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Old 01-08-2018, 07:57 PM
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Mary Pat Campbell
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Decennial Commission recommends NH resume pension contributions

CONCORD — A commission formed to identify fixes for New Hampshire’s underfunded public pension pool has made a series of recommendations, including one that the state restore financial contributions to the system.

The New Hampshire Retirement System is funded by contributions from public employees, the employer cities and towns and returns on investments, according to the NHRS. The state stopped paying contributions into the NHRS six years ago. That means public pensions are now 100 percent funded by the communities from which the employees retired.

In 2010, the state contributed 30 percent toward the NHRS pension pool, in 2011 it contributed 25 percent and in 2012 the state paid $3.5 million. Since then, the state has paid nothing and, according to the NHRS, if the state had continued making a 35 percent contribution, as it had in years prior, public employers would have paid a combined $80 million less in 2016 toward their retired employees’ pensions. By some estimates the state pension system is underfunded by $5 billion.

Known as the Decennial Commission, the board charged with finding ways to keep the NHRS viable in spite of the large liability, is now recommending the state “reinstate an employer contribution subsidy for local governments and school districts, which was in effect for more than 30 years before being eliminated.”

“The Decennial Commission made no recommendation as to the size of a re-established state subsidy or the source of funding,” according to the NHRS.

Portsmouth City Manager John Bohenko said the financial impact of the nine years since the state stopped making full contributions toward public pensions has been $12.6 million and $4 on the tax rate in Portsmouth. He said last year the city would have received $2.3 million, if the state was still contributing.

“I’m supportive of it,” he said of the recommendation to reinstate the state pension funding. “I believe it’s a commitment made in the 70s and something we’ve counted on for years.”

Commission member Sen. David Watters, D-Dover, wrote in a preliminary report that elimination of the state subsidy “had a significant impact on employer contribution rates for municipalities and other political subdivisions.”

“This subsidy was eliminated as part of the changes made to the retirement system and the state funding contribution in 2011 subsequent to the economic downturn,” Watters summarized in the commission’s preliminary report. “Municipalities have claimed that this ‘downshifting’ of retirement contribution costs was not adequately offset and was a retreat on state obligations to the pension obligations to these employees.”

NHRS public information officer Marty Karlon said in a statement to members that all the commission’s recommendations are non-binding and would have to be introduced as legislation and enacted into law. The 17-member Decennial Commission reported it met 15 times between Aug. 31 and Dec. 27, 2017, issued a preliminary report with recommendations and will soon publish a final report.

Other recommendations from the commission’s preliminary report include:

* A one-time payment of $500 to all pensioners this year to reflect increased costs of living, as well as in subsequent years “when funds are available.” The commission reported there is an unrelated bill (HB 1756) that proposes a one-time $500 payment, effective July 1, 2019, to retirees and beneficiaries receiving an annual benefit of $30,000 or less and who have been retired more than five years.

* A limit to the number of hours pensioners can work at post-retirement jobs for employers in the public retirement system. The recommendation led to HB 561, which seeks to reduce the current 32-hour weekly limit of hours worked by pensioners at other public jobs to 1,040 hours a year. That comes to 20-hours a week on average.

That would mean a reduction of 624 hours a year under the current model. Anyone found to have exceeded the limit would lose the employer-funded portion of their pension for a year. Public retirees would also have to wait 60 days from when they retire to the day they start working a subsequent public job.

* Defer the 10 percent pension reductions for teachers and school employees from the current age of 65, to age 67. This group of pensioners is also eligible for Social Security benefits, unlike police officers and firefighters.

The Decennial Commission members include legislators, experts, pension pool members, employers, retirees and the chair of the NHRS board of trustees. The commission is chaired by former state Rep. David Hess and vice-chairs are Sen. Sharon Carson and Linda Hodgdon, former commissioner of the Department of Administrative Services.

The commission heard from representatives of member, retiree and employer organizations, NHRS staff and outside experts on public pension policy and funding. The commission also hired the Center for Retirement Research at Boston College to review NHRS’s past and future funding progress and provide recommendations.


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Old 01-08-2018, 08:25 PM
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Mary Pat Campbell
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Pension Fund Members Don't Know Their Plans Are Underfunded: Study
Spectrem survey uncovers demand for returns and full funding over social/political investments

U.S. public pension fund members are generally unaware that their pension is underfunded and of the risk this poses, according to a survey released Thursday by Spectrem Group.

The study also reveals a wide gap between how members want their pension funds managed and the actual approach many managers take.

The survey, conducted online in the second half of November, compared CalPERS and NYC Retirement Systems (NYC Funds) against a “national” group, comprising individuals from the New York State Common Retirement Fund, the Florida Retirement System, the Missouri State Employees’ Retirement System and The Teacher Retirement System of Texas, as well as a small group from other public pension plans.

All told, 807 CalPERS members, 771 NYC Funds members and 1,687 “national” members responded to the survey.

The survey results showed that 48% of members said they would rely on their pension for at least half of their retirement income.

Ninety-two percent of respondents considered their pension fund’s ability to generate returns at or above its target level important or very important, and 93% said the same about their fund’s ability to generate returns at or above overall market performance.

In both instances, CalPERS members were the respondents most likely to identify these things as important or very important.

Ninety-five percent of respondents believed the fund’s ability to effectively manage risk was important or very important.

“There’s a clear disconnect between pension fund managers, who are testing new investment styles and strategies, and members, who would prefer to see their pension fully funded,” Spectrem Group president George Walper said in a statement.

“Pension fund managers should refocus their efforts on the wants and needs of their investors, prioritizing investment decisions to maximize performance, while limiting votes to shareholder proposals that directly impact their fund and its members.”

A recent study found that many retirement plan participants regret not having saved more for retirement.

What They Believe vs. Reality

Fifty-six percent of members surveyed believed they are very well or moderately informed about their pension’s actual investment return, 54% about its target investment return, 60% about expenses and fees paid and 61% about the benefit structure.

They were less confident in their knowledge of the costs associated with shareholder activism, the composition and investing experience of the fund’s board and the amount of time fund managers spent reviewing and voting on shareholder proposals.

However, the survey results uncovered a clear gap in how much members really knew about their pension’s actual performance and funding level.

Forty percent of members believed their funds had performed in line with the market for the past few years — often not the case, according to Spectrem. Forty-six percent of NYC Funds members believe their pension fund has outperformed the market, when in fact their returns have been below both market performance and their target level.

Likewise, 42% of CalPERS members held this mistaken belief.

Only 31% of members believed their pension was underfunded, when in fact, all respondents’ pensions were underfunded to some degree, according to Spectrem. Notably, 80% of NYC Funds members thought their pension was fully funded, when it is only approximately 68% funded.

Members’ poll responses showed a lack of in-depth knowledge of their pension fund’s portfolio allocations and the riskiness of its investments.

One example: Although more than 20% of CalPERS assets are allocated to what Spectrem called “higher-risk” alternative investments, just 14% of its members thought that more than 10% of the fund was represented by alternative investments.

Similarly, only 13% of NYC Funds members believed alternative investments represented more than 10% of their portfolio, when in reality these vehicles comprised 12% of the portfolio.

The survey found that 37% of CalPERS members and 32% of NYC Funds members wanted to see their fund reduce the amount they had invested in alternative energy.

Fund Management and Voting

Asked about fund management, 75% of members said that the most important issue for pension fund managers should be to focus on maximizing returns and getting the pension fully funded. Just 14% wanted fund managers to focus first and foremost on advancing social and political causes.

Eighty-six percent of members who identified returns as the most important area of focus for managers said the fund should make decisions to maximize returns, not to advance social or political causes. Ninety percent of the members who said the advancement of social and political causes was important for management indicated that fund performance was still somewhat or very important.

Some two-thirds of members believed investment managers should focus their time and resources first and foremost on ensuring that investments meet or exceed both the fund’s target level and the overall market performance. Only 11% said managers should use fund resources to advance worthy political and/or social causes.

The survey results showed that members also wanted greater transparency from their pensions, given that significant costs are incurred by the fund as part of the shareholder proposal voting process.

Spectrem noted that pension funds receive and vote on thousands of shareholder proposals a year, few of which have majority support. This leaves some investors concerned that the time and resources dedicated to this activity could be better spent elsewhere.

Seventy-four percent of members — and 86% of NYC Funds members and 77% of CalPERS members — said their fund should abstain from voting on a proposal if it could not explain and justify its vote.

Eighty-nine percent of CalPERS members were slightly or very concerned that extensive voting on shareholder proposals was diverting time and resources from more important priorities.

Moreover, 46% believed CalPERS may have gone too far with its challenges to companies, with members 71 and older the most concerned. Forty-three percent — and half of those between 31 and 50 — said every dollar spent on these activities was one less dollar allocated to leveraging the best investment research available.

NYC Funds members responded in roughly the same way to this issue.

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Old 01-08-2018, 08:40 PM
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Mary Pat Campbell
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LETTER: State shouldn’t invest in polluters
Imagine if a big oil company controlled by a foreign government used clever lawyering to dodge its share of the cost of cleaning up the Passaic River, one of the oldest polluted sites in America.

Now imagine that you as a taxpayer were unwittingly one of the largest investors in that same company.

It sounds unbelievable. Unfortunately, it’s all too real. The New Jersey state pension fund has invested millions of dollars in YPF S.A., the Argentinian oil giant that dumped dioxin into the Passaic River for decades. This is the same company that is using U.S. bankruptcy laws to get out of paying its share of the cost of the $1.38 billion clean-up of the Passaic River Superfund site while making billions on Wall Street.

