiplier, even though the worker hadn't paid in at the higher 10 percent rate during the nonelective years.
"We were shorted six and a half percent for every person, during every pay period, and for every year of service that was counted as elected service," Fox explained.

The fiscal burden that put on the system, in combination with some down years in the market, pushed OPERS’ funded ratio to just 66 percent by 2009. A year earlier, seeing the handwriting on the wall, lawmakers had repealed the provision.

It was the first of many reforms to OPERS, but, out of concern for lawsuits from vested members, all of the reforms were done proactively; those already in the pipeline, like Governor Fallin, were grandfathered in.

And so, beginning next month, with a combined 30 years of elective and nonelective service, Gov. Fallin is expected to start collecting 120 percent (.04 x 30) of her $147,000 governor's salary, or about $176,000 annually.

Donelle Harder, chief spokesperson for Fallin's successor, Governor Stitt, provided News 9 with this statement:

“The Oklahoma Supreme Court ruled that a pension benefit is treated under law much like a property right, which is why the Legislature could only focus on new, incoming participants to the pension system. Trying to apply the reforms retroactively would set Oklahoma up for a costly lawsuit with the deck largely stacked against the state. Governor Stitt believes this serves as a strong reminder that state government practices, put into motion 20 or 30-plus years ago, must be thoroughly examined and modernized to ensure the responsible and transparent use of Oklahomans’ hard-earned tax dollars.”

While Fallin is benefitting from the law, she had nothing to do with creating the law.

Many of those lawmakers have passed on, but not all.

Former Senator Dave Herbert remembers HB 1588: "That particular piece of legislation was carried by Senator Gerald Dennis."

Herbert represented Midwest City in the Senate from 1986 to 2002. He says Sen. Dennis was seen as an expert on pension law, which is one reason he says he voted for the bill.

"He knew everything there was to know about retirement," Herbert said, "and so anytime a retirement thing came up, you'd go to [him] and say, 'How's this look?'"

Beyond that, Herbert says, he supported the bill, not because of any roll-up benefit for elected officials, but because it allowed veterans to roll up their military time.

"And because I live in a district that has Tinker Air Force Base and is full of veterans," Herbert said, "I liked that part of the bill."

Herbert now acknowledges he and his colleagues didn't grasp the fiscal impact of the entire bill.

"In hindsight, I'd say we were spending money like a drunken sailor," Herbert allowed, "but that wasn't uncommon back then, we had money back then, and there wasn't any real problem."

The problem came later, in the form of a growing unfunded liability and burden on nonelective OPERS members. Republican Governor Henry Bellmon had seemingly understood the bill would bring trouble, which is why he vetoed it, only for bipartisan super majorities in both chambers to override him.

"We should have listened to Henry Bellmon," Herbert, a Democrat, exclaimed. "Henry Bellmon's one of the smartest governors we ever had."

Herbert didn't have any nonelective state or county service, so he never personally benefitted from the measure.

Another elected official who will benefit from it, ironically, is one of the few who voted against it 31 years ago.

Attorney General Mike Hunter represented House District 85 from 1985 - 1991. He voted against the bill both during its initial passage, as well as, in the veto override. Hunter has about four years of nonelective state work that he'll be able to roll up with his elective time when he retires.

Hunter and Fallin are two of about 700 current or former elected officials still able to benefit from the old law.

"That's out of 80,000 people," pointed out OPERS' Fox, "so it's a small number in the grand scheme of things."

Still, Fox says the impact is real. He says it has been demoralizing for many of the nonelective OPERS members, whose average benefit is about $16,000 a year.

"That's not very much," Fox said, "it's lowest of all the pension plans in the state."

From an actuarial standpoint, the roll up provision also continues to be a drag on the pension system. OPERS is now 98 percent funded. but Fox says it could have been healthier sooner. Ten years ago, he says, they estimated just the top 100 beneficiaries had cost the pension system 20 million dollars.

"So this impact was - is tens of millions of dollars," Fox said, "and will continue to impact the system for years going forward."


