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  #1661  
Old 11-01-2018, 06:06 PM
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ILLINOIS

https://www.chicagotribune.com/news/...010-story.html
Quote:
Commentary: Yes, Illinois can eliminate legislative pensions

Spoiler:
It’s naive to think Illinois will ever see real pension reform. At least not as long as state politicians continue to get big pensions from the same retirement plans they’re supposed to fix.

It’s a clear conflict of interest.

If Illinoisans ever want to see change, they’ll have to demand an end to legislative pensions. Fortunately, the idea isn’t as far-fetched as it sounds.

Conflicts of interest are inherent everywhere in government and business. It’s why investment bankers can’t trade in the stocks of companies they advise. And why managers in corporations aren’t allowed to supervise family members.

But in Illinois, overly generous pensions have helped turn part-time lawmakers into self-interested career politicians — making much-needed pension reform difficult.

Just look at the lifetime pensions some recent retirees can expect for having worked part time in the legislature for 20 years: Sen. Jeffrey Schoenberg, $2.5 million. Rep. Elaine Nekritz, $2 million. Sen. Kirk Dillard, $2.4 million. Those amounts are based on normal life expectancies.

The state’s ex-governors also can’t escape the conflict-of-interest question. Jim Edgar created the much-maligned 1996 pension ramp, and Pat Quinn borrowed billions in pension obligation bonds, a flawed strategy. And yet they, too, can expect $4.6 million and $3 million, respectively.

It’s no wonder Illinois lawmakers are so beholden to the status quo.

The good news is there’s a trend Illinoisans can leverage: Legislators have begun refusing pensions. It all started when Rep. Tom Morrison, R-Palatine, while on the campaign trail in 2010 said he’d reject a pension. He felt he couldn’t credibly promise his constituents he’d reform pensions while benefiting from one, too. “If I had remained in the system, I would have been seen as part of the problem. I had to opt out.”

Today, 50 current legislators — nearly 30 percent of Illinois’ legislature — have already opted out of the pension plan, according to the retirement system’s records.

That includes 37 Republicans and 13 Democrats, from the conservative Morrison to the progressive Sen. Andy Manar, D-Bunker Hill.

Wirepoints launched an initiative in August to encourage legislative candidates to pledge to refuse a pension. So far, 15 legislative candidates across the state have signed that pledge to refuse a pension, if elected.

The other good news: Ending pensions for current and future politicians is entirely within the General Assembly's control. There are no unions to block the way. No low-income workers to be considered. It’s just politicians and their pensions.

The transition away from pensions is simple. Lawmakers keep the benefits they’ve already earned, but going forward they’ll contribute to Social Security and/or a deferred compensation plan.

Getting the remaining politicians to give up their pensions won’t be easy, though. Illinoisans will have to pressure those legislators that want to keep their pensions. Fortunately, politicians have given their constituents plenty of ammunition.

For starters, lawmakers have failed miserably at their jobs. They haven’t balanced the budget in nearly two decades. They’ve created the nation’s worst pension crisis, as reported by Moody’s Investors Service. And they’re ultimately responsible for the net loss of 1.4 million Illinoisans to domestic outmigration since 2000, according to U.S. census data. All that has left the state at the brink of a junk credit rating. Lawmakers simply don’t deserve pensions.

Then there’s the fact that Illinois legislative work is meant to be part time. Yet most politicians have private-sector jobs — including House Speaker Michael Madigan’s infamous position as a property tax lawyer. Despite that, lawmakers treat their part-time political work as if it were a full-time job — and grant themselves generous compensation to match.

And most embarrassingly, at just 15 percent funded, the lawmaker pension plan is just plain broke. Without taxpayer bailouts, the fund would run out of assets in less than three years, based on data from the Commission on Government Forecasting and Accountability.

The stage is set for ending lawmaker pensions entirely. The legislators and candidates who’ve already rejected a pension are growing in number.

The hard part for Illinois’ remaining politicians will be voluntarily overcoming their own self-interest. If they won’t, the next step is for Illinoisans to shame them into doing what’s right.

Ted Dabrowski is president of Wirepoints, an independent research, commentary and news organization. John Klingner is a policy analyst at Wirepoints.


http://www.wirepoints.com/shut-down-...kers-on-board/

Quote:
Shut down Illinois lawmaker pensions (Part 3): Getting lawmakers on board
Spoiler:
Illinois legislative pensions must be ended. Wirepoints has already made the case for why in two recent pieces. In Part 1: They’re already bankrupt, we showed how legislative pensions are overly generous and not deserved – not to mention bankrupt. And in a Part 2: A conflict of interest, we argued that legislative pensions are a clear conflict of interest, preventing broader pension reform in Illinois.

The good news is nearly a third of current lawmakers have already voluntarily refused a pension. The stage is set for ending lawmaker pensions entirely.

The hard part will be getting lawmakers who are currently earning pension benefits on board. It will take lots of pressure from constituents to make that happen, but it’s not impossible. You can bet a bi-partisan public is fully behind ending legislative pensions.

Who’s still on track for a pension? Below are the 124 current legislative members still in the pension system. The plan members range from House Speaker Mike Madigan (D-Chicago) to first term legislator David Welter (R-Morris)



And how much will they get? The bigger pensions will go to the career legislators. Tier 1 politicians who’ve been in the statehouse for about 20 years can expect payouts worth millions.

For example, if Senate Minority Leader Bill Brady (R-Bloomington) retired tomorrow, he’d expect to receive over $3.1 million in pension benefits over the course of his retirement. Same goes for Assistant Majority Leader Sara Feigenholtz (D-Chicago), who can expect about $2.5 million in benefits if she retired tomorrow.

Other, newer legislators haven’t accrued as many benefits. More recent members are under the newer Tier 2, a less generous plan for legislators that started after January 2011. However, the benefits they earn are still far more generous than what Tier 2 teachers, state workers, and university employees receive.

Getting lawmakers on board

Ending pensions is entirely within the legislature’s control. There’s no need for a constitutional amendment. There are no public sector unions involved. And it won’t affect current retirees.

