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  #1111  
Old 07-19-2018, 06:33 PM
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Mary Pat Campbell
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JANUS

https://slate.com/news-and-politics/...ions-next.html

Quote:
How the Janus Ruling Might Doom Public Pensions Next
Spoiler:
The Supreme Court’s decision to overturn 40 years of settled law in Janus v. AFSCME was surely bad news for organized labor.

The ruling may be similarly bad news for public pensions.

To understand why, consider the hypothetical case of a police officer who, like most, works in a unionized workplace. Let’s say that this officer doesn’t like body-worn cameras and really doesn’t like that his union is negotiating to increase their use. He resents that a “fair-share fee” is deducted from his paycheck to fund these negotiations.

Thanks to Janus, he no longer has to pay his union anything (even though he is still covered by a union-negotiated contract—and the union must continue representing him).

But on the next line of that same paycheck, there remains another, far larger, mandatory deduction: a contribution to his public pension. And it may well be that his pension money is invested in a company that manufactures body-worn cameras. This company lobbies for these cameras, supports politicians who promote them, and advertises their advantages—in sum, like the union, it uses Officer X’s money to express views he opposes.


If our police officer cannot be required to “subsidize private speech on matters of substantial public concern,” as Justice Samuel Alito wrote in Janus, why does this protection stop with his union fee? Why does it not also extend to his pension?

One might counter: Public pensions and unions are different. For example, those mandatory pension contributions come with a significant upside: retirement income. State and local pension beneficiaries collect, on average, approximately $27,000 each year.

Janus suggests that a public employee could withhold payment to a pension plan because of a First Amendment dispute.
But union membership also brings considerable rewards. In 2017 the salary advantage of being represented by a union for public employees was, on average, $179 a week, or $279,240 over 30 years, not to mention better employee benefits.

Consider too that most public pension members, like employees in unionized workplaces before Janus, cannot simply “opt out” of the system; contribution is mandatory. And unlike the private sector, the vast majority of public pension funds continue to be defined-benefit plans that base their payout on factors other than an individual employee’s investments or returns.


Janus suggests that a public employee could withhold payment to a pension plan because of a First Amendment dispute—notwithstanding the employee’s own status as beneficiary. Even if states were to move to deny benefits to those who don’t contribute (as some may now try to with unions), pension funds would still face potentially destabilizing withdrawals.

There is also something troubling in any suggestion that employees who do not wish to subsidize corporate speech on public matters should simply forgo their pension. After all, the court could have held that Janus was not injured because he could have always found a different job in a nonunionized workplace. But it did not, presumably because the justices don’t think that an employee seeking to exercise his or her First Amendment rights should bear such a cost for doing so.

In fact, the law has always drawn close parallels between corporations and unions, especially when it comes to money and speech. Until Citizens United, corporations and unions faced virtually identical restrictions on political spending. The court’s ruling there created an asymmetry, because earlier cases still barred unions from using their general funds for political spending. Union political activity (the contours of which have been debated through the decades) must be funded by voluntary contributions from members who earmark this money for political expression.


What safeguards similarly protect investors who do not want to support a company’s political spending? Justice Anthony Kennedy’s answer in Citizens United was “the procedures of corporate democracy.” But even if “corporate democracy” existed—and 22 prominent corporate law professors delicately undertook to inform the court in Janus that it doesn’t, really—this argument hardly justifies privileging subsidies to corporations over those to unions.

If anything, it would suggest the opposite. Unions provide many more opportunities than corporations for members to participate in decisions. They are also far more transparent—and thanks to Congress continuing to block regulations that would require companies to disclose their political spending to investors, likely to remain so. There is even less “democracy” in pension funds. Investment decisions are made by an intermediary, not the employee who earned the money.