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  #424  
Old 03-05-2019, 10:21 AM
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KENTUCKY

https://www.wdrb.com/news/louisville...658bfe0ee.html
Quote:
Louisville Republicans preparing pension plan that won't raise taxes

Spoiler:
LOUISVILLE, Ky. (WDRB) — You could probably fill a book with all the memories Kevin Kramer has made at Louisville's Bon Air Library.

"As a little kid growing up, that was always the hardest part for me was I didn't know what to read," Kramer said as he strolled through the warm, friendly library on a chilly Friday afternoon. "As much as I love to read, which book am I going to pick out, right?"

spaceplay / pause qunload | stop ffullscreenshift + ←→slower / faster
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But right now, some of the city's libraries are in the crosshairs of Mayor Greg Fischer as the city stares down growing pension payments, including a $35 million pension invoice for next fiscal year alone. Fischer has said there is a better alternative to the deep cuts to libraries, public safety, fixing potholes, and more: a plan he put on the table to triple a city tax on some insurance premiums from 5 percent to 15 percent.

But Kramer, a Metro Councilman who leads the Republican caucus, said the city can do better.

"What you're saying is there's a way around this pension crisis without cutting public safety and special places like (the library)?" WDRB News' Chad Mills asked Kramer.

"I do think that's true, yes," he said. "That's exactly what I'm saying."

Kramer said he's working with fellow Republicans and even some Democrats on a plan that won't raise taxes.

"We're going to go back and look at the areas where the government has grown over those two years and say, 'Hey, which of these things can we just right away cut out?'" he said.

He said the group will then look at way to roll back the amount of spending, at least for now, by possibly cutting less-effective departments, eliminating some top-level positions and streamlining as much as possible.

"Let's stop borrowing money to give it away. Let's stop raising people's salaries above $100,000. Let's stop creating new departments. Let's stop creating new positions in general. Let's stop increasing the amount of money we're giving away to nonprofit organizations to do things that they're not currently doing today," Kramer said.

"I can look back at what the government was doing two years ago and look at what we're doing today, and we have increased the cost of government by well over the amount of money we're talking about for the pensions."

Kramer said the plan he's working on will likely be released next week.

"We're not there yet. We are approaching it. My goal is to not stop at $35 million," he said. "Probably in less than a week, we'll be coming out and saying, 'Here's this long list of things that we think you can do.'"

He believes those cuts will be enough to pay the city's pension invoice this year. He also said he's 100 percent confident the city can find a good solution to the pension crisis without a tax increase.

Some Democrats aren't as sure. Many of them now say they'd like a hybrid plan that would include some cuts and a smaller tax increase.

Meanwhile, Fischer has said he's not using scare tactics: He's trying to do what's best for the community. He believes creating new revenue is the best way forward.


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  #425  
Old 03-05-2019, 10:22 AM
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https://reason.com/blog/2019/03/01/c...ates-with-huge

Quote:
Companies Should Avoid States With Huge Pension Debts, Warren Buffett Warns
A candid picture of how investors see the slowly unfolding pension crisis
Spoiler:
Warren Buffett says he would shy away from making long-term investments in states that have rung up huge public pension liabilities, because sooner or later taxes will have to go up.

"If I were relocating into some state that had a huge unfunded pension plan I'm walking into liabilities," Buffett told CNBC's Becky Quick earlier this week. "I say to myself, 'Why do I wanna build a plant there that has to sit there for 30 or 40 years?' Because I'll be here for the life of the pension plan, and they will come after corporations, they'll come after individuals. They just—they're gonna have to raise a lotta money."

Buffett's remarks paint a candid picture of how investors and corporations see the slowly unfolding pension crisis that threatens to swamp many states' budgets for years to come. Unfunded pension debt across the 50 states totals a staggering $1.6 trillion, even by the plans' own (often overly rosy) accounting. But the obligations vary widely from state to state.

As Buffett suggests, that means states that have kept their pension systems relatively healthy have a competitive edge when trying to land large corporate investments like the new Amazon HQ2. Just as a state with lower tax rates might have an edge in attracting businesses, states with high pension debt will drive them away—because investors correctly see those unfunded liabilities as future tax rates.