Lawmakers have plenty of legal options to choose from: a pension buyout, a refund of contributions, some form of token consideration, etc. Any of those will do as long as the plan ends the accrual of new benefits for all lawmakers. Illinois’ politicians can keep everything they’ve earned so far, but going forward, all of them would contribute to Social Security and/or a deferred compensation plan.

The law is not the problem. The only thing preventing an end to lawmaker pensions is Illinois’ lawmakers themselves.

They’ll have to be pushed, prodded, and pressured into action. Those that actively object to an end to their pensions should be shamed by their colleagues, the media and their constituents.

Fortunately, there’s a collection of legislators who are natural allies of a “no pension” plan. A group of fifty lawmakers have already opted out of the plan, according to the retirement system’s records.

That includes 37 Republicans and 13 Democrats, from the conservative Rep. Tom Morrison (R-Palatine), to the progressive Sen. Andy Manar (D-Bunker Hill).



That’s not to say that these lawmakers’ support is guaranteed. Many of the above could still say “I refused a pension, but I won’t vote to end my colleagues’ benefits.” Pressure from both the media and their constituents will still have to be applied to make sure that doesn’t happen.

The list of 50 “no pension” lawmakers may grow after the election.

Wirepoints launched an initiative in August to encourage legislative candidates to refuse a pension if elected. So far, 17 legislative candidates across the state have signed Wirepoints’ pledge. The list is below.

Darren Bailey, candidate for state representative, House District 109
Alyssia Benford, candidate for state representative, House District 98
Jillian Bernas, candidate for state representative, House District 56
Amanda Biela, candidate for state representative, House District 15
Dan Caulkins, candidate for state representative, House District 101
Julie Cho, candidate for state representative, House District 18
Amy Grant, candidate for state representative, House District 42
Ken Idstein, candidate for state representative, House District 62
Dwight Kay, candidate for state representative, House District 112
Ammie Kessem, candidate for state representative, House District 19
Tonia Khouri, candidate for state representative, House District 49
Jay Kinzler, candidate for state representative, House District 46
Joan Lasonde, candidate for state senator, Senate District 9
Jason Plummer, candidate for state senator, Senate District 54
Marilyn Smolenski, candidate for state representative, House District 55
Blaine Wilhour, candidate for state representative, House District 107
Craig Wilcox, candidate for state senator, Senate District 32
Whatever the outcome of the election, the pressure for new lawmakers to refuse a pension doesn’t have to end there. According to the pension fund’s rules, freshmen lawmakers have up to two years to opt out.

There are plenty of reasons to end lawmaker pensions. Politicians have made a mess of Illinois, their benefits are way too generous already, and their pension plan is bankrupt anyway.

But the most important reason is to end the inherent conflict of interest that stems from legislators benefitting from a pension in the first place. Ending legislative pensions is a vital step to toward real, comprehensive pension reform.


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  #1662  
Old 11-07-2018, 06:27 PM
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ILLINOIS

https://www.illinoispolicy.org/58-fo...gure-pensions/
Quote:
58 FORMER ILLINOIS STATE LAWMAKERS COLLECTING SIX-FIGURE PENSIONS

Spoiler:
Former lawmakers receive generous benefits from the state’s worst-run retirement fund.

After leaving Springfield, 58 former state lawmakers are collecting yearly pension payouts over $100,000, according to General Assembly Retirement System data. Of those, 44 have accumulated over $1 million in total pension benefits.

On average, the 58 former state lawmakers collecting six-figure pensions have accumulated nearly $1.5 million in total pension benefits, while averaging only $126,300 in total contributions.

In one of the nation’s worst states for pension debt, with estimates ranging from $130 billion to $250 billion, the lawmakers’ system is the worst of the worst. The General Assembly Retirement System, or GARS, contains only 14.4 percent of needed funds and requires a taxpayer bailout each year. That compares to a 40 percent funding ratio for the state’s five pension systems combined, a figure that may be

$100K club: Average state lawmaker with six-figure pension contributed $126K, takes out $1.5M

Topping the GARS list in both yearly and total pension payouts is former state representative and senator Arthur L. Berman. Berman served 31 years, first in the Illinois House and then the Illinois Senate, until retiring in 2000. Berman receives a $250,000 yearly pension, accumulating over $3.3 million in total benefits.

Also on the list is former Illinois Gov. Jim Edgar, whose landmark pension legislation, the “Edgar ramp,” paved the way for today’s crisis. Edgar collects $166,000 in yearly benefits from GARS and has accumulated nearly $2.3 million since retiring at age 55. His total income from taxpayers was reported as more than $311,000 per year, because he also receives $83,000 from the State University Retirement System and $62,796 in part-time pay from the University of Illinois.

With a base salary of $67,836, Illinois lawmakers have the most generous salary of any neighboring state and the fifth-highest in the nation. Taxpayers end up paying a former state lawmaker’s salary three times over to keep GARS afloat.

Pensions benefits for lawmakers are also more generous than those for teachers and other state workers.

Illinois Tier 1 teachers can receive up to 75 percent of their last, highest four years. Tier 1 lawmakers, however, are able to receive up to 85 percent of their salary as of the last day of service. Under the GARS formula, a lawmaker with 20 years of service is able to reach their maximum percentage, while a teacher must work 34 years to receive the maximum. The 3 percent compounding cost-of-living adjustments, or COLAs, double a lawmaker’s pension in 25 years.

The disparity between politicians’ and other state workers’ benefit formulas also extends to Tier 2 benefits, which cover lawmakers that entered GARS in 2011 or later. COLAs are still compounded annually for Tier 2 lawmakers, but not for teachers and other state workers.

Lawmaker pensions drain taxpayer funds, provide excessive benefits and involve an inherent conflict of interest. While a constitutional amendment to reform future pension growth is needed, lawmakers in Springfield can take the first step in reigning in runaway pension debt by moving to eliminate legislative pensions.


https://fixedincome.fidelity.com/ftg..._110.1#new_tab
Quote:
Pension buyouts for Illinois budget remain in flux

Spoiler:
CHICAGO – Illinois' budget assumptions of $400 million in fiscal 2019 savings from pension buyouts remain uncertain as the state’s largest fund is preparing to launch the bond-financed programs in the second half of fiscal 2019.

The Teachers' Retirement System board at its monthly meeting last week discussed a draft of administrative rules that would govern implementation of two new “accelerated pension benefit payment” programs.