This is hardly the sort of behavior our state should reward. And yet that’s effectively what the pension fund is doing. The fund owns 866,600 shares in YPF and is its second largest pension investor. Those shares are worth approximately $21 million, enough to cover the annual salaries of some of the same executives who are taking advantage of our state.

The lower 8.3 miles of the Passaic River is one of the most polluted stretches of water in the nation. It has been on the national priorities list for over three decades without any action to clean it, or punishment for those who created it. When the Environmental Protection Agency finally announced their plan to remediate, the company filed for bankruptcy. This was a clear attempt to manipulate the system and shift their liability onto the people of New Jersey.

The state is basically investing taxpayer money into a company that wants the taxpayer to clean up their billion-dollar mess.

Passing my bill, A4814, would make it illegal for the pension funds and other assets to be invested in any company that tries to shirk its obligations under federal Superfund laws. Taxpayer dollars won’t be used to clean messes made by those exploiting our system. The bill echoes the bipartisan resolution I sponsored that unanimously passed earlier this year, calling on federal and state authorities to investigate YPF’s unethical actions. Like that resolution, the pension fund bill has bipartisan, majority support.

With more Superfund sites than any state in the nation, New Jersey has a significant interest in standing up to companies that seek to dodge their liabilities. If companies responsible for pollution are able to avoid the expense of cleaning up their toxic mess without consequence, other companies might be emboldened to do the same thing. Simply enough, we need to stand-up to them.

The legislature has taken the steps to send a message to these Superfund scofflaws. The longer this waits, the longer our environment remains toxic and polluted, and the longer New Jerseyans suffer. Now it has a chance to finish the job.

In the lame duck session, we need to act now to protect our taxpayers and New Jersey’s environment. State pension funds should not be used to reward companies that hurt our state and damage our environment by shirking their Superfund responsibilities. Passing my bill will reaffirm this simple principle by hitting YPF where it hurts — the wallet.

Kevin J. Rooney, Assemblyman, 40th Legislative District
Keep Politics Out of Retirement Funds
Everyone is aware of the serious situation facing many of the nation’s large public pension funds. Some of the problems are of their own making – bad decisions based on bad assumptions exacerbated by bad management and enabled by bad politics. But according to a new report issued just recently by the American Council for Capital Formation (ACCF), at least some of the blame needs to be assigned to fund managers’ investment decision-making.

Plainly put: some managers appear to be investing in assets they know have no real growth potential.

The ACCF report details the economically adverse effects of politically-correct investment decisions affecting the financial stability of the nation’s largest and most severely underfunded pension fund, the California Public Employees Retirement System (CalPERS).

The major problem with CalPERS is that its unfunded future liabilities exceed its present-day assets by $138 billion. All those liabilities have accrued in the past 10 years. In 2007, CalPERS had a surplus of $2 billion. Now, CalPERS is being run more like a political action committee than as an actual retirement fund.

Of course, politically correct investment decisions affect more than just public pensions. Financial and political pressure through the proxy voting process can negatively affect the earnings of publicly traded companies and the passive investors that own their stock.

The Securities and Exchange Commission requires most publicly-held companies to hold annual shareholder meetings. During these shareholder meetings any shareholder holding at least $2,000 worth of stock is entitled to put proposals on the company ballot. In the past, these proposals--at least the successful ones--have dealt mainly with corporate governance issues, namely changes that could potentially increase the long-term profitability of the company and, therefore, potentially increase shareholder earnings.

However, in recent years, shareholders have been increasingly offering proposals that have little to do with corporate governance and more to do with advancing some sort of political agenda. Often these politically-motivated proxy proposals attempt to advance environmental agendas, and they would potentially reduce the profitability of the publicly held company and thus the investment returns to future retirees or others invested in such funds.

In the past, the large institutional investors such as pension and index funds have batted away politically motivated proposals. However, some such proposals are getting support from big institutional investors. For index funds, a reduced rate of return means little to them--their benchmark is the performance of other index funds, so a reduced return from a proxy proposal affects all their competitors equally--and their investors can’t easily discern what has occurred.

But when investment managers put politics before my economic investment, they are violating their fiduciary duty to their investors.

SEC Chairman Jay Clayton referenced this conundrum in a recent address:

“A majority of Main Street America’s dollars are invested in vehicles where the investor – the person with their money at risk – is not the voting shareholder. Often voting power rests in the hands of investment advisers who owe a duty to vote proxies in a manner consistent with the best interests of the fund and its shareholders. A question I have is: are voting decisions maximizing the funds’ value for those shareholders?”

The data show that his concern is warranted. The National Association of Corporate Directors estimated that public companies faced over 200 resolutions on climate change in 2017, a 15 percent increase in such proxies over 2016.

According to Proxy Monitor, the Manhattan Institute website that monitors shareholder resolutions, in 2016 the 250 largest companies faced 58 environmental proposals—or nearly one out of every four large companies.

Liberal activists who find that they cannot achieve their political goals through the ballot box have decided that they will use political pressure through the proxy voting process to achieve their goals behind the scenes – often to the detriment of the average investor.

Investors have the right to take offense when their returns are reduced in order to advance political goals with which they might disagree.

Companies owned by the public should base their business decisions on what they believe is best for those whose money allows them to operate in the first place. The same should hold true for pension funds. Decisions on how to invest, and in what, should be made on the basis of what has the best chance to optimize performance and maximize returns for fund beneficiaries.

An investment manager’s job is to invest the fund’s assets in a manner that will economically benefit its investors to the greatest effect – not abuse their trust by allowing short-term political exigencies to interfere with that goal.

Eric V. Schlecht is President of OnPoint Strategies. He has worked on budget and economic issues in Washington, D.C., for more than 20 years. He has served in leadership offices in both the U.S. Senate and House of Representatives.


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Old 01-08-2018, 08:40 PM
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Mary Pat Campbell
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State can’t ignore crushing pension burden, former analyst says
FAIRFIELD — A Sacramento man, who contended he was fired for questioning spiking pensions and sued the California State Teachers Retirement System, says the state can dismiss the rights of whistleblowers, but can no longer ignore crushing pension burdens.

Scott Thompson, who worked as a pension analyst for the retirement system, commented about a state appellate court ruling Tuesday upholding the Yolo County Superior Court dismissal of his wrongful termination case.

He said Wednesday that California courts have ruled he would not get his day in court because he did not check all the boxes on his way to the starting line.

The state’s 3rd Appellate Court ruled Thompson was required to exhaust administrative remedies before filing the case after his 2011 termination.

Thompson argued that he was excused from doing so based on the “futility exception” of that requirement.

But the state appellate court said such relief is a very narrow exception available only when an administrative agency predetermined its ruling in a particular case.

Thompson said state lawmakers amended whistleblower protection law in 2013 to remove the exhaustion requirement. However his suit was filed a few months before the legislative change, he said.

“While justice was long-delayed and ultimately denied in my case, it will likely have the distinction of being the final time this happens in the history of California,” he said.

A spokeswoman for the state teacher retirement system said Wednesday that the decision speaks for itself and the agency had no comment.

Thompson, in an interview with the Labor Video Project that is posted on YouTube, has said he noticed a $110,000 raise for a school administrator in San Mateo County that would double the pension for the 57-year-old administrator.

Thompson said, “My job is to protect the taxpayers of California.”
Pension Cuts on the Anvil for Californian Workers
The cases in front of the Californian Supreme Court could revoke the old rule of worker’s pension. The new rule could see cuts in the pension rates of the workers who are still working. The new lawsuit could hit California, right from cities to counties to all local bodies.

The grand old Californian rule of 1947 that aids the workers is under threat. This rule gives workers’ security after their retirement from public service. The pension costs ash is escalating and troubling the lawmakers. The retirement benefits of the work that workers have performed will not be touched.

All eyes of the workers are now on the Californian Supreme Court ruling. The major pension funds are the California Public Employees Retirement System and the State Teachers Retirement System. They can only pay for two-thirds of the pension costs. They would raise the remaining amount from the state and the local governments. This puts a lot of pressure on their state and local government budgets.

Gov. Jerry Brown has filed cases in court stating that pension benefits are very generous. If the Supreme Court makes its decision on the precedent, then public employees will not have to worry. But, if the Court thinks otherwise, then there could be a change in the pension rules in California.
‘Excess’ pension payments grow then phase out
If the Internal Revenue Service annual limit for a public pension was $210,000 two years ago, why were the top 10 CalPERS pensions well above the limit, ranging from $290,273 to $390,485?

The answer is that pension systems have the option of going over the IRS limit — if they set up a special fund so only the employer pays the cost of the “excess” pension amount.

A “qualified governmental excess benefit arrangement” allowed under federal tax law, IRC section 415(m), has been set up by each of the state pension systems: CalPERS, CalSTRS, and the UC Retirement System.

The number of CalPERS retirees receiving “excess benefit” payments, 978 as of last June, is growing. But under a reform capping pensions for employees hired after Jan. 1, 2013, the excess payments are expected, over the decades, to begin declining and eventually end.

Last month, the CalPERS board rejected a proposal that might have made excess benefit collection more difficult. As part of a drive to reduce the complexity of the system, CalPERS would identify pensions over the IRS limit but no longer make the payment.

“Employers would need to establish processes to pay excess benefits, taxes, generate annual tax forms, and provide customer service to participants,” said a staff report.