Here's the rest of Buffett's response when asked about how public pension obligations would factor into his own investment strategies:

In the public sector, you know, it's a disaster. And, you know, some of the—it's interesting to me when they talk about these relocation problems, you know, and New York and Amazon, all that sort of thing, you know—I—if I were relocating into some state that had a huge unfunded pension plan I'm walking into liabilities. 'Cause I mean, who knows whether they're gonna get it from the corporate income tax or my employees—you know, with personal income taxes or what. But that—that liability isn't gonna—you can't ship it offshore or anything like that. And those are big numbers, really big numbers. And they may come—you can delay a long time. I mean, they—you're getting pushed maybe somewhat. But the politicians are the ones that really haven't attacked it in a good many states. And when you see what they would have to do—I say to myself, "Why do I wanna build a plant there that has to sit there for 30 or 40 years?" Beause I'll be here for the life of the pension plan—and they will come after corporations, they'll come after individuals. They just—they're gonna have to raise a lotta money.

Some states are already chasing pension revenue in increasingly convoluted ways. Illinois, which faces one of the nation's most significant pension problems, is considering a tax on private retirement savings to fund public pension obligations. New Jersey, another state that's deep in the red, is planning to use higher or new taxes on hotel rooms, e-cigarettes, marijuana, and ride-sharing to fund its pension debt.

Those measures are unlikely to be enough. Taxpayer contributions to public pension plans have increased dramatically since the Great Recession, yet "only 27 states contributed enough in 2016 to expect their funding gaps to decline if actuarial assumptions were met," according to a report the Pew Charitable Trusts released last year. Broader tax increases are likely to be needed, particularly in states where cutting pension payments to current and retired workers is forbidden by law.

Another economic downturn would make a bad situation much worse. A recent report by three researchers at the Harvard Kennedy School found that "public pension systems may be more vulnerable to an economic downturn than they have ever been." After subjecting state pension plans to a series of stress tests meant to simulate the consequences of a variety of adverse economic climates over the next two decades—including everything from another major recession to merely lower-than-expected investment growth—Greg Mennis, Susan Banta, and David Draine concluded that deeply indebted pension plans in places such as Kentucky and New Jersey face insolvency even if annual returns average 5 percent for the forseeable future.

Buffett's comments to CNBC make clear that it won't take another recession to keep major investments out of states already struggling with high levels of pension debt. States will have to raise "a lotta money"—and every dollar of it will be coming out of someone's pocket.


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  #426  
Old 03-05-2019, 10:23 AM
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CALIFORNIA

https://www.ai-cio.com/news/californ...-benefit-cuts/

Quote:
California Supreme Court Rules in Favor of Pension Benefit Cuts
Despite the ruling, the court sidestepped a much larger issue, whether core pension benefits promised at the time of hire for public workers can be changed.


Spoiler:
The California Supreme Court has ruled that a provision of former Gov. Jerry Brown’s 2012 pension law reform is legal, and that Brown and the legislature could end the practice of California Public Employees’ Retirement System (CalPERS) members being able to pay to enhance their pension benefits.

Despite the ruling, the court sidestepped the larger issue of whether core pension benefits for public employees that are negotiated by their unions can be altered.

California courts have held repeatedly since at least the mid-1950s that the pension benefits promised public employees at the time of their hire could not be changed. A series of collective court decisions known as the California Rule protects public workers’ pension benefits.

As least 12 other states have similar laws, a point of controversy among some elected officials and advocacy groups, who would like to reduce pension benefits for public workers as pension costs soar. California and other states have changed the rules regarding pension benefits for new employees, but existing employees have held on to their earned pension benefits.

So, there was much attention on the case brought by California state firefighters over the Brown legislation’s elimination of “airtime,” which was part of a plan by the governor to rein in spiraling pension costs.

The “airtime” referred to the fact that CalPERS members could buy five additional years of work credit without actually working those hours, enhancing their ultimate pension payout at time of retirement.