“While TRS is preparing to implement these accelerated payment options in 2019, as yet no funding is in place for the lump-sum payments. Money for the programs depends on the sale of $1 billion in state bonds by the Governor’s Office of Management and Budget,” TRS said in a statement.

The board also approved a preliminary $4.81 billion fiscal 2020 state contribution — a 10.6% increase that remains billions shy of actuarial funding. Trustees were told the TRS’ unfunded fiscal liability grew by 3.04% to $75.8 billion in fiscal 2018 from $73.4 billion while its funded ratio held nearly steady at 40.7%.

The most recent fiscal 2017 unfunded tab for all five of the state’s funds totaled $129 billion for a collective funded ratio of 39.9%.

The first program would partially “buy out” inactive members who are eligible for an eventual pension, offering them a lump sum equal to 60% of their expected lifetime benefits.

The second program presents an option to retiring members of the system's Tier 1, employees in place before reduced benefits were approved in 2010 for new hires. They can trade in their 3% automatic annual pension increase for a 1.5% cost-of-living adjustment and a lump-sum check equal to 70% of the difference between what they would receive in retirement.

“Our timetable is to make the buyout programs available within the first six months of 2019,” before the end of fiscal 2019 June 30, said TRS spokesman Dave Urbanek. The retiring Tier 1 program will come first followed by the inactive member program.

Both programs run through June 2021 and were among pension changes approved by lawmakers and signed into law by Gov. Bruce Rauner in May as part of the $38.5 billion fiscal 2019 budget.

The Rauner administration included a disclosure of the planned pension borrowing in its last general obligation offering statement saying it would occur in the latter half of the fiscal year after the programs were implemented.

“Timing has not been determined yet, but the issuance will not be this year,” the administration said Monday when asked for an update.

The last bond offering statement also warned that the “state can provide no assurance” that the expected savings can be realized from the buyouts.

The budget relies on $382 million under the Tier 1 buyout and $41 million for the buyout of inactive employees.

TRS said it does not yet have any savings estimates.

“Until we get some actual data from members after the programs begin, we cannot accurately estimate what future participation will be,” Urbanek said.

For valuation purposes, TRS actuaries relied on estimates used by the legislative sponsors, who projected 22% of inactive members and 25% of retiring Tier 1 members would take the offers. “However, no one has been able to independently verify the accuracy of those estimates,” Urbanek said.

The state employees fund told the Civic Federation of Chicago that it planned to implement the buyouts late this year for one and spring for the other.

The TRS contribution request is based on a formula tied to the state’s 1995 pension funding ramp legislation. It will fall more than $3 billion short what would be the $7.9 billion actuarially based contribution and will mark the 80th year that contributions have fallen short of such a mark.

“The future viability of TRS is directly dependent on continued state support that adequately meets the cost of benefits and pays off the unfunded liability,” TRS executive director Dick Ingram said in a statement.

TRS recorded an 8.45% return on investments in the last fiscal year. Its 40-year return rate was 9.2%, better than its 7% assumed rate.

The contribution is preliminary and will be reviewed by the state actuary before being finalized for inclusion in the next state budget typically unveiled in February.

Tuesday's election will decide who will be the governor proposing the fiscal 2020 budget. Rauner is seeking a second term against venture capitalist J.B. Pritzker.

Rauner supports pension measures that include asking employees to take a COLA cut in exchange for future raises counting toward their pensionable salary and shifting some costs over to local districts and universities. Pritzker has proposed pouring more money upfront into the system and leveling out the 50-year payment schedule set in 1995 but he has not provided specifics on how to fund the changes.


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  #1663  
Old 11-07-2018, 06:56 PM
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PENNSYLVANIA

https://www.ai-cio.com/news/pennsylv...cutting-plans/

Quote:
Pennsylvania Pension Panel Explores Debt-Cutting Plans
The state’s SERS and PSERS retirement organizations say they are looking for ways to cut management fees and improve transparency.


Spoiler:
A study committee of Pennsylvania officials is trying to find ways to help plug the $70 billion in total debt between the Public School Employees Retirement System and the State Employees Retirement System.

Focusing on fee reductions and other steps, the Public Pension Management and Asset Investment Review Commission held its final hearing last week in Harrisburg, the state capital, to figure out how to get out of this dilemma, with the help of experts.

The pension funds could save up to $6.5 billion if they cut back on manager fees, which would clear the $1.5 billion minimum the committee requires for each, Marcel Staub, CEO of Novarca Group, an independent cost specialist manager for institutional investors, told the panel.

Plus, innovation can help, said Ashby Monk, research director of the Stanford Global Projects Center. The pension plans could utilize new technology to help bolster returns, he contended.

The goal of the study commission, said Joe Torsella, the state’s treasurer and the commission’s vice chair, is to find out how to “do better for our beneficiaries, for our taxpayers, and for the Commonwealth as a whole.”

The public school fund’s executive director, Terry Sanchez, said it is continuing to provide “as much transparency as possible,” and publicly reports all investment and related expenses, including fees.

Its chief investment officer, Brian Lewis, said the organization is looking into and implementing several cost-reduction tactics. It is also examining its public and private assets internally.

The state employee plan’s executive director, Glen Grell, said it does not “waste system assets,” nor does it hide fees. Grossman also noted a savings plan involving renegotiating fees with managers—fees would get cut in exchange for profit-sharing on returns above an agreed benchmark. The strategy is aimed at saving $2.4 billion over 30 years.

“We are open to considering any fee savings recommendations,” said CIO, James Grossman Jr. “The investment professionals at PSERS are always looking to negotiate the fairest fee deal possible.” Grossman added that all fee negotiations are now formally documented.

The state employees’ pension took offense at the commission’s speculations that it was hiding fees, said Grell. He labeled it a “false allegation” that “creates sensational headlines, it is incorrect and irresponsible.”

Last month, in a previous hearing, the coalition discussed a report by Ludovic Phalippou, an Oxford finance professor, which found that the two pension funds had been underreporting one-third of fees paid to private equity firms over the past decade. Phalippou found about $3.8 billion in unaccounted fee money between the plans.