A staff review of “peer public pension systems” found that several administer excess payments like the California Public Employees Retirement System. Others contract with a bank to make the payments or do not allow pensions that exceed the IRS limit.

A look at eliminating the excess benefit program was requested by outgoing board member J.J. Jelincic. He did not run for re-election, after two four-year terms, and the December board meeting was his last one.

“I get tired of hearing of the people who are getting $300,000 pensions,” said Jelincic, “and I know that part of that is this excess pension.”

In response to his question, Jelincic was told that CalPERS probably could, when receiving a public records act request, report a $300,000 pension as $220,000 from CalPERS (the IRS limit this year) and $80,000 from the employer.

“Now Transparent California is probably going to combine the two because they’ve got their own agenda,” he said. “But we ought to be pushing our agenda, which basically is to expose what real pensions are to real employees.”

Transparent California, a government watchdog that says it has made public record requests to more than 2,500 government agencies, maintains a large database of the pay and pensions of state and local goverment employees on a website searchable by the public.

The CalPERS board voted to “maintain the status quo.” Elimination of the excess benefit program, opposed by county and school groups, was said to be too burdensome for employers with small staffs and retirees with more than one employer.

CalPERS charges employers a 2 percent fee that covers the cost of the program. Payments totaled $20.6 million last year. The average annual excess benefit payment was about $20,000 a year, ranging from about $240 to $120,000 a year.

The IRS limit is intended to prevent public pensions from becoming tax shelters. Under federal law, taxes are deferred on contributions to a pension fund, and its investment earnings, until the money is received by the member or a beneficiary

Top 10 CalPERS pensions in 2016 listed on Transparent California

In a well-publicized excess, a Vernon city official, Bruce Malkenhorst, received a $551,668 pension. Finding that hidden pay increases boosted the amount, CalPERS cut his pension and began an attempt in 2015 to recover $3.4 million. His pension in 2016: $124,212.

Robert Rizzo, one of a half dozen Bell city officials convicted in an inflated-pay scheme, was said by some to be on the way to a combined $1 million pension before he was sentenced in 2014 to 12 years in prison. His CalPERS pension in 2016 was $87,112.

Randy Adams, briefly Bell police chief, had his requested pension cut by half. His salary jumped from $235,000 as Glendale chief to $457,000 at Bell, causing Glendale and three other former employers to pay much of the inflated pension cost. His 2016 pension: $290,273.

As part of the pension reform that took effect five years ago, CalPERS is working on regulations to ensure that an employer creating a significant pension liability, like Bell, pays the increased cost, said Tara Gallegos, CalPERS spokeswoman.

The standard CalPERS IRS pension limit increased from $215,000 to $220,000 this year for persons age 62 and above. But for those who retire earlier the limit is actuarially reduced, dropping to about $97,000 at age 50.

A fifth of the nearly 1,000 CalPERS retirees receiving excess payments are correctional officers, the CalPERS board was told. They have the same pension formula as police and firefighters, 3 percent of final pay for each year served at age 50.

But correctional officers aren’t classified as “safety” like police police and firefighters, who have the age 62 limit. So, a correctional officer pension of more than $97,000 might trigger an excess payment, while a police pension might not until reaching $220,000.

The California State Teachers Retirement System has an excess benefits program with a lower IRS limit than CalPERS. The CalSTRS program also is expected to eventually end as ineligible post-reform hires replace earlier employees.

Excess benefit payments were being paid to 351 CalSTRS recipients as of Jan. 1, said Michelle Mussoto, CalSTRS spokeswoman. The average annual payment was about $31,825 last year, ranging from about $1,213 to $156,108.

The CalSTRS IRS limit last year was $183,781 at age 65. It’s lower than the CalPERS limit last year, $215,000 at age 65, because of complicated “return of contributions provisions” and a 2 percent cost-of-living adjustment based on the initial pension amount.

CalSTRS top 10 pensions in 2016 ranged from $422,239 to $288,712. But the top pension, $422,239 for Dennis Bailey of Eastside Union High School in the San Jose area, is a one-time amount.

Bailey retired in 2016 with an effective date in 2012 when he stopped earning pay that increased his pension, CalSTRS said. He received four years of retroactive payments for a pension that is now about $87,000 a year.

The UC Retirement System has an IRS limit similar to CalPERS, $220,000 this year. Though not covered by the reform legislation that took effect five years ago, UC adopted a similar cap expected to keep new hires under the IRS limit, even over a long career.

Excess benefit payments totaling $16.9 million were received by 500 UC retirees last fiscal year, said Dianne Klein, UC spokeswoman. The average annual payment was about $33,744, ranging from about $502 to $232,379.

Top 10 CalSTRS pensions in 2016 listed on Transparent California

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 8 Jan 18
California governor adds voice to benefit cases
California Gov. Edmund G. Brown Jr. is intervening in several court cases that ultimately will be decided by the California Supreme Court, arguing that public worker pension benefits in the state can be reduced during employment.

If the court agrees with the governor, it would mark a revolutionary change from a ruling it made more than 60 years ago that pension benefits are guaranteed from date of hire.

Three cases in California are not only being watched closely in the state, but also across the U.S., because most states protect the pension benefits of public-sector workers. In California and more than a dozen other states including New York, Illinois and Pennsylvania, courts have upheld — or it is written into the state constitution — that accrued and future pension benefits are guaranteed.

A spokesman for Mr. Brown declined to say why the governor's office decided to intervene in two of the cases in November and December, through a legal brief in one case and oral arguments in the second.

Until the November legal brief, the matter was being handled by the California attorney general's office, and the governor had not made a statement on various challenges by public employee unions to 2013 pension reform law that he backed.

That law reduced pension benefits for future employees, which is not being challenged. But it also affected some current employees because it eliminated what the governor considered pension spiking, using long-term unearned vacation time or on-call pay to enhance an employee's final salary, the benchmark used for determining their benefit. It also eliminated buying pension credits for years not worked. Those provisions are the subjects of the three court cases.

Statements in the legal brief by Rei Onishi, the governor's deputy legal affairs secretary, who was moved from the attorney general's office, support the governor's pension reform law. But in a significant change in the state's position, Mr. Onishi also takes a broader view, supporting two recent California appellate court rulings that public-sector workers are only entitled to a "reasonable" pension benefit — not an ironclad guarantee of set benefits.

Selling pension credits
The case in which Mr. Onishi filed the brief involves the selling of pension credits known as "airtime." Until 2013, some 1.6 million public workers covered by the $348.7 billion California Public Employees' Retirement System, Sacramento, were allowed to buy additional years of pension credits, often at highly discounted rates, to enhance their pension benefit without actually working those years.

The November brief, written by Mr. Onishi, criticizes union representatives' view that airtime cannot be taken away, and argues in a footnote that "many legal experts have criticized the rigid inflexibility of the union's position, pointing out that it is contrary to contract clause principles, inconsistent with general contract and economic theory, and effectively depresses the salaries and benefits of new generations of public employees."

The brief also noted that "allowing the airtime practice of buying a bigger pension is an unworkable and fiscally irresponsible scheme."

An internal CalPERS report in 2010 had concluded the selling of airtime was underpriced by almost 40% in some instances. CalPERS, the nation's largest defined benefit plan, has an unfunded liability of more than $138 billion according to system actuaries and is only 68% funded.

The California Supreme Court also agreed to hear another case now before an appeals court panel, even though the panel has yet to rule, on whether workers in Alameda, Contra Costa and Merced counties can credit unused vacation they have accumulated through the years toward their final yearly salary.

The 2013 pension reform law also outlawed that practice and Mr. Onishi, in oral arguments last month, said the employees were only entitled to a "reasonable pension."

The state Supreme Court said it will consolidate this case once the appellate panel rules with yet another case. In this third case, a state appeals court ruled in August 2016 that employees in Marin County could not use pay they received while being on-call toward their final pension calculation starting in 2013.

The 2013 pension reform law also had outlawed on-call pay from being counted.

All eyes on California
Such legal questions and how the highest court in California will rule would attract the attention of lawmakers and residents in other states that, like California, face hundreds of billions in unfunded pension liabilities, said Amy B. Monahan, a law professor at the University of Minnesota Law School in Minneapolis who studies pension law.

"Part of that is because California has played such a leading role in sort of developing state law ... other states have found it influential and have sort of adopted it for their own (laws)," she said in an interview.

The so-called California rule, prohibiting pension changes once an employee is hired, dates to a 1955 California Supreme Court ruling that the city of Long Beach could not amend its pension benefits, said Ms. Monahan. She said the court concluded the only exception is that if pension benefits are taken away, they are replaced with benefits of comparable value.

She said 12 states — Alaska, Colorado, Idaho, Kansas, Massachusetts, Nebraska, Nevada, Oklahoma, Oregon, Pennsylvania, Vermont and Washington — incorporate the California rule as part of their own laws on pension rights.

"Other states are going to pay attention to it," she said. "They are going to read the decision. They are going to look at the reasoning. … California might continue to be influential here. It really depends on whether other state courts find their reasoning influential."

Ms. Monahan said that in times of fiscal distress, the inability by government units to change pension benefits could led to salary cuts, layoffs, hiring freezes and reductions in other fringe benefits — cuts that might be more damaging to employees than reductions in pension benefits.

But attorney Gary Messing, who represents California firefighters in the airtime case, said in an interview that reducing benefit benefits for current workers, "is a slippery slope."