The court Monday compared the “airtime” as an optional benefit, not a core guaranteed contractual pension benefit, such as the formula for determining what percentage of pay each year will go towards retirement benefits.

“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,” the court said. “We have never suggested this type of benefit is entitled to protection under the contract clause.”

The court made it clear, however, that the California Rule protecting vested pension benefits was not affected by its ruling.

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

The firefighters had argued that the airtime credit was part of a benefits package that prospective public employees took into consideration when deciding whether to enter public service.

Brown’s attorneys had said the state could take away the benefit because the legislature never considered it to be a vested right that was negotiated through collective bargaining.

Several other cases involving the rights of California pension systems to reduce benefits are also expected to be heard by the Supreme Court in the next several years. One case involves county pension systems altering the formula for calculating pension benefits, such as ending the accumulation of pension benefits for being on call. The court will then have another opportunity to weight in on the California Rule.


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  #427  
Old 03-05-2019, 10:29 AM
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OKLAHOMA

https://www.muskogeephoenix.com/colu...22c6eece2.html

Quote:
Frix: Cost-of-Living Bill moves to House

Spoiler:
My bill that would provide a 2 percent cost-of-living increase (COLA) for all retirees of a number of state pension and retirements systems passed out of the Banking, Financial Services and Pensions Committee on Wednesday. The bill is now eligible to be heard by the entire House.

House Bill 2304 would grant an increase in retirement benefits to retirees of the state firefighters, police, justices and judges, law enforcement, teachers and public employees’ pension and retirement systems.

The measure also amends the Oklahoma Pension Legislation Actuarial Analysis Act to include a safe harbor clause that allows the bill to be treated as a non-fiscal retirement bill in the legislative process. This will help us avoid any delay in distributing the COLA.

I ran a similar bill last year that lost out to a measure that offered instead a 2 percent one-time stipend to state retirees. Under that legislation, $1,000 stipends were given to members of plans that were 60 percent to 80 percent funded, such as the Teachers Retirement System; $1,200 to those that were 80 percent to 100 percent funded; and $1,400 to those that were more than 100 percent funded, such as police, judges and justices.

The author of that bill argued that a COLA would damage the long-term performance of retirement plans. I countered that retired state employees are every bit as concerned about the overall performance of their benefit plans as anyone. Retirees don’t want to harm their own benefit plan, but they want the COLA they were promised when the plans were established. Some retired employees have seen health insurance premiums rise at a rate that has outpaced their retirement benefits. Retirees have to pay into the plan just to pay their premiums.

In the end and in part because the state had not completely recovered from its recent recession, the stipend won over the COLA last year. But today, the state is in much better shape than it was at this time last year. We in fact have about a $575 million surplus. While much of that money has been spoken for in the form of raises for state teachers and flexible health care benefits for these same educators, I believe this surplus puts us in a much better position to offer this COLA this year.

I promised last year to keep fighting for a COLA, knowing that our state’s former public servants have been waiting for 11 years now, and they deserve the long-term stability a COLA would provide.

Representatives from the Firefighters Pension and Retirement System and from the Oklahoma Public Employees Retirement System supported my bill last year, and they are supportive of this bill.

In the meantime, if I can be of service to you, or you just want to share your ideas or concerns, please do not hesitate to contact me on my cell phone at (918) 680-1218.


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Old 03-05-2019, 10:30 AM
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TEXAS

https://www.itemonline.com/opinion/s...ecad1c11e.html
Quote:
Secure teachers’ retirement

Spoiler:
With the 86th Legislature getting into full gear, Texas Gov. Greg Abbott has listed school finance reform and increased teacher pay as the first emergency item. Directly related to teacher pay is a teacher’s pension in the Teacher Retirement System of Texas. Unfortunately, this pension plan is in dire need of reform.

TRS’s primary issue is its funded ratio, based on benefits paid and future contributions.