And yet pension funds have massive clout. The nation’s largest public retirement systems hold more than $3 trillion in assets. The roughly 15 million active members of defined-benefit plans at the state and local levels are typically required to contribute between 6 and 8 percent of their salary to their pensions—in most cases, an amount several times greater than the agency fee at issue in Janus. In contrast to the 1950s, when 96 percent of state and local pensions were in fixed assets or cash, today 50 percent or more of public pensions are invested in companies that engage in all manner of expression that, even putting aside purely “political” speech, affects “matters of substantial public concern.”


There are, of course, very good reasons to require public employees to contribute to a pension—much as there were sound reasons supporting union agency fees. But as Justice John Roberts memorably explained in his confirmation hearings, courts are meant to apply the law evenly, not to baldly pick winners and losers.

As the Supreme Court continues to “weaponize” the First Amendment, it has struck another serious blow to efforts to address complex collective action problems. If mandatory pension contributions become the next battleground, challengers will find support in Janus. In creating a death spiral for organized labor, the court may have created a maelstrom that threatens to pull down our public pension system, too.
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Old 07-20-2018, 03:56 PM
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http://www.wirepoints.com/overpromis...-state-survey/

Quote:
Overpromising has crippled public pensions. A 50-state survey
Spoiler:
Introduction

The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.

But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike.[1] Overpromising is the true cause of many state crises. Underfunding is often just a symptom of this underlying problem.

Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies.[2] It’s no wonder taxpayer contributions haven’t been able to keep up.



The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.

Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

Today, promises to active workers and pensioners have jumped to $217 billion – a growth of 176 percent in just 13 years. That increase in total obligations is four times greater than the growth in the state’s GDP, up only 41 percent.



Many of the top-growth states – including New Jersey, Illinois, Kentucky and Minnesota – have high growth rates due to recent changes in their investment assumptions.[3]

But more honest accounting, i.e. lowering the investment rate, is hardly a comfort to the residents of those states.[4] It simply reveals just how much in promises residents are – and always have been – on the hook for.

And it’s not just the fiscal basket-cases that are in trouble. Accrued liabilities have skyrocketed in states across the country. Legislators continued to grow their obligations even as their states’ pension crises worsened during the 2003-2016 period.

Twenty-eight states allowed their accrued liabilities to outgrow their economies by 50 percent or more. And pension promises in 12 states outgrew their economies by a factor of two or more.

Pension promises were meant to be funded by a combination of employer (i.e. taxpayer) contributions, employee contributions and investment returns. But as promises have skyrocketed and assets have failed to keep up, funding shortfalls across the 50 states have jumped.

The Pew data shows that unfunded state promises – known as unfunded liabilities – grew six times, to $1.4 trillion in 2016 from $234 billion in 2003.[5]

In all, states had just $2.7 trillion in assets in 2016 to cover accrued liabilities of $4.1 trillion. And that’s the rosy scenario. Most states use assumptions that underestimate the true size of the promises they’ve made to state workers. Under more realistic assumptions, the pension shortfalls are actually $1-$3 trillion larger.[6]

Those funding shortfalls are being piled onto ordinary residents. Government employee contributions are generally fixed and investment returns aren’t enough to dig most funds out of debt. So taxpayers are stuck holding the bag for the states’ massive unfunded liabilities.

The Pew data covers 13 years of pension growth, a relatively short period when analyzing pensions. A longer-term data series is needed for a deeper analysis. Fortunately, Wirepoints was able to collect 30 years of Illinois pension data. The state’s long-term numbers show an even greater disparity between the growth in total benefits and what taxpayers can afford.[7]

Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.[8]

Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.

There’s no fixing pensions without dramatically scaling back that growth in retirement promises.

Growth in total pension promises across the states

Some states have experienced far higher growth in pension promises, and far more fiscal strain, than others



At the top of the list are states like New Jersey, New Hampshire, Illinois, Nevada, Kentucky and Minnesota. Several of those states have lowered their assumed investment rates as a result of their crises (see Endnote 3).

All six states experienced accrued liability growth of more than 7 percent a year between 2003 and 2016.