"What the state has done is take the position that you are only entitled to a reasonable pension," he said. "If that is accepted, we get into a whole debate about what is reasonable. It's not a bright line that we now have and which we have lived with for many years."

Briefs in the airtime case were submitted in November. Mr. Messing said he expects the Supreme Court to hear oral arguments in the next few months and make a decision by the end of summer.

However, Mr. Messing said it's unclear if the state Supreme Court will choose to make a decision in the airtime case on narrow grounds — whether the state law had the authority to stop selling the credits — as opposed to making a broader decision on whether pension benefits are vested.

High stakes
Joe Nation, a professor of the practice of public policy at Stanford University, Palo Alto, Calif., said he was surprised the governor intervened in the case. He added that Mr. Brown might have come to the conclusion that pension benefit guarantees can't be sustained because of growing unfunded liabilities.

Mr. Nation said the unfunded liabilities of CalPERS, the California State Teachers' Retirement System, the University of California Retirement System and other public retirement systems in California combined exceed $335 billion.

"If indeed the courts rule that there is such a thing as the California rule and you can't modify benefits prospectively, I think this makes this very, very tough to solve," he said of the growing public pension plan debt in California.

Teresa Ghilarducci, a professor at the New School in New York who studies pension issues, said the defined benefit retirement system in California could actually be strengthened if the state's high court allows retirement plan benefits to be modified.

Modifying benefits slightly in times of financial instability, as the governor's pension reform did, still preserves the DB system and enables retirees to be paid.

"I see the tweaking as actually making the defined benefit plan system in the public sector stronger," she said.

The whole issue of changing pension benefits has moved to the forefront in California because of overall weak earnings for the retirement systems over the past few years, said attorney Timothy Talbot, who represents deputy sheriffs employed by the Contra Costa County Sheriff's Department. He said those weak returns raised concerns about plan funding, leading to the pension reform law and the union challenges.

"I think it is far less likely that we would be talking about it if there were ample investment returns,'' he said. "If these pension funds were closer to being fully funded than where they are now, I don't think anyone would be clamoring over it."

Mr. Talbot said he is concerned that a ruling allowing pension changes could lead to a reduction of benefits that workers were counting on as part of their employment package not just in California, but in other states.

"Those are some of the concerns everyone has, which is why the stakes are so high," he said.


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(that’s from 2015, but I just found it)
Why Did the Costs of Connecticut Teachers’ Pensions Rise So Much?
Robert M. Costrell, University of Arkansas, Department of Education Reform*
February 21, 2015, draft, v6.1
AEFP 40th Annual Conference, February 26, 2015, Washington, DC
Introduction and Summary
Rising pension costs are becoming a significant factor in per pupil expenditures in
various school systems around the country. As a first step in determining what, if
anything, can be done to redirect such expenditures to the classroom (or the taxpayers),
it would be helpful to understand not only the extent of the rise, but also the sources
thereof. Both of these vary from state to state. In some states these costs are not
rising, while in others they are rising dramatically, from a few hundred dollars per pupil
to over $2,000. Where they are rising, the sources of the rise also vary, and are not
often well understood.
The common candidates for explaining the rise in pension costs are these: Is it
because benefits have been enhanced of late? Or is it because states have failed to
provide the actuarially determined contributions, so that the bill is belatedly coming due?
Have the actuarial practices themselves led to such deferred funding, by design? Or (in
a related vein) has the market performance of pension funds fallen short, over extended
periods, from the return that has been actuarially assumed?
In this paper, I provide an in-depth analysis of the rise in per pupil pension contributions
for the Connecticut State Teachers’ Retirement System (CSTRS). Connecticut is an
important state in its own right, and its serious teacher pension difficulties bear greater
national attention than it currently receives, compared to more well-known cases of
troubled pension systems, such as California, New Jersey, or Illinois.1

In addition, this analysis may be of wider interest for two reasons: methodological and
policy. On the methodological side, although there has been related work in
decomposing the rise in unfunded liabilities, to my knowledge there has not been
comparable work on the sources of the rise in per pupil pension contributions. The
methodology developed below may be applicable to other states.
On the policy side, case studies such as CSTRS can shed light on policies found in
these states that arise elsewhere. One such policy that was used in CSTRS is the
issuance of pension obligation bonds (POB’s) – a controversial policy that has been
used in a few other states and is debated in others yet. It will therefore be of interest to
see a detailed analysis of how that has worked out so far in Connecticut, based on how
the investment returns have compared with the debt service, and what the future
burdens of those POB’s look like, due to its severe back-loading of debt service.
A second CSTRS policy, much less visible, has been the actuarial gimmick of setting a
longer amortization period for certain accrued actuarial losses and a shorter period for
certain actuarial gains. The effect of this shenanigan is to build in a deferred spike in
pension contributions when the amortization period for the gains expires. This has been
a major factor in the pension disaster that is now befalling the Pennsylvania School
Employees’ Retirement System (PSERS), as shown below. In CSTRS, this spike has
not yet arrived, and is notably smaller in magnitude, but is noteworthy nonetheless, as a
demonstration for other states of an unwise practice to avoid.
The plan of the paper is to first review the rise in per pupil pension costs observed in a
few other teacher retirement systems, with a brief description (but not a detailed
analysis) of the source of the rise in contributions. Related work on the sources of the
rise in unfunded liabilities will also be briefly reviewed. Of some controversy in this
latter literature is how commonly the problem is due to investment shortfalls from the
actuarially assumed return. We then turn to CSTRS, showing first that the public’s per
pupil contributions have risen from about $500 per pupil in FY02 to over $2,000 per
pupil (constant dollars) today (including debt service on the POB’s). The proximate
sources of the rise are quickly identified, with the predominant role played by the rise in
amortization payments on the unfunded accrued liability (UAL). A more detailed
decomposition follows, using a series of shift-share devices that attempt to minimize the
interaction effects among the different sources and to avoid the distortions that can
arise from arbitrary ordering of changes.
The main substantive result of this analysis is that investment shortfalls from the
actuarially assumed return of 8.5 percent account for half the rise in per pupil
contributions, even after strong market returns for four of the last five years. Actuarial
practices – mostly quite prudent -- that accelerate, rather than defer, amortization
payments have also played a significant role, but other practices (mentioned above)
have built in a deferred contribution spike that will come in FY23. Although there has
been no hike in the pension benefit formula over this period, there was a change in the
treatment of COLAs that has, by our analysis accounted for about 15 percent of the rise
in contributions. Finally, it is of interest to note that the $2 billion of POB’s issued by
CSTRS in 2008 have not paid off thus far, even with the strong market performance of
the last few years; moreover, the state has back-loaded debt service on the POB’s,
which will more than double in per pupil terms by FY23. In short, the analysis of the rise
in CSTRS pension contributions offers several cautionary tales to other states.
OP-ED | Teacher Pension Predicament Requires Enlightened Solutions
Each new year offers the potential for a fresh start, but progress in 2018 will be challenging in Connecticut.

At year’s end, Gov. Dannel P. Malloy and legislators were still tussling over budget issues, the state continued to lose jobs, and none of the preliminary gubernatorial candidates offered honest solutions to the state’s fiscal quagmire.

And then there’s the Teacher Retirement System (TRS), ranked fourth worst nationally in terms of the ratio it funds at 44.1 percent. As Malloy said, “Connecticut simply cannot afford annual payments of $4 to $6 billion into this fund … if we don’t act, there will be no way to meet these obligations without hollowing out major state programs such as Medicaid and municipal aid.”

Such words rub salt into the wound for teachers, who will see their contribution to TRS increase in 2018, thanks to the new state budget. Teachers were not involved in this decision; it was simply added as an extra revenue source.

The Connecticut Teachers Association called the increase a “payroll tax” since “it replaces and supplants dollars that are supposed to be contributed by the state. By reducing the state’s payment, the state pockets the pass-through revenue of $38 million — just as if it were general tax revenue.”

But that debate is over. My first increased contribution comes out of next week’s paycheck.

I can hear the critics: “Oh, cry me a river! At least you have a pension.”

Foremost among the skeptics: The Yankee Institute, which notes that while Connecticut teachers neither pay into nor receive Social Security, “they receive some of the highest pensions in the country. The average Connecticut teacher pension is nearly $60,000, according to the Office of Fiscal Analysis.”

Not to mention, “Connecticut teachers [are] paying less than the national average of 8 percent and far less than the 11 percent contribution required in Massachusetts.”

Plus, it is true that teachers are among the few workers who still have a pension — only 3 percent had one in 2012, according to the Employee Benefit Research Institute, down significantly from 28 percent in 1979.

The reality, however, is much more complicated.

To begin, Connecticut’s high teacher pensions are tied directly to the state’s sixth most expensive cost of living in the country. What’s more, only four states — Pennsylvania, Illinois, West Virginia, and Connecticut — compel teachers to work 35 years to qualify for top retirement benefits. Since pensions are calculated as a percentage of a teacher’s highest salary in the final three years of service, it logically follows that pension averages in Connecticut reflect the additional experience and accompanying salaries of its retiring teachers.

In addition, the publicized 7 percent that teachers now pay toward retirement — up from 6 percent — does not account for the extra 1.25 percent deducted from every paycheck for retired teachers’ health benefits. Any way you slice it, that’s 8.25 percent of my pay deducted for retirement, a sum above the national average. Granted, it’s a price I will gladly pay — so long as the funds are still there when I retire.