In a recent paper authored by TPPF and the Reason Foundation, we note that as of August 2017, TRS was funded at 76.1 percent. Some consider a funded ratio of 80 percent as “actuarially healthy,” but anything below 100 percent isn’t fully funded. At that time, the unfunded obligation was $35.4 billion (with an assumed rate of return of 8 percent).

After the fund underperformed for years, the TRS Board lowered the assumed rate to 7.25 percent late last year. This move by the Board increased transparency, demonstrating to teachers and the public the true health of the plan, while moving closer to the national average for assumed rates of return for public pension plans of 7.38 percent in 2017.

But there are other now other issues.

Lowering the assumed rate of return increased TRS’s unfunded obligation to $46.2 billion and lengthened the amount of time this plan would need to become funded. That’s not all, though, because the average annual return has been only 5.8 percent in the last decade—during a period of otherwise high returns in the markets. Assuming a more realistic rate of 6 percent would put the unfunded obligation at a staggering $85 billion.

Clearly, TRS has a massive problem on its hands, which must be addressed so that teachers don’t have to worry about these retirement funds, and so that current and future teachers don’t begin to avoid the profession because of this uncertainty.

One valiant attempt this session to address TRS’s problems is Senate Bill 393.

The bill requires that the contribution rates for the state, school districts, and active members increase gradually over a six-year period. The state would increase its contribution from 6.8 percent to 8 percent. Districts that don’t contribute to Social Security (most don’t) would increase their contributions from 1.5 percent to 2 percent. And employees would increase theirs from 7.7 percent to 9.5 percent.

Also, to account for the increased out-of-pocket contribution rates of active employees, the bill would increase the salaries of non-teaching staff over time. This complements SB 3, which raises teacher salaries by $5,000 across-the-board at a designated cost in the Senate budget of $3.7 billion in the upcoming budget period.

And SB 500, the Senate’s supplemental bill, increases TRS funding from the Economic Stabilization Fund (ESF) by $300 million.

There’s plenty of taxpayer money being considered to go to teachers in some capacity this session in these Senate bills. For its part, the House has also designated more money for teachers, with an increase in school funding of $9 billion, along with property tax reforms.

While raising salaries across-the-board without performance increases isn’t ideal (it sends poor signals to both effective and ineffective teachers), raising all employees’ pay could place a larger burden on the pension plan, because defined benefits are tied to employee salaries.

SB 393 is a good start to the conversation to get to a fully funded plan that secures current teachers’ and retirees’ funds for retirement. Putting TRS on a path to a cash balance plan with a hybrid system would be better, as noted by the current state of the Texas Municipal Retirement System (TMRS).

For example, additional reforms should be tied to the increase in funding from taxpayers. New teachers, for example, should be given the choice of entering the current system or picking a defined-contribution plan that allows them to set their own course of retirement rather than be dependent on the state.

This doesn’t mean that teachers will need to have a great deal of financial wisdom as financial managers, like those investing current TRS dollars, will work with them. But it will mean that they won’t have to worry about how the state might shortchange their future. Teachers are smart, capable of controlling their own destiny.

By addressing TRS’s solvency problem, the Legislature can secure the retirement for teachers while reducing the likelihood taxpayers will be on the hook to bail out an underperforming pension system.

The Legislature should address this problem this session as part of the school finance discussion so Texas can have the best teachers possible. Besides a child’s parents, teachers are the most important thing to our children’s educational future.



Vance Ginn, Ph.D., is senior economist and director of the Center for Economic Prosperity at the Texas Public Policy Foundation.


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Old 03-05-2019, 10:31 AM
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CALIFORNIA
CALPERS
PRIVATE EQUITY

https://calpensions.com/2019/03/04/c...earning-asset/

Quote:
CalPERS can’t get enough of its top-earning asset

Spoiler:
CalPERS is considering a step toward buying companies on its own, rather than through partnerships with private equity firms that charge high annual fees and then take a chunk of the profits.

Private equity has been producing higher yields than publicly traded stocks. Under the current CalPERS investment portfolio, private equity is the only asset class expected to yield more than what critics say is an overly optimistic earnings target, a 7 percent average.