At the bottom of the list, states like Wisconsin, Maine, Michigan, Oklahoma and Ohio have all kept their accrued liability growth rate below 4 percent per year.

That 3 percentage-point difference in annual growth is significant when the impact of compounding is considered over a 13-year period.

It’s pushed pension promises up in the top states by 160 percent over the period. In contrast, the states with more moderate benefit growth grew their promises by a total of 60 percent or less.

In many states, that’s made the difference between fiscal stability and financial crisis.

Pensions vs. economies

A vast majority of states have experienced unsustainable pension benefit growth compared to their economies.



In 28 states, accrued liabilities outgrew their economies by 50 percent or more between 2003 and 2016.

And 12 states were totally overwhelmed by increases in their accrued liabilities. The total growth was more than double that of their economies.

Again, it was New Jersey, New Hampshire, Illinois, Connecticut and Kentucky which were the most out-of-control.

Those states have mature pension systems that have been in operation for decades. There’s little reason, in theory, for their promised benefits to grow so much faster than their economies. In some cases, it’s due to more honest reporting of their true liabilities.[9]

Other states have seen robust increases in population – thereby necessitating some growth in services – but not enough to warrant the kind of increases in their pension obligations.

Nevada’s population, for example, grew more than 25 percent. But that doesn’t justify the fact that its pension promises grew by more than two times the growth in the state’s GDP.

Overall, only six states – Rhode Island, Wisconsin, Oklahoma, Oregon, Texas and North Dakota – experienced GDP growth that exceeded the growth in their accrued liabilities.

States with the largest and smallest pension benefit growth

There is a stark contrast between the states at the top and bottom of the accrued liability growth chart. Many states with rapidly growing pension obligations are in crisis. Most states with slow-growing obligations are not.

The five states with the largest growth in promises in the nation – New Jersey, New Hampshire, Illinois, Nevada and Kentucky – have all seen their benefits grow 150 percent or more since 2003.

That explosive growth in benefits has overwhelmed many of those states’ economies and their residents’ ability to pay. Every one of the top 5 states has seen their pension benefits grow 2 to 4 times more than their GDP growth.

Growing pension obligations is also reflected in those state’s promises as a share of GDP. For example, Illinois pension promises have grown to 28 percent of GDP in 2016 from 16 percent of GDP in 2003, a 75 percent increase. New Jersey has seen its promises as a share of GDP skyrocket 96 percent, growing to 42 percent from 22 percent. (See Appendix 3 for a full list of state accrued liabilities as a percent of GDP).

Unsurprisingly, these states are also home to some of the nation’s worst pension crises.

In 2016, New Jersey had the nation’s 2nd-worst credit rating and the worst-funded pensions in the nation – only 31 percent funded.[10] Kentucky was right behind with a funded ratio of 31.4 percent. And Illinois followed closely with a funded ratio of just 36 percent and the lowest credit rating in the nation, just one notch above junk.[11]



In contrast, the lowest promise-growing states in the nation – Rhode Island, Wisconsin, Maine, Michigan and Oklahoma –all kept their annual accrued liability growth at 4 percent a year or less between 2003 and 2016. (See Endnote 3).

That kept pension benefits from overwhelming those states’ economies. Take Wisconsin, for example. The state’s pension promises grew 48 percent over the time period, less than the state’s GDP growth, up 53 percent. And Rhode Island’s economy managed to grow faster than promised benefits. Benefits grew just 24 percent while the state’s economy grew 41 percent.

A common factor among these low growth states is their more reasonable pension benefits and a willingness to enact pension reforms.

Wisconsin’s “shared risk” pension plan and relatively modest benefit structure have kept the state’s promises limited and its pension system healthier than most for decades.[12] Michigan pioneered comprehensive state pension reform. Back in 1997, the state froze pensions for some state workers and created 401(k)-style plans for them going forward.[13]

And Rhode Island enacted major pension reforms in 2011. That’s one of the reasons why the state’s benefits grew more slowly than the economy. The state introduced hybrid retirement plans, cut cost-of-living adjustments and increased retirement ages for both new and current workers.[14]

A 30-year case study: Illinois’ overwhelming pension promises

Illinois provides the perfect example of how out-of-control pension benefits can create a state pension crisis.