The state contributed $1 billion, or 6 percent of the General Fund, to TRS last fiscal year — an amount likely to increase by 33 percent over the next two fiscal years. The Center for Retirement Research at Boston College projected that, at that current rate, the state’s annual payment would exceed $6.2 billion by 2032. In short, the very existence of TRS is in jeopardy.

So what to do?

One thing not to do, State Treasurer Denise L. Nappier might say, is to ask teachers to increase their contribution again.

“Nappier said the state’s contribution to the teachers’ pension is to be reduced by the same amount as the teachers’ increased payments — about $59.5 million over the two-year budget. But the teachers’ contributions are also factored into determining the value of their pensions. Therefore, when teachers pay more, they will eventually collect more. According to Cavanaugh MacDonald Consulting, the state’s actuarial consultants, the state will end up owing an additional $20.4 million.”

Clearly, more enlightened thinking is needed. The National Council on Teacher Quality offers some noteworthy suggestions, such as offering teachers a choice between a traditional pension and a 401k-type plan. Also mentioned are “hybrid” plans that combine pensions with a 401k.

Admittedly, there are no easy solutions. But the governor, legislators, and teachers — indeed, how about including teachers? — need to come up with a realistic, long-term solution that makes sense for everyone involved. In that way, maybe 2018 really can become an opportunity for renewal in Connecticut.

Barth Keck is an English teacher and assistant football coach who teaches courses in journalism, media literacy, and AP English Language & Composition at Haddam-Killingworth High School. Email Barth here
Nappier fears CT may lose discipline on funding pensions
As she begins her final year as state treasurer, Denise L. Nappier fears Connecticut may be retreating from the gains it’s made over the last decade in responsibly tackling its huge retirement benefit liabilities.

Talking with reporters Wednesday after announcing she would not seek a sixth term, Nappier said a key pledge of fiscal discipline Connecticut made one decade ago is at risk.

“I’ve been concerned about the state reverting back to the habits of old and doing away with whatever they can to get out from underneath the covenant that obligates them to contribute 100 percent … each and every year,” Nappier said.

The “covenant” the treasurer cited was a contractual pledge Connecticut made to its investors in 2008 when the state borrowed $2 billion to shore up the cash-starved teachers’ pension fund.

The state pledged to contribute the full amount recommended each year by fund actuaries. But finding those funds in the annual budget has gotten increasingly difficult over the last decade. And the yearly contribution is projected to surge even more dramatically between now and the early 2030s as Connecticut makes up for past decades of inadequate savings.

“I’ve never been so concerned as I am since this last budget,” Nappier added, referring to the two-year state budget adopted with overwhelming bipartisan support in late October after an unprecedented nine-month stalemate.

One of the dozens of moves used to help avert massive projected deficits in both years was an increase in pension contributions from present-day teachers — and a corresponding drop in the state’s payments into the fund.

Nappier said when the budget was passed that this violates the “spirit” if not the letter of the 2008 bond covenant.

Legislators also empowered the state Teachers Retirement Board and other groups to study options to restructure future state contributions owed to the fund. The goal would be to scale back somewhat the dramatic increases projected between now and the early 2030s — but then to make up those payments plus some of the lost investment opportunities for a decade or two after that.

This would have a smoothing effect on the spiking annual contributions while also increasing the total amount the state would pay over the long haul.

Lawmakers are expected to receive an analysis of restructuring options during the 2018 General Assembly session, which begins in February.

But what about the bond covenant?

The Hartford law firm of Day Pitney, the state’s bond counsel, warned in a 2016 opinion that the state’s contribution largely is fixed for the 25-year life of the bond issuance, unless Connecticut finds a way to pay off the loan earlier.

“My fears were at my front doorstep when the legislature approved the last budget and found a loophole in the bond covenant — though I don’t see it as a loophole,” Nappier said.

And she added she remains concerned “that loophole is going to get bigger and bigger and bigger.”

The state’s required contribution to the teachers’ pension stood at about $1 billion last fiscal year and now is about $1.29 billion.

The Center for Retirement Research at Boston College estimated in a November 2014 study that this annual contribution could peak at $6.2 billion in the early 2030s if returns on pension investments are modest during the interim.

Nappier has questioned that forecast, but nonetheless agrees that the pension contributions are likely to grow dramatically over the next decade to 15 years.

Entering her 20th year as treasurer, Nappier said too many legislatures throughout her tenure may have been lulled by Connecticut’s considerable wealth — and by the belief that the pension bill was a problem for the future.

“We’ve always had one of the worst, unfunded ratios” for the pensions for teachers and for state employees, she said.

Warnings against inadequate annual contributions and paying incentives for workers to retire early were ignored, Nappier added.

“People would say, ‘Denise is a real nerd. Let’s move on. Next’,” she said, adding most legislators didn’t understand the severity of the problem until the last recession, when pension funds’ investments nationwide dropped sharply in value.

“This is not a new phenomenon,” she added. “You know what I said? ‘Welcome to my world.’”
Connecticut Governor Warns State Pension System No Longer Affordable
Connecticut Gov. Dannel Malloy approached the general assembly claiming that there is a need to restructure the contributions into it’s $17 billion teachers’ pension fund. According to the Mr. Malloy, the current contribution rates that are being made by the state are far too high.
In a statement, Mr. Malloy explained, “Connecticut simply cannot afford annual payments of $4 [billion] to $6 billion into this fund,” said Malloy in a statement. “We must make smart reforms now to fix the system, and we can do it without curtailing benefits for teachers. If we don’t act, there will be no way to meet these obligations without hollowing out major state programs such as Medicaid and municipal aid.”

These comments were made in response to recent reports derived from a memo from Connecticut Treasurer Denise Nappier calling attention to rising cost related to the Teachers’ Retirement System.

During a special conference call meeting of the Teachers’ Retirement Board in November, Nappier voted against the approval of an actuarial valuation revision that would increase the retirement contribution from teachers to 7% of their pay from 6%. This would reduce the state’s contribution by $59.5 million.

“This latest action by the legislature tugs at the threads of our efforts,” said Napier. “And I strongly advise that there be scrutiny of any steps that would undermine the framework necessary to reach our goal.”

Mr. Malloy was adamant in declaring that the changes he put forth during the last session would provide much-needed stability to the state’s retirement system.

“I will continue to advocate for these commonsense reforms in 2018 and look forward to working with the Treasurer and leaders in the General Assembly to lower all of Connecticut’s unfunded liabilities,” Malloy said.

The Governor believes that the proposal, which includes extending the amortization period, would help the state to avoid affecting benefits that would be harmed by unfunded liabilities. He went on say that without quick and determined action from the general assembly, “these payments are scheduled to double in the coming years, with the potential of quadrupling or quintupling” within 20 years.”


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No special pension for Ocala’s elected leaders
A divided Ocala City Council declined on Thursday to create its own pension plan for long-serving elected officials — a move that denied Gerald Ergle a chance to secure a pension going forward and a belated $39,600 lump sum pension payment.

Ergle retired from elected office in 2005, finishing a near 30-year stint as councilman and later mayor. But he had an 18-month gap in service along the way.

City staff recently learned about a 1939 Florida law that requires cities and towns to offer elected officials who have served 20 years in office — with no more than a six-month break in service – a pension of half their monthly pay. Municipalities that offer long-serving elected officials a pension of their own are not required to follow the state’s model, according to a 1986 Florida Attorney General’s Office opinion.

The City Council’s options, during its regularly scheduled meeting on Thursday, were to either create a pension plan for its future long-serving elected officials, or to follow the state’s 1939 pension criteria.

The council voted against creating its own pension plan; as a result, the state’s plan automatically kicks in.

Ergle served as a councilman for about 18 years before retiring. He later went back on council. He then was elected mayor and served until retiring (again) in 2005.

There was a break of 18 months between his first retirement and when he took office again. That makes him ineligible for the state’s pension plan. (Though the state sets the rules, the money comes from the municipality.)

The city’s proposed pension ordinance, which failed on the 3-2 vote, was patterned after the state’s. However, it did not include the provision that voided the pension if there was a six-month (or more) gap in service.

If the proposed ordinance had passed, Ergle’s monthly pension would have been $275 going forward — in addition to a retroactive $39,600 payment.

Voting against the proposed ordinance were council President Matt Wardell and councilmen Justin Grabelle, and Jay Musleh. Voting for it were council members Mary Sue Rich and Brent Malever.

Musleh said he could not support a city ordinance allowing for a pension, although he could do nothing to stop the state-mandated plan from kicking in.

“I just don’t think it’s the right thing to do,” Musleh said before the vote.

As for Ergle, Musleh said, “He never anticipated getting anything.”

Wardell said the proposed ordinance would have just added another layer of unnecessary bureaucracy.

Newly elected Councilman Grabelle said that he didn’t support a state-mandated pension for locally elected officials. This should be a “home rule” issue, he said.

Ergle, 78, did not lobby for the proposed ordinance and did not attend Thursday’s meeting. When told about the vote, he said he wasn’t surprised.

“It’s what I expected,” he said.
He said that since Ocala had gone this long without its own pension for elected officials, he doubted the council would approve one now, but would rather defer to the Florida law mandating the pension and its limitations.

He said deferring to the state’s guidelines was also cheaper, and that there would probably be fewer pension recipients because so few people serve 20 essentially uninterrupted years.

He said that even if he had known about the state law and its six-month gap rules, he still would have retired that first time before coming back on council.