The study was conducted to show the risk factors in the plans’ private equity investments. The committee’s mission is to improve the funded statuses, which are 56.3% for the public school retirement plan and 59.4% for the state employees system.


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Old 11-08-2018, 10:56 AM
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https://burypensions.wordpress.com/2...-for-pensions/

Quote:
Gubernatorial Results for Pensions

Spoiler:
As a followup to the last blog about states where public pensions are something of an issue in the election for governor, here is how it turned out:


Oregon
50%-Incumbent Democratic Gov. Kate Brown: Borrow, sell assets, task force, study due September 30, 2019.
44%-Republican state Rep. Knute Buehler: Freeze and protect accruals with everyone going into a 401(k)-type plan with an unspecified “reasonable match”
Colorado
52%-Democratic U.S. Rep. Jared Polis: would “reject efforts to reform PERA on the backs of our teaching professionals and state or local employees in the future.”
45%-Republican Treasurer Walker Stapleton: proposing allowing all employees to choose a 401(k)-style plan, raising the retirement age and reducing funding rate to 5% from 7.25%.
New Mexico
57%-Democrat U.S. Rep. Michelle Lujan Grisham
43%-Republican U.S. Rep. Steve Pearce: “Employees many years away from retirement are going to have to see significant changes.”
Massachusetts
33%-Democrat Jay Gonzalez: plan to tax endowments
67%-Popular incumbent Republican Gov. Charles D. Baker
Rhode Island
52%-Democrat incumbent Gov. Gina Raimondo
39%-Republican Alan Fung
4%-Independent Joseph Trillo: campaigning on the promise of giving back part of the 3% COLA cut to retirees, and threatening to appoint a special counsel to investigate what he calls “high-risk” alternative investments made by the pension fund during Ms. Raimondo’s tenure as treasurer.
Illinois
54%-Democrat J.B. Pritzker: has not released a detailed plan to tackle the state’s pension issue, is leading Mr. Rauner in the polls.
39%-Incumbent Republican Gov. Bruce Rauner
2%-Libertarian Grayson “Kash” Jackson
4%-third-party candidate State Sen. Sam McCann
Connecticut
48%-Democrat Ned Lamont
47%-Republican Bob Stefanowski
Iowa
47%-Democrat Fred Hubbell
50%-Republican incumbent Kim Reynolds
Pennsylvania
58%-Democratic Gov. Tom Wolf
41%-Republican, fellow York County millionaire Scott Wagner

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Old 11-08-2018, 11:15 AM
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CALIFORNIA
CALPERS

https://www.ai-cio.com/news/calpers-...y-commitments/

Quote:
CalPERS Can’t Find Enough Private Equity Commitments
CalPERS consultant finds without a huge increase in new private equity commitments, the fund will see a declining allocation to the asset class.


Spoiler:
A consultant’s review of the California Public Employees’ Retirement System’s $27.6 billion private equity portfolio has found that the current investment pace is not likely to be sufficient to maintain the pension system’s 8% target to the asset class.

The $361.1 billion CalPERS is below the 8% allocation right now; 7.7% of its portfolio is invested in private equity as of August 31. CalPERS is the largest private equity investor in the US.

The review by the Meketa Investment Group, scheduled to be presented at the CalPERS Investment Committee meeting on November 13, says CalPERS made $5.3 billion of commitments during the 12-month fiscal year ending June 30, slightly below its $6 billion target.

However, the problem goes beyond a $700 million shortfall for CalPERS to reach its target allocation. The pension plan so far has not been able to reach its private equity allocation because it is receiving more distributions as funds end than it can reinvest. Private equity funds normally end after a seven- to 10-year cycle and redistribute profits.

The problem for CalPERS is it can’t find enough new private equity investments in any given year, as Meketa notes. Distributions have exceeded contributions for eight years in a row, including the latest fiscal year, the review noted.

In the June 30 fiscal year, Meketa found that cash distributions to CalPERS from private equity funds totaled $7.4 billion compared to $4.5 billion in new contributions. While CalPERS made a larger $5.3 billion in new commitments to private equity, not all the money was called by private equity general partners because they did not find suitable investments.

Meketa found that CalPERS’s commitments on a calendar year basis have dropped dramatically since 2008, when the pension system allocated more than $14 billion to new private equity funds. Since then, CalPERS has not allocated more than $4 billion in any single calendar year to the asset class, the consultant’s review shows.

CalPERS’s own data shows that the pension system has received more than $80 billion in private equity distributions combined for the 11 fiscal years between June 30, 2007, and June 30, 2018, but commitments to new investments in that time period are less than half of that figure.

CalPERS’s own investment staff has concluded that the retirement plan would need to make $10 billion in commitments each year for the pension plan to maintain its 8% allocation to private equity, the Meketa review notes.

Pension system investment officials have not detailed extensively in public how they plan to get up to that $10 billion number in their top-returning asset class. They have described an environment at investment committee meetings that pits CalPERS against other institutional investors, as they vie to be part of over-subscribed top-tier private equity funds.

What’s clear is the importance of the asset class to overall returns.

The private equity asset class provided CalPERS with a 16.1% net return in the fiscal year ending June 30, 9% over the 10-year period, and 10.5% over the 20-year period, shows CalPERS data.

In contrast, the CalPERS overall fund produced an 8.6% return in the latest fiscal year, a 5.6% return for the 10-year period, and a 6.1% return for the 20-year period. CalPERS is only 71% funded.

While it stills needs final board approval, the $13 billion private equity direct investment organization CalPERS has announced it plans to build that would invest in later-stage companies in the venture capital cycle as well as make buy and hold investments in established companies is still moving forward. CalPERS officials hope to launch the direct private equity organization in the next several months.

Even with the new direct investment organization, CalPERS official say they plan to keep the traditional $27.6 billion private equity program. The program consists almost exclusively of funds run by general partners, more than 60% buyout funds. CalPERS, along with other institutional investors, is a limited investor in the funds.

Meketa did note that CalPERS’s private equity investment staff has explored a number of alternatives to build up the traditional private equity program. These include separate accounts with key private equity managers to increase deal flow, co-investments alongside existing private equity fund investments, and working with the pension plan’s global equity team to explore investments in publicly traded opportunities that provide private equity-like exposure.

It’s not clear when the talk will move into action.