Wirepoints analyzed Illinois pension and economic data stretching back to 1987 using data from the Illinois Department of Insurance. Our analysis found that Illinois’ total pension promises have grown exponentially over the past 30 years.



Illinois’ 2016 accrued liabilities were 1,061 percent higher than they were three decades ago. In 1987, total accrued liabilities equaled $18 billion. By 2016, that amount had swelled to $208 billion.[15]



No other measure of Illinois’ economy even comes close to matching the growth in pension promises. That growth was six times more than Illinois’ 176 percent growth in general revenues over the same time period; eight times more than the state’s 127 percent growth in median household incomes, and nearly ten times more than the 111 percent growth in inflation.

Illinois’ dramatic increase in accrued liabilities over the past three decades has been driven by three factors: overly generous benefits, pension sweeteners and a realization that pension promises were dramatically understated due to faulty assumptions.

Since 1987, lawmakers have added benefits to Illinois pensions that:[16]

Add compounding to a retiree’s 3 percent cost-of-living adjustment. That doubles a retiree’s annual pension benefits after 25 years.
Significantly increased the pension benefit formulas for the Teachers’ Retirement System, or TRS, and the State Employees’ Retirement System, or SERS.
Provided lucrative early retirement options.
Allow workers to boost their service credit by up to two years using accumulated unpaid sick leave.
Grant automatic salary bumps to workers who earn masters and other graduate degrees.
Allow for the spiking of end-of-career salaries.
As a result of these changes, long-time state workers in Illinois receive overly generous pensions. The average newly-retired state employee who worked 30 years or more receives $68,100 in annual pension benefits and will see his or her yearly pension payments double to $140,000 after 25 years in retirement. In total, career workers can expect to collect more than $2 million over the course of their retirements.[17]

Illinois state workers also tend to retire long before their peers in the private sector. In fact, 60 percent of all current state pensioners began drawing pensions in their 50s, many with full benefits.



Changes in mortality, investment rates and other actuarial assumptions also increased the amount of total pension benefits promised. In 2016 alone, assumption changes contributed to $10 billion of a $17 billion jump in accrued liabilities.[18]

For a deeper dive into Illinois’ pension crisis, read:
Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report

Interestingly, Transparent California recently analyzed California pensions over the same period, 1987-2016, and discovered similar results. The state’s accrued liabilities grew nearly 900 percent in total, far faster than any other economic indicator.[19]

State pension asset growth

On average, state pension assets nationally grew 3.7 percent a year through 2015, almost identical to the 3.8 percent annual growth in GDP over the same period. That trend was thrown off track in 2016, a year of poor investment returns.



The accrued liability/asset dynamic of the past 15 years is particularly important because in 2003, the (weighted) average funding ratio across all state pension plans was 88 percent.

If all legislatures had taken steps in 2003 to ensure that pension promises would not grow at outrageous rates – especially in states that lowered their assumed investment rates – many states across the nation would not be in crisis today.



As with pension promises, there is a lot of variety between states as to how much pension assets have grown.

Nearly half of all states grew their assets faster than their economies, an outcome that helped offset rapidly growing pension promises. But that wasn’t enough for many states to keep up with the full pace of their promises.

At the top of the asset growth list are states like West Virginia, Nevada, South Dakota, Idaho, Nebraska and New Hampshire.

All those states saw their pension assets grow more than 6 percent a year between 2003 and 2016.

And all of them but New Hampshire are well-funded in relative terms. They have pension funding ratios of anywhere between 72 and 97 percent.

Another exception to the rule is Illinois. It had the 8th highest pension asset growth in the nation, yet it’s just 36 percent funded. That’s largely a function of the Prairie State also having the 4th-fastest growth in accrued liabilities since 2003.