If markets decline after a decade-long bull market, as many expect, CalPERS may need a boost to hit not only its earnings target, but also to improve a funding level that last month was only 68 per cent of the projected assets needed to pay future pension costs.

The pitch for a new private equity plan even suggests that more of it could reduce or avoid the need for another employer rate increase. Rates are already at all-time highs, squeezing local government budgets, and are scheduled to go up for another five years.

The proposal to create two private private equity investment companies with “innovative” and “long-term” strategies, run by outside experts not under state salary caps, sounds more like a long-term plan than a quick fix.

New CalPERS chief investment officer, Ben Meng, who began work in January, told the board last month he was glad to hear the staff had adopted a “trial and error” approach to the plan developed during the last two years after extensive research.

“It may or may not work and may or may not work now,” he said. “However, given our current underfunded status and our outlook for the economy, doing nothing is not an option.”

Replying to critics who want an “in-house” staff that could buy companies on their own, like some Canadian public pension funds, Meng said CalPERS lacks the expertise and is not located in a financial center usually desired by top talent as they look for deals.

“Basically, we need to learn how to walk before we can run,” he said.

Meng said CalPERS owes employers and members an exploration of the proposed plan and other solutions before it may be forced to lower the 7 percent earnings forecast used to discount debt, resulting in another employer rate increase.

“So in conclusion, we need private equity, and we need more of it, and we need it now,” Meng told the board. “But we will do it in the most risk-prudent way and in the most risk-intelligent way.”

CalPERS also would try to expand its current private equity program, which could be difficult. It has not been able to buy into enough high-quality private equity funds to meet its investment target.

The CalPERS board was told last month that the pension fund has been “chronically underweight” in its top-earning asset class. Only about 7 percent of the total pension fund valued at $354 billion last week has been invested in private equity, below the target of 8 percent.

Last year the California Public Employees Retirement System invested about $6 billion in 18 private equity funds. CalPERS would need to invest about $10 billion a year to remain at the target of 8 percent of the fund.

Investing $10 billion a year would probably require finding 25 to 30 attactive private equity investments, said Steven Hartt, a Meketa consultant, and that would be a lot for the current private equity “structure to be able to find.”

Increasing private equity demand by large investors has created a glut of buyers and $2.5 trillion in global “dry powder,” money committed to managers not yet spent, Andrew Junkin, a Wilshire consultant, told the board. Top private equity funds can choose investors.


Doubling private equity could lower employer miscellaneous rates

Many public pension systems are underfunded since a market crash in 2008, when CalPERS lost $100 billion. Milliman estimates that the largest 100 U.S. public pension systems were 67.2 percent funded as of Dec. 31, 2018, when CalPERS was 65 to 66 percent funded.

A low funding level, even though the stock market has quadrupled since 2008, leaves the pension systems more vulnerable to an economic downturn or market sell-off that could drop their funding to 50 percent, a red line experts say makes recovery very difficult.

The CalPERS debt or unfunded liability, $139 billion as of last June 30, grows at the rate of 7 percent a year, the interest the debt would have earned if the money was in the investment fund and earnings hit the target.

CalPERS is a mature system with an investment fund several times larger than the employee payroll on which rates are based. So replacing a loss now requires a much larger rate increase than decades ago, when the payroll and fund were about the same size.

After the 2008 crash, CalPERS did not begin rate increases until 2012. Employer payments have nearly tripled from $6.9 billion in 2009 to $19.9 billion last year. Payments by employees, who do not pay for debt, were relatively flat, going from $3.9 billion to $4.4 billion.

The average employer “safety” or police and firefighter rate will reach 49 percent of pay in July, with top rates for 24 local governments of 70 percent or more of pay, a CalPERS funding and risks report said last fall.

CalPERS costs took 11 percent of the average city budget last fiscal year, up from 8.2 percent in fiscal 2006-07, and are expected to take 15.8 percent in fiscal 2024-25, a League of California Cities report said last year.

“In FY 2024–25, 25 percent of cities are anticipated to spend more than 18 percent of their General Fund on CalPERS pension costs with 10 percent anticipated to spend 21.5 percent or more,” said the League report. “These cities are located throughout the state.”