“We note that Staff completed only one Separate Managed Account in the most recent fiscal year, and has not pursued co-investments, both logical investment strategies for a plan like CalPERS,” Meketa consultants Steve Hartt and Hannah Schriner said in their review. “We understand the execution of these strategies remains under consideration and will likely be revisited once a permanent Managing Investment Director is named.”

Réal Desrochers, managing investment director of the CalPERS Private Equity program, left the retirement plan in April 2017 to take a position with a private equity firm.

CalPERS Chief Investment Officer Ted Eliopoulos, who is departing at the end of the year, said a new private equity head should be named shortly after the new CIO, Ben Meng, takes office.

A start date has not yet been announced for Meng.


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Old 11-08-2018, 11:19 AM
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https://www.edchoice.org/blog/americ...its-primetime/

Quote:
America’s Public Worker Pension Crisis Hits Primetime
PBS’s Frontline misses the mark on who’s to blame for the public worker pension crisis

Spoiler:
Pensions hit primetime. PBS recently aired an episode of Frontline that reported on public employee pensions in Kentucky. This is an issue that affects so many Americans, not only the workers who benefit from pensions, but also taxpayers that pay to help fund them. It’s also an issue that for most is probably as exciting and simple to understand as filling out one’s tax returns.

Nonetheless, an important issue and crisis that contributed to the bankruptcy of some municipal governments—including Detroit, Michigan; Stockton, California; Jefferson County, Alabama and Central Falls, Rhode Island. And it’s an issue that’s coming home to roost in some states like Kentucky.



Why should Americans care about this issue in the first place?
Well, this is about peoples’ livelihoods. Public school teachers and other public workers all over the country have entered into contracts based on a promise that they would receive a pension they can count on in their retired lives.

For these plans to work, they must be sufficiently pre-funded. Actuaries estimate the costs of benefits to be collected in the future, and workers and employers (funded by taxpayer money) make contributions to the plan. Herein lies one of the main problems facing many states.

By their own measures, all public employee pension plans in the U.S. reported $1.38 trillion in unfunded liabilities in FY 2015. This means plans have $1.38 trillion less on hand than they owe for benefits that have been accrued. Future taxpayers will have to pay this bill.

Some pension funds are severely underfunded, such as Kentucky, Illinois, California, Connecticut and New Jersey. For example:

The Teachers’ Retirement System of the State of Kentucky (KRS) has about 56 cents on hand to pay every dollar it owes for pension benefits. That’s $14.3 billion in unfunded liabilities, or nearly $21,000 for each K–12 public school student in the state. (Keep in mind that this debt is for pensions only and does not include retiree health benefits—Kentucky’s medical insurance plan for teachers is funded at 27 percent).
Illinois’s teachers’ plan, which excludes teachers in Chicago Public Schools, has just 40 cents on hand for every dollar it owes ($73.4 billion in unfunded liabilities). Again, this does not include retiree health benefits.
On the other hand, some plans, like in Wisconsin’s and South Dakota’s, are fully funded by their measures.

While not all plans face funding deficits as large as some of the states mentioned, they still face financial risk. And it is on this point that Frontline missed an opportunity to educate its viewers about a key point on this issue. After the show was over, I walked away feeling it was more misleading than educational.

The program devoted a significant part of the program discussing investors’ fees. Many viewers were likely led to believe that Wall Street is the main culprit, when in reality, it has absolutely nothing to do with the cause of the funding issues.

The funding issues materialized, and when the system’s fiscal health started to deteriorate rapidly, Kentucky Retirement Systems Board members chose to look outside for a solution. In short, they thought that they could invest their way out of mounting pension debt.

This is like someone who starts buying lottery tickets after racking up huge credit card debt. Not a good strategy to dig yourself out of a hole.



So how is it possible for pension funds like Kentucky’s to rack up such enormous pension debt?
Part of the problem in Kentucky was that politicians in the past chose to short-fund pensions. They did not make the entire actuarially required contributions. But that cannot completely explain why debt is so high. Based on data from the Center for Retirement Research, some states like Alabama, Arizona and Georgia were fully funded in 2001 and have been making full payments every year since. Today, however, these states’ public pension plans carry significant pension debt nonetheless, despite making all actuarially required contributions.

It boils down to the assumed discount rate. This is the rate of return on the fund’s investments that plans count on hitting. This assumption is a key ingredient that actuaries use to estimate the cost of the plan. If they guess right, then “dollars in” equal “dollars out.” If they guess high, then the fund generates a surplus. Miss by guessing too low, then the fund generates a deficit. Imagine making purchases with a credit card without ever seeing a price or invoice and paying several years, sometimes decades, later.

States’ pension plans typically assume that investments will generate between 7 percent and 8 percent returns on investments. In the 1980s and early 1990s, an 8 percent rate of return made sense because plans could invest in low-risk bonds, such as a 30-year Treasury bond, and reliably hit this benchmark. Public pension plans by the late 1980s were mostly well funded; the funded ratio of the median plan totaled 90 percent.

But starting in the early 1990s, yields from these low-risk bonds started declining. At the same time, pension funds continued assuming that their investments would keep earning 7 or 8 percent. Some funds lowered their assumptions about the discount rates, but not by much (certainly not enough).

In the chart below from the Pew Charitable Trusts, the assumed rate of return in the median pension plan remained above 7 percent while the yield on a low-risk bond declined to about 3 percent. The gap between the two lines represents the risk that funds must take on in order to even have a chance at hitting their marks. And taking on increased financial risk means that pension systems will face an increased chance at not meeting their targets.

Comparatively, public pension plans in other countries like the Netherlands, Canada, and the United Kingdom generally use lower discount rates to figure out required contributions. Public pension plans in the Netherlands, which assume a discount rate of just 3.5 percent, are among the best-funded plans in the world.

This arrangement of assuming a discount rate that does not accurately reflect the risk of the plan hides the true costs of pension plans from the public, where many plans for years now have been funded significantly below the actual costs.

A 5 percentage-point gap sounds small, but in the world of finance, that’s a huge gap that can generate enormous deficits.