At the other end of the spectrum, Michigan, Rhode Island, Pennsylvania, Kentucky, and New Jersey all saw their assets grow less than one percent annually.

That’s a big problem for most of those states, in particular for those with rapidly growing promises like New Jersey and Kentucky.

It’s no surprise that New Jersey’s funding ratio fell from 93 percent in 2003 to 31 percent in 2016.

The same goes for Kentucky, whose funding ratio collapsed from 88 percent to 31 percent over the same period.

The lethal combination of collapsing assets and fast growing promises has dropped both states’ pensions into virtual insolvency.

Changing the narrative

The pension crisis is currently wrapped up in a false narrative of underfunding – that residents have never contributed enough to state pensions.

As long as that narrative dominates, higher contributions and tax hikes will be promoted as the only “solutions” to the crisis. It’s what states with the deepest crises are pursuing.

In 2016, California extended a millionaire’s tax that’s poured billions into teacher pensions.[20] New Jersey Gov. Phil Murphy and the state legislature have just agreed to a new tax hike package.[21] And Illinois Democratic gubernatorial candidate J.B. Pritzker is fighting for a multi-billion progressive tax hike – on top of last year’s record $5 billion income tax increase.[22]

But the nation’s pension crises won’t be solved by piling higher taxes on to residents. “Underfunding” is just a symptom of the real problem plaguing pensions.

Each state’s crisis is unique – but a common factor across almost all of them is a rapid and uncontrolled growth in accrued pension liabilities.

The states’ pension crises will only be solved when there is a reversal in liability growth. And that reversal will begin when states, the media, and politicians finally address the crises as a problem of over promising, not underfunding.

************************************************** *******************

Appendix 1: Notes on the growth of state pension promises



A. California’s 2016 pension data

The Pew data includes a revaluation of assets and liabilities by California’s Public Employee’s Retirement System (CalPERS) that occurred in FY 2016 under new GASB 67 and 68 accounting rules. As result, Pew was unable to provide a like-for-like comparison between CALPERS 2016 data and previous years.

In order to achieve a more like-for-like comparison, Wirepoints used CalPERS’ reported asset and liability data from the fund’s official 2016 actuarial report as a replacement for the Pew 2016 data.[23]

B. Total vs. individual pension benefits

Wirepoints’ analysis does not directly address the generosity of individual pension benefits. Our analysis only examines the growth in total pension obligations – each state’s aggregate promises to its active workers and retirees.

In other words, this report focuses on the growing accrued pension liability faced by states, just as other reports address the growing aggregate of other debts.

C. Comparing promised pension benefits across states

Comparing an individual state’s growth in pension benefits to another state’s is difficult because the math behind each pension system varies widely.

The government employees covered by the state pension systems differ from state to state. For example, California’s state funds cover local/municipal employees while Illinois’ state funds do not. The benefits offered to workers also differ, as do other perks tied to retirement. For example, some states offer compounded cost of living adjustments and early retirements while others do not.

Each state’s actuarial assumptions and the changes they’ve made over the years also vary. A pension system’s assumed rate of return on investment has a major impact on its accrued liabilities. States that have lowered their assumed rates of return during the 2003-2016 period will have, everything else equal, higher accrued liability growth compared to states that have not.

D. Time period of Pew data

The Pew data covers a relatively short period in regard to the nation’s pension crisis. Problems have been building in most states for decades, long before 2003. Longer-term data needs to be collected for a deeper analysis. However, the limited data available still shows legislators continued to grow their obligations even as their states’ crises deepened during the 2003-2016 period. Despite its limitations, the Pew data provides a good proxy for how much politicians haveoverpromised pensions in each state.

Appendix 2: State pension liabilities and assets



Appendix 3: Accrued liability growth vs. economic growth



Appendix 4: Growth in accrued liabilities as a percentage of GDP

Wirepoints used the Pew Center’s pension data and economic data from the Bureau of Economic analysis to calculate each state’s total pension promises as a share of GDP. Because state pension assumptions, membership and benefits differ widely from each other, Wirepoints does not compare promises as a share of GDP across states. Instead, our analysis looked at the change, over time, in each state’s accrued liabilities as a share of GDP.