The two new companies would give CalPERS more control over investments. The most lucrative form of CalPERS private equity has been ieveraged buyouts, a type of investment that at times has resulterd in ruthlessly cut jobs, stripped assets, and companies crippled by debt.

CalPERS expects the new companies to provide more “transparency” or knowledge about operations, but that would not be public because of market competition. More private equity also could give CalPERS more protection against big losses in market downturns.

Two retiree groups and a former CalPERS board member, J.J. Jelincic, are skeptical or opposed to the new plan to focus on private equity, citing its declining yields, buyer glut, lack of transparency about pay and fees, and alternatives such as “in-house” private equity and leveraged stock.

But during a public period at the board meeting last month, the CalPERS staff’s four-part private equity plan, including the two new companies, got support from most of the major local government groups and public employee unions.

“It’s not very often that Mr. Brennand and I are agreeing on the same thing,” Dane Hutchings of the League of California said, referring to Terry Brennand of SEIU California. “We think it’s good for the employee. It’s good for the employer.”

A glimmer of good news for CalPERS at the board meeting last month: A Wilshire forecast two years ago, sometimes mentioned by critics, estimating the current CalPERS portfolio would yield 6.2 percent during the next 10 years has been raised to 6.75 percent.

“Over 10 years we think you are going to earn very close to your expected rate of return,” Wilshire’s Junkin told the board, “and recognize we know our forecasts are wrong. That’s one thing I know about them.”

Junkin explained that the forecast is a rational framework, based on fundamentals and risk, but not precise. CalPERS is scheduled to make a four-year adjustment in its investment allocations next year, which could change the earnings forecast and employer rates.

Adoption of the new private equity plan, much of which remains to be fleshed out, may affect the earnings forecast.


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Old 03-05-2019, 10:34 AM
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ILLINOIS

http://blog.independent.org/2019/03/...-idea/#new_tab

Quote:
Illinois’ Really Bad Idea

Spoiler:
By nearly all fiscal measures, the state of Illinois is a basket case. Driven by political promises to pay exceptionally generous pensions to state government employees it cannot afford, the state government’s finances are drowning in red ink.

Its public employee pension liabilities have grown so large that the state’s new governor, J.B. Pritzker, is considering transferring the effective ownership of the state’s public assets, such as airports, tollways, public water systems, and state parks, to state and local government employee pension systems. Wirepoints Mark Glennon reports:

Governor JB Pritzker’s administration has now made clear it will seriously consider the latest idea to address Illinois’ pension crisis – transferring public assets directly to state pensions. It recently announced the formation of a task force on the subject.

At its core, the concept is exceptionally simple. In practice, however, it’s exceptionally subject to smoke and mirrors and would further obscure a pension system that’s already far too opaque. More importantly, asset transfers do nothing to improve the state’s overall fiscal health.

Just convey ownership of some public assets to the pension, for free, in addition to the cash contributions taxpayers make now. That’s all this is about. Maybe the Illinois Lottery or Illinois Tollway for state pensions. Maybe Midway Airport or its water system for Chicago pensions. Those are examples of assets that have been mentioned that might be handed over.

Adopting such a policy would certainly eliminate the pretense that government services in the state are operated for the benefit of the taxpaying public. Transferring state and local government-owned assets to public employee pension funds would be a clear example of politicians putting the interests of the state’s bureaucrats ahead of those of the state’s residents.

Writing at Forbes, actuary Elizabeth Bauer identifies the one thing that could fix Illinois’ problems with its outsized pension liabilities that isn’t even under consideration:

And yet, what’s still not on the table, among the options Gov. Pritzker has said he’s willing to consider, is any sort of pension reform to address the benefits promised and being paid which are so much larger than those which private sector employers paid even when Defined Benefits were the norm for those companies.

To paraphrase a speech by a former state resident, the idea of Illinois’ proposed government of the bureaucrats, by the bureaucrats, for the bureaucrats, ought to perish from the earth.


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