Joshua Rauh, a financial economist at Stanford University, estimated the unfunded liabilities for all public pension plans in the U.S. based on Treasury yields. According to his analysis, pension debt for the 649 state and local pension plans in the U.S. is $3.8 trillion instead of $1.38 trillion. That’s almost 3 times greater than what state and local governments report for their public employee pension plans.







These are critical points to understanding why pensions are a problem worthy of more people’s attention.

Frontline could have interviewed a pension expert like Rauh about funding issues. Instead, Frontline devoted a significant part of the episode to blaming Wall Street for charging exorbitant fees. Regardless of who was right or wrong when it came to agency fees, Frontline should have been clear that Wall Street fund managers weren’t the cause of Kentucky’s pension woes. A more conducive approach to solving the pension problem is to properly educate people about pensions, not create scapegoats, and Frontline missed this mark.



So what can states like Kentucky do to solve their problems?
As I wrote before, systemic change is a must.

Some Kentucky legislators did try to pass a pension reform bill which would have created a sensible plan for new workers only. The intention and bill was right. Unfortunately, their approach created a problem. (It turned out that slipping a pension reform bill into a sewage bill during a committee hearing and without public comment wasn’t a good strategy.)

Reform is needed.

The longer some states delay, the tougher their decisions and the more people–current and future taxpayers and public employees— that will be put at risk. But even if states manage to pass pension reform, they still will have to somehow manage massive pension debt. And a nontrivial number of states face some very deep holes. Unfortunately, none of the options on the table are desirable. States will have to make tough decisions.

There is at least one policy that can help, though, and that is private school choice.

These programs have generated significant taxpayer savings over the last couple decades. Cumulatively, voucher and tax-credit scholarship programs have generated up to $6.6 billion cumulatively in taxpayer savings, or more than $3,000 for each voucher and scholarship provided for students. And given that programs are available only for disadvantaged students, expansion of these programs, plus introduction of new programs, can generate even greater savings.

This means that private school choice programs can act like a release valve for states that are facing severe pension pressures. And they could have this fiscal benefit along with the benefits to families that come along with introducing and expanding educational choice.

More Americans should be paying attention to pensions. And policymakers can do well by thinking about policies like educational choice as complements to pension reform.


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Old 11-09-2018, 12:28 PM
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CALIFORNIA

https://www.ai-cio.com/news/exclusiv...ension-rights/
Quote:
Exclusive: California Supreme Court Sets Oral Arguments on Public Pension Rights
The hearing on Dec. 5 will help determine if public workers’ pensions can be reduced and could have national implications.


Spoiler:
The California Supreme Court will hear oral arguments on Dec. 5 in a case with potential national implications as to whether pension benefits can be reduced for existing public employees.

California Chief Justice Tani Cantil-Sakauye issued a notice on Nov. 7 setting the oral arguments for the controversial case that challenges the so-called “California Rule.” The rule holds that public workers enter a contract with their employer on the day they begin employment and that their pension benefits cannot be diminished, unless replaced with similar benefits.

Courts in California have upheld the rule in a series of legal rulings beginning in 1955.

A dozen other states use a similar approach to California, holding pension benefits as a contractual right. A court decision in California would only apply to the state but California court decisions can often be a bellwether for other states. The states that follow the California approach are Alaska, Colorado, Idaho, Kansas, Massachusetts, Nebraska, Nevada, Oklahoma, Oregon, Pennsylvania, Vermont, and Washington.

The case before the California Supreme Court pits Gov. Jerry Brown and his 6-year-old pension reform law against unions representing California firefighters.

The Brown law eliminated a program by the largest US pension plan, the California Public Employees’ Retirement System (CalPERS), that allowed CalPERS members to buy “air time.” The “air time” gave workers extra years of service that was credited to their pensions even though the employees had not worked the additional years.

The case could ultimately have a bigger impact that just the selling of the “air time,” because if the court upheld the Brown administration law, it in effect would allow California officials to reduce guaranteed pension benefits if they chose to do so.

Brown, who leaves office on Jan. 7, asked Cantil-Sakauye in July to accelerate the state supreme court’s consideration of the case. A state appellate court panel had concluded that pension benefits could be reduced and thus the selling of the “air time” could be eliminated.

Back in January at a news conference, Brown stated that he anticipated that the courts would uphold his pension changes.

“When the next recession comes around, the governor will have the option of considering pension cutbacks for the first time in a long time,” he said.

CalPERS covers not only state employees but also those in many cities. In February, the League of California Cities released a report arguing that pension costs were becoming “unsustainable” for some local governments.

Lawyers for union leaders representing the firefighters have agreed that regardless of the fiscal conditions of government entities, the pensions for public employees are guaranteed and cannot be changed.

Cantil-Sakauye did not respond to Brown in July and it was unclear when the oral arguments would occur, but the court docket for Dec. 5 was . released on Nov. 7. It is unclear how long it would take for the court to issue a ruling and whether it could occur before Brown leaves office.


https://www.ai-cio.com/news/calstrs-...son-companies/
Quote:
CalSTRS to Divest of Private Prison Companies
The two US companies running private prisons, whose detainees including immigrants caught crossing the US-Mexico border, will no longer be part of the CalSTRS portfolio.


Spoiler:
The investment committee of the California State Teachers’ Retirement System (CalSTRS) has approved divesting its holdings in CoreCivic and GEO Group, the two US publicly held companies running private correctional facilities.

The action by the committee on Nov. 7 makes CalSTRS the third major US public pension fund to divest from the private prison companies. In July, the New York State Common Pension Fund divested from the two correctional companies upon orders from its sole trustee, New York State Controller Thomas DiNapoli.

In 2017, the New York City Pension Funds also divested its holdings in CoreCivic and GEO Group.

While CalSTRS’s global equities and fixed income portfolio holdings in the two companies were worth only around $12 million as of November 6, the divestment by such a large pension plan is expected to shine more light on the companies and their practices. Advocates against private prisons and the federal governments policy of using the private facilities to house immigrant detainees have been pressuring other institutional investors to divest.

CalSTRS is the second-largest pension system in the US with almost $230 billion in assets under management. Combined, CalSTRS and the New York State and New York City plans have almost $600 billion in assets under management, a powerful trio of institutional investors that have said no to private prison companies.