Appendix 5: Assumed investment returns of state pension funds, 2016



Endnotes

[1] The Pew Charitable Trusts, “The State Pension Funding Gap: 2016,” (April 12, 2018). http://www.pewtrusts.org/en/research...016#0-overview.

[2] U.S. Bureau of Economic Analysis: Regional Economic Accounts https://www.bea.gov/regional/index.htm.

[3] New Jersey’s major pension funds have significantly lowered their expected rates of return in recent years, from as high as 8 percent in 2013 to as low as 3 percent in 2016. Those changes directly impacted the state’s promised pension benefit growth over the 2003-2016 period. It should be noted that New Jersey, along with Kentucky and Minnesota have used some of the lowest expected returns in the country. According to Pew’s collected pension data, nearly 80 percent of state pension funds with liabilities of $3 billion or more still use expected investment rates of return of 7 percent and above as of 2016. See Appendix 5 for more details. Wirepoints recognizes that if other states were to lower their assumed investment rates, the overall rankings of these states would change.

[4] For example, U.S. Census data shows New Jersey’s real median household income falling to $68,468 in 2016 from $73,136 in 2003, https://fred.stlouisfed.org/series/MEHOINUSNJA672N.; New Jersey has the 3rd-highest state-local tax burden & as a percentage of income according to the Tax Foundation. Morgan Scarboro, “Facts and Figures 2018: How Does Your State Compare?” Tax Foundation(March 21, 2018). https://taxfoundation.org/facts-figures-2018/.

[5] The Pew Charitable Trusts, “The State Pension Funding Gap: 2016.” See Appendix 1 for information on California’s 2016 pension data.

[6] Joshua D. Rauh, “Hidden Debt, Hidden Deficits: 2017 Edition: How Pension Promises Are Consuming State and Local Budgets,” Hoover Institution(May 15, 2017). https://www.hoover.org/research/hidd...s-2017-edition.

[7] Ted Dabrowski and John Klingner, “A dramatic rise in pension benefits – not funding shortfalls – caused Illinois’ state pension crisis,” Wirepoints(February 2018). http://www.wirepoints.com/illinois-s...pecial-report/.

[8] Wirepoints used Illinois personal income as a proxy for GDP growth due to a U.S. Bureau of Economic Analysis warning against using state GDP data from 1987 through 2016 because of a discontinuity in its data beginning in 1997.

[9] See Endnote 3 for more information on New Jersey and the lowering of its expected investment rate of return.

[10] Samantha Marcus, “N.J. avoids another credit downgrade as perky economy trumps ailing pension system,” NJ.com (April 18, 2017). https://www.nj.com/politics/index.ss...downgrade.html.

[11] Ted Dabrowski and John Klingner, “Rating agencies warn, Illinois flirts with junk,” Wirepoints (April 24, 2018). http://www.wirepoints.com/rating-age...ints-original/.

[12] Jason Stein, “Wisconsin’s fully funded pension system is one of a kind,” Milwaukee Journal Sentinel (9/26/2016). https://projects.jsonline.com/news/2...of-a-kind.html

[13] Anthony Randazzo, “Pension Reform Case Study: Michigan 2016 Update,” Reason Foundation (August 2016). https://reason.org/wp-content/upload...m_michigan.pdf

[14] Anthony Randazzo, “Pension Reform Case Study: Rhode Island” Reason Foundation (January 2014). https://reason.org/wp-content/upload...ode_island.pdf.

[15] Wirepoints, “A dramatic rise in pension benefits.”

[16] Commission on Government Forecasting and Accountability, “March 2017 Financial Condition of the Illinois State Retirement Systems,” (March 2017). http://cgfa.ilga.gov/Upload/FinCondi...SysMar2017.pdf.