“Publicly elected officials should serve and then move on,” Ergle said.

“It should not be a job where you expect a retirement,” he said earlier.

Rich has represented District 2 on the Ocala City Council uninterrupted since 1995. Mayor Kent Guinn will be eligible for the pension following his current term. He previously served 12 years on council.

Council members are paid $200 per month in addition to a $300 per month vehicle and gasoline stipend. The council president receives $250 per month in addition to the stipend. The mayor receives $550 per month in addition to a $400 monthly travel stipend.

Regardless of the vote Thursday, Rich and Guinn would have qualified under the state’s pension guidelines.

Malever said before the meeting that although Ergle didn’t meet the state’s proposed pension plan because of a break of more than six months, the former mayor served his community longer than 20 years and should be rewarded.

“He put in a lot of time and effort,” Malever said. “It just makes sense to have a little (pension) because of the time and effort you put in.”

But money should not be the motive, he said, adding, “You do it (serve) because you love Ocala.”

Malever has been on the council since 2013.

City Attorney Pat Gilligan said the city’s defeated pension ordinance should not be confused with the state’s pension statute.

“The statute has nothing to do with our ordinance. It prompted us to do the ordinance,” Gilligan told the Star-Banner. “We could still do the ordinance without the (existence) of the Florida Statute.”

The council’s only limitation on the now-defeated pension is that it could not have contradicted the state law, he said.

As for how the Florida statute had gone unnoticed by Ocala officials so long, Gilligan said, “I certainly didn’t know about it.”


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Public retirement funds, other hot buttons await Iowa lawmakers
DES MOINES — Democrats have sounded the alarm: Republicans are coming for public workers’ retirement funds.

Republicans have responded: That’s nothing more than political grandstanding and fear mongering.

Public employee pension reform is one of the hot-button issues — including cellphones while driving, the bottle bill, immigration, death penalty — that could command state lawmakers’ attention during the legislative session that starts Monday.

Some Republicans, including former Gov. Terry Branstad, have said the state public workers retirement system requires changes in order to make the program sustainable so workers can continue to receive the benefits they expect.

Iowa’s public employee pension funds are funded at more than 80 percent, according to multiple independent studies, and that typically ranks it among the healthiest public pension funds in the nation.

Statehouse Democrats in December called a news conference to warn that Republicans may propose changes to the Iowa Public Employees’ Retirement System, or IPERS, and that those changes would mean fewer benefits paid to retirees.

“IPERS and Iowa’s other public pension plans are secure, strong and sustainable. Some current legislative proposals to change IPERS could break the promise we have made to hard working Iowans since 1953,” Democratic state treasurer Michael Fitzgerald said at that news conference. “The retirement contributions Iowa workers have made to these funds have been invested well, and the benefits are reasonable. There is no need to make the type of changes Gov. Reynolds and Senate Republicans are talking about.”

Gov. Reynolds and statehouse Republican leaders, however, insist they are not talking about making changes to IPERS this session.

“I think we can chalk that up to fear mongering,” said Rep. Linda Upmeyer, the Republican Speaker of the House.

Sen. Bill Dix, the Republican Senate Majority Leader, did say Senate Republicans may hold some hearings and presentations on the subject during the session and that the state’s public worker pension programs may need changes in the future.

Just not this year, Dix said.

“One thing that Iowans really should expect, especially people within the IPERS system, is that long-term, you have a sustainable system there,” Dix said.

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JCPS deals with early teacher retirement as Frankfort debates pension reform
LOUISVILLE, Ky. (WDRB) -- As students head back to Jefferson County Public Schools after winter break, they may notice some of the most experienced teachers are gone.

That's because many are opting for retirement rather than risk waiting for pension reform in Frankfort.

Barbara Hollenbeck taught for nearly 30 years in JCPS classrooms. But she is one of about 70 Kentucky teachers and principals who called it career at the end of the semester.

The fourth grade teacher at Kerrick Elementary retired in December. "All this stuff with education and the pension, and I just thought well I'll just get out while the getting is good," she said.

The state saw an 80 percent jump in December retirees over last year, and the Jefferson County Teachers' Association president Brent McKim says it's the students that suffer.

"We are bracing for more but our hope is we can find a common sense solutions that does not promote those kinds of mass retirements cause it's not good for kids," McKim said.

JCPS listed more than 100 open teaching positions on its website on Tuesday. The biggest concern is losing veteran educators like Hollenbeck, which pulls knowledge out of local schools.

McKim says even younger teachers are impacted, "They're a wealth of wisdom and they do a lot of coaching and act as mentors for teachers just starting out."

Kentucky is trying to shore up an $80 billion pension deficit. And lawmakers are considering making teachers work to age 65 rather than 27 years of service for retirement. Another idea is switching newly hired faculty from a pension systems to a 401k style plan.

Kentucky Governor Matt Bevin offered tough talk last August for teachers opting to retire. "We're not going to pass anything to make them wish they'd retire earlier as a result of it (pension reform)., but I will say this, if you happen to be a teacher who would walk out on their classroom in order to serve what's in your personal interest, then you probably should retire."

But Hollenbeck says she didn't walk out on her kids. She locked-in what was promised. Now she can focus on the three students who matter most -- her grandkids.

Anyone qualified and interested in becoming a JCPS teacher can click here for application information.
Senate President Say New Pension Bill Could be Introduced Next Week
Senate President Robert Stivers says modified legislation to overhaul the state’s public pension systems could be introduced next week. He said Friday, the bill could be dropped in the basket as early as Monday, but he called the middle of next week a more likely "target date."

Listen Listening...0:51
“When we get this I think what we will do is have a discussion among ourselves, brief the other caucuses, discussion with the executive branch and then choose the location for which we decide to start it.”

Stivers is referring to introducing a new pension reform bill in his chamber or the Kentucky House. Meanwhile, the Senate Budget Committee is scheduled to meet next Tuesday to take up legislation related to a lease authorization at the University of Louisville.
A Kentucky pension bill has yet to be filed, but there are a few hints on its contents
FRANKFORT, Ky. – A month ago as it became apparent that Gov. Matt Bevin’s plan to pass pension reforms at a special session in 2017 would not be possible, legislative leaders aimed to pass a pension bill during the first two weeks of this year's regular session.

But with the first week of the session now over and no pension bill filed, it’s apparent that will not happen.

Minority Democrats and some stakeholders are wondering when they will see a bill, what will be in that bill, and whether it will be a reform that will pass quickly or get mired in the legislative process. There have only been a few hints as to what it will contain.

“Not only do I not know what’s in the revised pension bill, I have not been invited to the first meeting for us to have some input,” said House Minority leader Rocky Adkins, a Sandy Hook Democrat. “… Because of the complexity of this issue and the opposition out there to the governor’s original bill, it’s going to be very difficult to pass pension reform in the first weeks of this session.”

More on this topic: Read about Kentucky's pension crisis here

Read this: Hoover reconsiders resigning as speaker but hands over control of the House – for now

House Speaker Pro Tem David Osborne, R-Prospect, told reporters Thursday night he is confident that a revised bill that will be filed soon will pass the House.

Osborne said he was not sure how long it will take. “We will maintain our commitment to our members that they will have the time that they need to communicate with their constituents and fully understand the bill,” he said. “… I don’t think we need to talk it to death, but I think that we have to be able to allow them the time that they need.”

Bevin said a year ago that he would propose a plan to put Kentucky on course to resolving its massive retirement system debts, now officially reported at $43.8 billion. In October he unveiled a reform plan at a news conference with House Speaker Jeff Hoover and Senate President Robert Stivers.

That plan called for cutting some benefits and eventually moving all public employees, including teachers, away from traditional defined benefit pension plans into 401(k) savings plans.

It was met with opposition from public employee and retiree groups and all segments of the public education community and never gained nearly enough support in the Kentucky House to win passage.

Read this: Lawsuit: Retirement systems gambled on hedge funds

Background: Bevin won't call special session on pensions

Since then, House and Senate Republican leaders have been working behind the scenes on a revised bill. House Republican Whip Kevin Bratcher, R-Louisville, said on Wednesday that “there’s still a lot of moving parts. We’re going to try to settle on what will be able to get at least 51 votes in the House.”

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Senate Majority Leader Damon Thayer, R-Georgetown, revealed a few details of how the revised bill will be different from the original proposal. Thayer said:

► The provision requiring current employees and teachers to move from their traditional pension plan to a 401(k)-like plan after 27 years of service will be gone. “Everybody who’s in a defined benefit plan gets to stay in a defined benefit plan,” Thayer said. But he said the bill will put future employees and teachers in a 401(k)-like plan.

► The provision that would deduct 3 percent from the salaries of all current public employees and teachers to pay for retiree health benefits is likely to be reduced. “It probably won’t be 3 percent, but they’re still going to be asked to pay a little more,” Thayer said.

Bratcher said the 3 percent cut in pay “is problematic with the House.” And Bratcher said it could be eliminated completely. “I can’t say for sure,” he said.

More: Beshear says law protects retired teachers' pay increases

More: Louisville's pension costs to go up a whopping $38M, threatening to wipe out new revenue

► The provision suspending cost-of-living raises for retired teachers for five years is likely to be changed. “It will probably be in there, but different … probably a lower number and at less frequency than originally suggested," Thayer said.

► The suspension of pension benefits when a retiree returns to a public job also may be changed. But Thayer did not elaborate on this, saying that lawmakers were trying to address concerns about this provision "in the public sector both on the employer and employee side."