The vote by the CalSTRS Investment Committee comes after CIO Chris Ailman ordered CalSTRS investment staff to conduct a divestment review in July. This came after the Trump administration’s zero tolerance border crossing policy highlighted children being separated from their parents and the housing of detainees, both adults and children, in facilities run by the two private corrections companies.

Several dozen protesters calling on CalSTRS to divest from the two companies had appeared at the July 20 investment committee meeting. It was the same meeting at which Ailman made his decision to conduct the review.

“The board conducted a review of the staff research; we agreed that the engagement efforts were thorough and listened to our expert investment consultants,” said Investment Committee Chair Harry Keiley in a press release issued after the vote on Wednesday. “Based on all the information and advice we were provided, the board decided to divest according to the policy criteria.”

The divestment is scheduled to be completed within six months.

Keiley wasn’t more specific, but the committee wasn’t acting on a recommendation from the investment staff. The CalSTRS investment staff review released Nov. 7 did not take a position either way as to whether the pension system should divest from the private prison companies. The review looked at whether CalSTRS’s investments in the two companies violated its environmental, social, and governance (ESG) policy, which includes respect for human rights and whether the investments in the companies would be jeopardized.

“Staff does not take a position on whether or not private prisons violate the ESG policy to the point of justifying implementation of the CalSTRS Divestment Policy,” the review said. “Staff realizes the operation of prisons (public or private) pose noteworthy risks under the CalSTRS ESG policy. However, in several cases it is the contracting agency, such as the US Government, that creates and carries the risk.”

On the human rights issues, the investment staff report split down the middle pro and con on arguments that the companies were violating detainees’ human rights.

“While staff has been informed by both companies that they were not directly involved in the separation of the family, they did provide capacity for the detention of the parents,” the CalSTRS review noted.

The review said while neither GEO Group nor CoreCivic have facilities to house unaccompanied minors, both have a facility to house detained families. It said the two facilities operate outside San Antonio, Texas, and are designed to keep children with one of their parents.

CalSTRS officials said they toured the facilities and noted detainees were able to roam the grounds, the living units were not locked, and there was no razor wire or weapons carried by staff.

“While staff was not able to obtain evidence that these companies violate the respect for human rights, private prisons do add capacity, and help facilitate a system, that may be viewed as violating the Risk Factor,” the review said.

In an emailed comment to CIO, a GEO Group spokesman defended the company’s practices.

“We believe [CalSTRS’s] decision was based on a deliberate and politically motivated mischaracterization of our role as a long-standing service provider to the government,” the statement said. “Our company has never played a role in policies related to the separation of families, and we have never provided any services for that purpose. We are disappointed that misguided, partisan politics were able to jeopardize the retirement security of California’s educators.”

Officials of CoreCivic could not be immediately reached for comment.

The CalSTRS review disputes GEO Group’s contention that California educators’ retirement security would be affected by divestment. The review said removing the private prison companies from the CalSTRS portfolio does “not pose a significant risk or benefit to the portfolio because they are so small relative to the US equity and fixed income allocations.” CalSTRS’s combined allocations to the asset classes total more than $150 billion compared to its approximate $12 million in holdings of the two prison companies.


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Old 11-09-2018, 12:30 PM
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KENTUCKY

https://www.ai-cio.com/news/kentucky...seeks-new-cio/

Quote:
Kentucky Pension System Seeks New CIO
The organization wants a permanent chief to replace David Peden, who left two years ago.


Spoiler:
The $12.3 billion Kentucky Retirement Systems is looking for a new chief investment officer.

The Bluegrass State’s pension program issued a request for proposal contract to replace David Peden, who departed in January 2017. Rich Robben, who has been deputy CIO and director of fixed income, has served as interim CIO since Peden left.

Kentucky Retirement Systems is 39.12% funded, according to the aggregate funding levels of each plan, noted in the 2017 comprehensive annual financial report. The system houses five funds, which include pension plans for state government employees, county workers, and state police.

The proposal is available on Kentucky’s purchasing website, which one must register an account to access. The application deadline is November 16, and the decision date is dependent on the volume and quality of the applicants.


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Old 11-09-2018, 12:35 PM
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ILLINOIS

https://www.forbes.com/sites/ebauer/.../#461dadf24099

Quote:
A 'Simple Fix' To Solve Public Pension Funding Woes? Think Again.

Spoiler:
Readers, I have previously lamented that the incoming governor in the state of Illinois, JB Pritzker, has no plan with respect to the state's woeful pension underfunding, which, as a reminder, totals $130 billion over the five pension plans for which the state has responsibility, not to mention the debt of the various municipalities, most notably the city of Chicago, for their own plans. Note, too, that this $130 billion underfunding only includes Illinois' obligation for accruals for past service, but without a change to the state's constitution, we're on the hook for pension accruals for all future service for existing employees. What's more, this underfunding is based on valuation interest rates of about 7% (it varies by plan from 6.75% to 7.25%), set based on the plan's management's determination of future investment returns; if the plan was required to use a bond rate to measure its liabilities like a private-sector plan, the liabilities would be significantly higher.

As it happens, though, he, and the Illinois Democrats in general, think they does have a plan. Here's the plan as spelled out by the newly-elected State Senator for my own district, Ann Gillespie, as described on her website:

Ann endorses a simple fix to fund the pension liability by amortizing the liability over a fifty year period at a set rate. This is like refinancing your mortgage to achieve a lower rate. While slightly more costly at first, it would save the state millions of dollars in the long run.


It turns out that this is a poorly-explained version of the proposal of the Chicago-based Center for Tax and Budget Accountability:

Illinois' five state pension systems face a debt crisis after years of intentional borrowing from state contributions. The crisis is compounded by a backloaded repayment plan that calls for unrealistic, unsustainable state contributions in future years, putting funding for crucial public services at risk. Because the crisis is about debt, rather than benefits being earned by current and future employees, attempts to solve the problem through benefit cuts have failed. CTBA proposes resolving the pension debt crisis by reamortizing our payment schedule, creating a sustainable, level-dollar plan that saves the state $67 billion and gets the pension systems 70 percent funded by 2045. To bridge the higher contributions called for in the first several years of the reamortization plan, CTBA suggests using bonds to ensure current services do not have to be cut.

Where do I start?