[17] Member data received from a 2018 FOIA request to the Teachers Retirement System, State Universities Retirement System and State Employees Retirement System.

[18] Moody’s Investors Service estimates Illinois has a $201 billion net pension liability. See the May 29, 2018 edition of Moody’s Credit Outlook for more information.

[19] Robert Fellner, “Nearly 900% increase in CalPERS benefits dwarfs economic growth, taxpayers’ ability to pay,” Transparent California (July 12, 2018). https://blog.transparentcalifornia.c...bility-to-pay/.

[20] Chuck DeVore, “Coming Tax Hikes for Government Pensions, How Much Will You Pay?Forbes (July 22, 2016). https://www.forbes.com/sites/chuckde.../#26d0dd41b429.

[21] Dustin Racioppi and Nicholas Pugliese, “NJ budget agreement: Deal on taxes, spending increases includes gimmicks Murphy faulted” NorthJersey.com (July 1, 2018). https://www.northjersey.com/story/ne...kes/748701002/.

[22] Rick Pearson, “Pritzker: Raise state tax rate, boost exemptions while working on a graduated income tax,” Chicago Tribune(April 3, 2018). http://www.chicagotribune.com/news/l...403-story.html.

[23] California Public Employees’ Retirement System, “Comprehensive Annual Financial Report FY 2017” https://www.calpers.ca.gov/docs/form.../cafr-2017.pdf


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Old 07-20-2018, 04:00 PM
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Old 07-22-2018, 12:42 PM
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NEW YORK
DIVESTMENT
INVESTMENT

http://www.nydailynews.com/opinion/n...16-story.html#

Quote:
The big private prison break: N.Y. is making a strong statement against companies that profit off incarceration

Spoiler:
Kudos to Controller Tom DiNapoli for divesting state pension funds from the morally abhorrent private prison industry. Honorable mention to Sen. Brian Benjamin of Harlem and activists including the ACLU and Randy Credico for raising the issue months ago and finding creative ways to keep it in the public eye.

There’s no shortage of things to complain about in the state capital, but it’s important to celebrate the times that Albany gets it right.

Private prisons rank among the most morally abhorrent industries in America, an ugly outgrowth of the madness of mass incarceration over the last three decades.

The misguided War on Drugs and ever-higher prison sentences caused an explosive 800% increase in the federal prison population between 1980 and 2013. Facing a shortage of prison beds, the government began paying private companies to house human beings.

The companies that responded have grown tremendously: Two of the biggest players, CoreCivic (formerly Corrections Corp. of America) and the GEO Group, are traded on Wall Street.

The Idaho Correctional Center operated by CoreCivic formerly known as Corrections Corporation of America.
The Idaho Correctional Center operated by CoreCivic formerly known as Corrections Corporation of America. (Charlie Litchfield / AP)

It was a morally dicey proposition from day one: Imagine a prosecutor who got a cash payment every time she won a conviction, or a judge who earned a bonus tied to the number of years he sentenced a defendant to serve behind bars. We’d rightly fear that key players in our court system were motivated by money rather than the pursuit of justice.

Private prisons do exactly that, spending millions on political donations and lobbyists in support of tougher sentences and ever-more incarceration. At the end of 2015, there were over 22,000 inmates in private prisons, according to a federal Justice Department investigation, and the report found they were less safe and secure than in regular prisons.

Now, the industry is hoping to strike it rich off the Trump administration’s policy of arresting and detaining millions of undocumented immigrants: On the day after Trump won the election, the stock price of CoreCivic jumped 34% and GEO soared 18% within the first hour of trading.

DiNapoli, as sole trustee of New York’s state pension funds, sold off a relatively tiny $9.6 million stake in the two companies, and good for him. While for-profit prisons have been banned in our state, most New Yorkers would be horrified by the idea that their retirement was financed, in part, by money from locking up human beings for profit.