Thayer said he prefers the original bill, and he said that bill would have passed the Senate. But that bill never came close to winning sufficient votes in the House.

So the revision efforts have been aimed at arriving at a bill that can pass the House and retain strong support in the Senate.

Leaders in both chambers say that a revised bill has been drafted, but its release has been delayed while leaders await an analysis of the bill from the actuary of the Teachers Retirement System. That analysis, which is required of a pension bill, will project the impact on the state budget and on the retirement plan over the next 20 years.

Osborne said on Wednesday, “We can’t have a bill until we have that scoring, that analysis. I can’t control that.”

Stivers, R-Manchester, said Thursday evening that some information had been received from the Teachers Retirement System, but he was awaiting more.

Stivers said he understood that the actuary may be analyzing more than one variation of the revised bill. “That’s part of the slowdown,” Stivers said. “There are multiple theories out there.”

Consider this: 'War on Louisville' could be reignited in 2018 by sanctuary city legislation

Meanwhile, pensioners and others anxiously await the contents of any revised bill.

Brent McKim, president of the Jefferson County Teachers Association, said one main concern of teachers is how the new bill deals with the plan to suspend the 1.5 percent cost-of-living increases for teacher pensions, which would be suspended for five years under Bevin’s original proposal.

Because the suspension of the adjustments would save the state a significant amount of money, he said legislative leaders seem unwilling to delete it from the bill.

“I expect that will probably remain, but I’ve heard they are considering variations of it, like suspending the COLA every other year for a 10-year period,” McKim said.

McKim said any reduction in the cost-of-living increase “would absolutely prevent active and retired educators” from supporting the bill.

McKim said he expects House and Senate leaders will make a strong effort to quickly pass the revised bill soon after it is filed. “But I would have a really hard time handicapping its odds. I’d say it’s far from certain that that would be successful.”

Jim Carroll, president of the advocacy group Kentucky Government Retirees, said, “We’re in the dark. We don’t know what might be in the bill. There’s certainly been no engagement with stakeholders.”
Mayor Fischer urges Frankfort to couple pension reform with tax reform
During his annual State of the City address on Thursday, Louisville Mayor Greg Fischer made a point of urging state legislators in Frankfort to couple tax reform along with their expected work on pension reform in this year’s session — as Louisville and other cities are preparing for increased pension costs that could lead to cuts in services.

Fischer’s address at the South Central Regional Library in Okolona largely painted a rosy picture of a city that is on the rise with billions of dollars worth of development projects dotting across Louisville, while acknowledging the many challenges lay in its way, such as the opioid epidemic, violent crime, and the public pension crisis that looms over government budgets.

Noting that Louisville Metro Government’s pension costs for city workers is expected to increase by $38 million in the coming fiscal year “unless Frankfort acts differently,” Fischer said this might lead to reductions of existing government services.

Stating that “a sustainable solution” to pension must be found in Frankfort “without threatening the prosperity that we have worked so hard to create here in our city,” Fischer said that could not be done without also reforming Kentucky’s outdated tax code.

“While I applaud Frankfort for taking on pension reform, we must acknowledge that it is the result of historical underfunding and one symptom of a larger problem: Our state’s tax code was designed to support the economy of the last century, not this one,” said Fischer. “For our commonwealth to succeed in a global, modern economy, pension reform must be coupled with tax reform.”

In early 2017, Gov. Matt Bevin had suggested that pension reform should be coupled with tax reform, but since last fall he and other Republican leaders in the Kentucky General Assembly have said that taxes would take a backseat to pensions — which legislators are expected to devote the opening weeks of the 2018 session to.

Stating that Louisville and other local communities have critical education, health, social services and infrastructure needs to address, Fischer added that to meet them, Frankfort must “broaden the tax base” and “reform an outdated system that exempts as much as it taxes.”

“We need to take a hard look at a tax code that exempts luxury items,” said Fischer. “It doesn’t make any sense to consider cuts to your child’s classroom, law enforcement, drug treatment, or our justice system, when we don’t even tax country club memberships or limousine rides. That’s just not right.”

Noting that this is also a budget session in Frankfort, Fischer stated that it was common sense to “never create a two-year budget without knowing both our pension and tax reform solutions.” He also urged the audience to contact state legislators with this tax reform strategy, adding that more control over taxes should be given to local governments and raising the cigarette tax by a dollar would create $266 million in new revenue.

Fischer called Louisville “the economic engine” of Kentucky, saying that it accounts for a fifth of its population, a fourth of its workers and a third of its total GDP. Asked in a Q&A session after his speech about so-called War on Louisville legislation, Fischer stated that the city’s economy functions best when Frankfort butts out.

“In our talks with the governor’s team, they know the importance of a strong economy in Louisville,” said Fischer. “Last year, when this so-called War on Louisville started, the business community in Louisville rallied very strongly and spoke to the legislators in Frankfort on how we need less control from Frankfort, not more.”

Prosperity and Equity

Fischer led his address by proclaiming that Louisville has gained 70,000 private sector jobs and 2,500 new businesses since he took office in 2011, with the unemployment rate now plunging to 3.5 percent. He also touted what he calls an unprecedented amount of economic development projects, saying that the city has attracted $12.5 billion in capital investment since 2014.

Along with the scheduled opening this year of the new Omni Hotel and completed renovation of the convention center in downtown, Fischer said there are now 25 hotel projects that had either been announced or were under construction, which he thought was more “than any city in the world right now.”

Declaring that “prosperity is only real when everybody feels it,” Fischer said that wages had also increased, as “in the last two years, 11,000 Louisvillians lifted themselves out of poverty, and 8,300 Louisville families joined the middle class.”

Fischer also praised Louisville as a “community of equity” and compassion that companies will want to expand to, where “there is no place for discrimination of any kind.” Saying that the current stock market boom mostly benefits just the top 20 to 30 percent in wealth across the country, he said more focus should be placed on making sure that everyone has the tools and training to participate in that economic success.

“People seem to be more interested than ever before in equity and community,” said Fischer. “That’s not socialism, that means just addressing these record levels of inequality that we see in our country right now.”

Fischer also praised the city’s efforts to train workers in rising fields, adding that “I am proud to say to anyone in Louisville who is struggling to get ahead, you have more opportunities to develop the skills you need to thrive in careers of tomorrow than ever before.”

Overdoses and Murders

Fischer acknowledged that the opioid epidemic and violent crime remained two challenges for the city, but asserted that his administration had plans in place to keep them under control.

Despite an all-time high in fatal drug overdoses in 2017, Fischer noted his administration’s efforts to sue major pharmaceutical distributors and praised its opioid action plan. And while there were 110 homicides in Jefferson County last year — tied for the second-most in the county’s history — Fischer said this was a decrease from 2016’s all-time high, in addition to decreases in other types of crime from that record year.

“Crime is down,” said Fischer. “Property crime down. Robbery down over 14 percent. Violent crime down. Shootings are down 18 percent. Homicides down 9 percent.”

Fischer added that “we will keep working our plan and always seek new, good ideas to improve all of the results I just talked about.”

College Scholarships

Fischer hinted at a major educational initiative in the coming year, saying that Louisville will join other cities that have recently provided scholarships or free tuition for two years of community college to local high school graduates.

Just as he called Kentucky’s tax code outdated, Fischer said that “America’s education system was designed for another era,” as “our schools cannot meet the needs of our future unless we embrace reform at every level.”

In addition to moving toward universal pre-K, Fischer said that college must be made more affordable, as the steep rise in tuition had either priced out students or left them with crippling debt, saying “that’s unacceptable, it’s unsustainable, and, frankly, it’s un-American.”

Noting that cities like Detroit, Boston and Pittsburgh have pushed through recent initiatives to provide scholarships for high school graduates to attend two years of a community or technical college, Fischer said that “2018 will be the year for Louisville to join these communities.”

“This year, you will be hearing exciting announcements from major funders, as we work to make these scholarships happen, and we open wide the gates of a prosperous future for more Louisvillians than ever before,” said Fischer.

Fischer’s spokesman Chris Poynter later told IL that he did not know if any city tax dollars would be involved in this initiative, as they are still working through the details, but they “already have large financial commitments” from private sources.

Leet bullish on Louisville, but not Fischer

Republican Councilwoman Angela Leet, who is challenging Fischer in this year’s mayoral election, told reporters after Fischer’s address that she shares the mayor’s optimism about Louisville and the city’s importance to the state economy, but felt that he heavily glossed over the city’s two-year spike in homicides.

“I think saying the statistics are down when you’re making those comparisons to a record-high year of violent crime is not a genuine response,” said Leet, adding that the morale of LMPD officers is low and there should be more officers on the streets.

Leet said that Fischer’s speech “sounds like we’ve got a lot of great things coming for tourists for our town, but what are we doing for the average, everyday working citizen?”

“We have to make more changes,” said Leet. “We haven’t dealt with the crumbling infrastructure in our community. We have city buildings were we can’t even keep inmates warm.”

Leet said that she hasn’t read the entire pension legislation that Gov. Bevin unveiled last fall and hasn’t formed an opinion on it, but agreed with Fischer that pension reform “needs to come with tax reform.”