To begin with, this is not a "simple fix." The CTBA fairly criticizes the existing amortization plan, the so-called "Edgar Ramp," which indeed backloaded the pension contributions, and which, alongside the contribution holidays of subsequent governors, contributed significantly to the current underfunding. But its proposal's "reamortization" is nothing more than a further plan to keep the plan underfunded for longer. In fact, its plan is to achieve 70% rather than 90% funding by 2045, and it has no intention of achieving a higher funded ratio, except (near as I can tell) to the extent that asset growth is more favorable than projected. The only other element of "cost savings" is to issue more pension obligation bonds, to the tune of $11.2 billion, money which is meant to provide additional funding into the pension funds beyond the current contribution schedule, for the early years of the plan. This is, again, the dream of "easy money" because of the hope for gains from investment returns higher than the interest paid out to bondholders.

There is no money "being saved" in this proposal. There is no "lower interest rate" as in a mortgage refinance. Pension obligations consist of payments owed to current and future retirees next year, and the year after, and the year after that, and far into the future -- obligations which should have been advance-funded by paying into the relevant pension funds the amounts needed to fund those benefits, year-by-year, as those benefits were accrued. Every year that the state failed to do this (and every time in which they increased benefits without funding them), is a year in which legislators placed obligations on future generations, no differently than if they'd issued bonds to pay salaries of teachers and state employees. Choosing now to continue to defer a significant portion of this debt into further into the future is not "saving money" -- it's passing that debt onto your children and grandchildren. And it goes without saying that leaving pensions partially or wholly unfunded passes past and current compensation costs onto those same children and grandchildren to an even greater degree -- see my original "actuary-splainer" on the subject.

And, contrary to the assertions of the CTBA, this crisis is about both debt and benefits. Up until the "Tier II" reform of 2011, Illinois had long had a practice of increasing pension benefits for short-term budget gains or to reward employees in union contract talks, and the benefits accrued by "Tier I" employees, especially given their generous retirement-age and COLA provisions, are significantly richer than the combination of Social Security and a typical private-sector retirement plan provision.

So the only question that remains, as far as I'm concerned, is this: do Gillespie and Pritzker and the rest of the lot not understand this, or are they simply hoping that Illinoisians won't question their explanations?

UPDATE:

Crain's this morning reported on an interview with Pritzker which confirmed that he is "looking seriously" at the CTBA proposal, in particular, the plan to issue Pension Obligation Bonds, and that CTBA chief Ralph Martire is a part of his "transition financial team."


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Old 11-09-2018, 12:37 PM
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PENNSYLVANIA

https://www.pennlive.com/opinion/201...k-opinion.html
Quote:
Public Pension Funding: It’s no easy task | Opinion

Spoiler:
(*This piece has been updated to correct an attribution error)

By Terrill J. Sanchez

H.L. Mencken, the late journalist and critic of American culture and politics, once noted: "For every complex problem, there's a solution that is simple, neat, and wrong."

Followers of the ongoing debate over public pension funding might take that observation to heart.

Some recent commentaries imply that curtailing private equity investments is the crucial factor in saving Pennsylvania’s pension funds.

If only it was that easy.

In reality, calculating a viable path to ensuring the health and integrity of our pension funds is like solving a complex algebraic equation. There are many interconnected factors, values and variables to be considered, calculated and compared. Some loom larger than others. Some are more constant. Some can change rapidly in short periods of time, depending on what’s happening in the overall economy.

We take our responsibilities as legal and fiduciary protectors of our members’ retirement funds very seriously. That’s why it’s so important to take the long view in regard to investment policies. For us, it’s a familiar path.

Over the past 25 years, SERS earned over $50 billion and paid $48 billion in retirement benefits. During this period, the SERS board of trustees and investment professionals made difficult investment decisions in the best interest of its members through multiple market environments, cycles of suppressed employer contributions, legislative changes, and challenging political headwinds.

Much of our ability to withstand economic tribulations derives from asset allocations to private equity. Ironically, that’s also the source for much of the confusion in recent news stories and editorials.

In 2019, lawmakers must defuse the pension time-bomb
In 2019, lawmakers must defuse the pension time-bomb

A bill passed in 2017 made some important fixes. But there's still too much work to be done.


Much of the confusion involves the commonly-used industry term “carried interest.” Some call carried interest an unreported fee; however, many others in the industry state that carried interest isn’t a fee; it’s a profit-sharing structure.

The characterization and reporting of carried interest by public pension funds is an issue being analyzed throughout the industry. Despite recent headlines, nothing shady is happening.

Here’s how carried interest works. In exchange for providing investment capital, the limited partner (SERS) gets the majority (typically 80%) of the partnership profits. The general partner receives its share (typically 20% of net profits), but only after reimbursing the limited partner for all prior management fees and expenses, and capital contributed. That 20% is “carried interest.”

While 20% of a successful investment can seem significant, this structure helps to align interests between the general partner and the limited partner. When one succeeds, the other succeeds. Typically, for every dollar of profit the general partner receives, the limited partner receives four. That noted, if there are ways to reduce the amount of carried interest without reducing returns or adding unnecessary risk to the fund, we’re listening.

Public pension funds continue to face many challenges - chronic underfunding and administrative tinkering by budget policymakers being among them.

Recently, the Pennsylvania Pension Review Commission (part of 2017’s Act 5 pension reform legislation) gave us the opportunity to present practical suggestions to bolster our state’s public pension funds for the long-term.

We offered a number of positive, workable suggestions to ensure the ongoing health and integrity of the system. These included suggesting ways for the Governor and General Assembly to help us streamline administrative functions and increase capabilities to let us continue with the cost-saving improvements already underway, and to add specialized staff in the investment and investment accounting areas to help us improve our investment and financial operations and audit capabilities. Most importantly, we requested them to consider enacting a state constitutional amendment guaranteeing payment of the amount required to fund all benefits using actuarially sound principles (as has been done for the past three years) and to further establish a dedicated funding source for those payments, similar to what other states have done.

We look forward to working with the Governor and the Legislature to review and discuss whatever suggestions and proposals the Pension Fund Review Commission and its consultants present.

Terrill J. Sanchez is the executive director of the State Employees’ Retirement System. She writes from Harrisburg.


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