“We have to leave no stone unturned, and we have to look at all the different sources, all of the different exemptions,” said Leet on tax reform, though she added that “we are one of the most heavily taxed cities in the country, and I think that is something that we still have to keep in mind as we focus on tax reform.”
With First Week Down, General Assembly Staring at Tough Session on Pension, Budget
Lawmakers returned to the State Capitol this week to begin a General Assembly session that’s sure to tackle a wide range of issues. But Capitol observers say there are two issues this year that will likely dominate many discussions: public pension reform and the state budget.

Issues concerning the unfunded liabilities associated with the state’s pension systems for public employees received growing attention last year with much speculation on whether lawmakers would be called into a special legislative session to deal with the matter. Those challenges are still in focus as lawmakers move into the early stages of the current session while working to ensure that a consensus is reached on the issue.

While pension reform would most directly impact current and future public retirees, it’s fair to say this issue touches all state citizens. As pension costs grow and liabilities increase, it becomes harder to fund Kentuckians’ other priorities, like education, public protection, and workforce development.

Such consequences are why any action lawmakers take on pension reform is certain to have a big impact on the other top issue of the legislative session, the state budget. Every two years lawmakers create a biennial state budget, so now’s the time to craft the plan that will guide state spending for the next two fiscal years that begin on July 1.
The budget process will take a big step forward on Jan. 16 when Gov. Matt Bevin presents his proposed spending plan in a speech to lawmakers that will be broadcast to a statewide audience on Kentucky Educational Television. Soon after, lawmakers on budget subcommittees will begin digging into the plan and considering the changes they want to make to ensure that the final spending plan reflects their priorities for the state.

While pensions and the budget will receive much attention in the days ahead, there’s a growing list of bills on other matters that lawmakers will study in-depth. More than 100 bills have already been introduced this year on matters including child protection, tax reform, drones, and drug treatment.

That makes this an important time for citizens to stay in touch with lawmakers and share views on the issues that will be voting on during the remainder of the session. There are several easy ways citizens can stay in touch with the General Assembly.

The Kentucky Legislature Home Page,, provides information on each of the Commonwealth’s senators and representatives, including phone numbers, addressees, and committee assignments. The site also provides bill texts, a bill-tracking service, and committee meeting schedules.

To leave a message for any legislator, call the General Assembly’s Message Line at 800-372-7181. People with hearing difficulties may leave messages for lawmakers by calling the TTY Message Line at 800-896-0305.

You may also write any legislator by sending a letter with the lawmaker’s name to: Capitol Annex, 702 Capitol Avenue, Frankfort, Kentucky 40601.
Mayor Fischer calls for Kentucky to adopt 'luxury' tax to tackle pension crisis
Louisville Mayor Greg Fischer said on Thursday that Kentucky lawmakers must consider taxing luxury items to help pay for the state's burgeoning pension crisis.

He cautioned residents that skyrocketing retirements costs could result in the city making significant budget cuts in the coming year.

"We're always ready to deal with the unexpected but this will be difficult for the people of Louisville and force metro government to reduce consistent services," he said.

The mayor gave the warning during his annual State of the City address, which was delivered to the Louisville Rotary Club at the South Central Regional Library. His speech touched on a number of issues ranging major investments downtown to the ensuring opportunities touch all corners of the community.

Fischer administration officials told Metro Council last month that without significant changes to the state retirement system, the city will have to spend about $115 million on pensions compared to $76.5 million this fiscal year. The $38-million hike represents the largest single-year jump metro government has ever faced, according to a review of past city budgets.

Louisville is projecting a $20 to $25 million revenue growth in its budget compared to last year, according to city officials.

Fischer said as a businessman he knows that overcoming fiscal challenges requires a comprehensive plan. He called on state lawmakers to couple pension reform with changes to the tax code during the 2018 legislative session, which began this week.
"Kentucky's communities have critical needs in terms of education, health, social services and infrastructure, to meet them Frankfort must broaden the tax base," Fischer said.

"We need to take a hard look at a tax code that exempts luxury items," he added. "It doesn't make any sense to consider cuts that can hurt a child's classroom, law enforcement, drug treatment or our justice system when we don't tax country club members and limousine rides — that's just not right."

Retirement costs have been an increasing burden on the city's budget. In the 2003-04 fiscal year — the first year after city and county governments merged — Louisville's contribution to the County Employees Retirement System was $31 million. That costs more than doubled by the time Fischer took office to about $67 million.

The amounts that Louisville will be required to pay toward retiree benefits could change depending on whether state lawmakers adopt a pension reform plan before the next fiscal year begins. And city officials hope that they'll be able to pay off that obligation in phases if the $38 million figure remains.

Rotary Club members asked Fischer if he is considering raising local taxes to tackle pension costs if the state legislature doesn't act. He said that his administration is reviewing their upcoming budget but that they're awaiting action in Frankfort.

"We don’t look at taxes until the very last option, (and) the council would have to agree with that as well," Fischer said.

The mayor also used his speech to tout his major investments, downtown's growth and his economic record since taking office in 2011, and highlight goals for the coming year.


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New law will rob St. Louis school pension fund of $232 million by 2033, lawsuit says
ST. LOUIS • The St. Louis Public School Retirement System sued the state of Missouri, St. Louis Public Schools and Confluence Charter Schools last week to halt a new law that it says will cost the city school retirement fund more than $232 million by 2033 and make it virtually impossible to fully fund.

The law in question changed state pension statutes in August so that the St. Louis school district will have to pay significantly less money to the city schools pension fund, which covers retirees from the district and the city’s charter schools. The new law also allows employees to retire earlier — when their age plus years of service equal 80, rather than the previous total of 85.

St. Louis Public Schools lobbied for the new law because the retirement system has required the district to pay millions more each year in the past decade. The district paid $29 million to the retirement fund in 2016, compared with $19 million in 2008. St. Louis Public Schools and Confluence are the biggest contributors to the pension fund.

“My first priority is to the students of St. Louis Public Schools, and for years, the students have suffered because of funds being paid from the district to cover, if you will, the shortfall or the underfunded liability of the pension fund,” said Rick Sullivan, president of the district’s governing board. He also sits on the city school retirement system board.

Sullivan said it’s not the school district’s fault that the retirement system is so underfunded. The retirement system’s board, which consists of a majority of retirees and employees and a minority of school district representatives, decides how much the district must pay to the pension fund to ensure it is on track to becoming fully funded.

Friday’s lawsuit says the new law “will cause significant financial harm to the [retirement system] and permanently damage its ability to provide benefits required by law to its members.”

The retirement fund is currently just 70 percent funded. Without the new law, the system could have become fully funded within 19 years, said Retirement System Executive Director Andrew Clark. Now the fund will likely never become fully funded, he said.

“The simultaneous increase in benefits and decrease in employer contributions substantially harms the Retirement System’s ability to provide retirement benefits that are required by law,” Clark said in an email.

The district is currently required to pay 19 percent of its employees’ compensation to the pension system. Before the new law, employees paid 5 percent. The St. Louis school retirement system is the only one in Missouri that requires schools to pay a higher percentage to the retirement system than employees.

Under the new law, schools will pay a gradually decreasing rate: 16 percent for 2018, dropping to 9 percent by 2032. Meanwhile, all employees will contribute 9 percent by 2025. From 2019 to 2033, the schools will pay $232 million less than what the retirement system says is needed to keep the system on track toward being fully funded.

Retirement system officials estimate that the retirement system will be underfunded by $192 million 15 years from now and 80 percent funded. Without the new law, it could have been 90 percent funded with an unfunded liability of $59 million by 2033.

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NASRA says N.J. reduction has company
The reduction in the assumed rate of return for the New Jersey Pension Fund, Trenton, although dramatic, is part of a continuing trend of rate revisions by public pension plans.

"Normally, we see a more typical change of 25 basis points," said Keith Brainard, the Georgetown, Texas-based research director at the National Association of State Retirement Administrators, whose organization says at least 35 public plans have cut their rates since early last year.

New Jersey Treasurer Ford Scudder reduced the $76.6 billion state pension fund's rate to 7.65% from 7.9% in February 2017 for the fiscal year that started July 1, 2017. Last month, he cut the rate to 7% for the upcoming fiscal year.

"We have seen this trend continuing unabated," said Mr. Brainard, referring to the rate reductions. Plan executives cite as reasons their projections that equity returns will be lower and interest rates will remain relatively low, he said.

When plans announce big changes in rate return assumptions, "it's pre-announced and graduated," as with the two large California public pension plans, he said.

The $221.7 billion California State Teachers' Retirement System, West Sacramento, announced in February 2017 that it would cut its assumed rate of return to 7.25% from 7.5% on July 1, 2017, and to 7% as of July 1, 2018.

In December 2016, the now $348.7 billion California Public Employees' Retirement System, Sacramento, announced it would reduce its rate to 7% from 7.5% over the three fiscal years beginning in July 1, 2017.

New Jersey's announcement in less than a year of an aggregate reduction of 90 basis points is "unusual," said Mr. Brainard.

NASRA last published a formal study of assumed rates of return in February 2017, and an updated version will be published next month, said Alex Brown, the association's Washington-based research manager.

In the 2017 study, NASRA found 53 state and local public pension plans had assumed rates of return between 7% and 7.5%, while 52 had rates between 7.5% and 8%. Another 19 had rates of 7% or less, while three had rates higher than 8%.

Preliminary updated results show the number of plans with rates between 7% and 7.5% has climbed to 62, while the number of plans at 7% or less has jumped to 29. Also, the number of plans with rates of 7.5% to 8% has dropped to 35, Mr. Brown said, and only one has a rate higher than 8%.


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