Jennifer Freeman, a spokeswoman for DiNapoli, told The News’ Ken Lovett that the divestment was a business decision.

“The current immigration situation is creating even more risks in their business model, which has consequences for their long-term value,” said Freeman.

That is finance-speak for the notion that the political controversy over mass incarceration and the Trump administration’s immigration policies could lead to a political backlash — including state bans on the use of private prisons — that would lead to losses for those invested in prison companies.

That’s somewhat beside the point, compared to Sen. Benjamin’s call for a law flatly banning investment in prison companies.

“By their very nature, private, for-profit prisons drive the inhumane practice of incarcerating low-income people of color,” he told The News last December.

All too true.

The industry has been a strong backer of the Trump White House. One division of GEO Group donated $225,000 to a pro-Trump super PAC, and the main company gave another $250,000 to Trump’s inaugural committee — and after the election moved its annual retreat from its usual location to the Trump National Doral, a golf resort owned by the President.

While the industry is crawling into bed with the administration, New Yorkers should thank DiNapoli for severing links with purveyors of a nasty business.


https://www.osc.state.ny.us/pension/...n=pension+fund

Quote:
In-State Private Equity Investment Program

This program invests in private equity funds that target technology-based startups and established businesses in the State seeking expansion capital. The program generates solid returns for the State pension fund and the one million members, retirees and beneficiaries who depend on it. As an added bonus, it spurs private sector investments and jobs—upstate and downstate—by investing in businesses that want to expand here.

Spoiler:

Company Profiles

Healthify
New Tech Firm Helps Improve Healthcare


Southern Tier Brewing Company
An Upstate Success Story


Movable Ink
This Tech Firm Knows When “You’ve Got Mail”


Voxy
Want to learn English? Try Voxy.


Since 2007, Comptroller DiNapoli has doubled the capital committed to this program.

11 percent internal rate of return on fully exited investments.
$863 million returned to the Fund on $583 million exited investments in 139 companies.
More than $1 billion has already been invested in over 350 New York State companies.
$6.7 billion has been invested between the Fund and partner private equity firms, including $2.4 billion in upstate New York companies.
Other Resources
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Old 07-22-2018, 05:40 PM
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NEW YORK
DOUBLE-DIPPING

https://www.lohud.com/story/news/pol...ear/796967002/

Quote:
Check the list: New York workers who collected a salary and pension last year
Spoiler:
ALBANY -- More than 300 state workers earned $100,000 in combined pension and salary in 2017, and 30 employees collected $100,000 each in retirement payments and salary, state records show.

But overall, the number of "double dippers" in state government continues to fall, down to 1,747 workers last year, a 4.5 percent drop from 2016 and a 37 percent decline since 2011.

Critics have long questioned the ability of state workers to collect a salary and a pension, often in the same job.

But New York officials have sought to crack down on the practice. In 2011, more than 2,800 state workers received a salary and a pension.

Still, it can be lucrative for some state workers.

CHECK THE DATABASE: Double dippers in state government

Highest paid
The 30 people whose pension and pay each topped the $100,000 mark was led by a professor at the University of Albany, according to records obtained by the USA Today Network in New York through a Freedom of Information to the state Comptroller's Office.

The professor, Marlene Belfort, received a combined $344,950 in 2017 -- with nearly $246,833 in salary and $98,117 in pension from her years of state service.

Belfort, 73, a renowned biochemist, doesn't have to receive a state waiver to collect a salary and a pension because she has reached retirement age, the university said.

"Dr. Belfort’s expertise and accomplishments are extensive and unique," the university said in a statement.

"Her decades of experience as a genetics researcher, her work with UAlbany’s renowned RNA Institute and her service as a mentor to undergraduate and graduate students and post-doctoral researchers would be extraordinarily difficult, if not impossible, to replace."

The state court system had the most high-paid "double dippers," with an average salary and pension of $287,000 for 20 state Supreme Court judges, the records showed.

In fact, seven of the top 10 earners were state Supreme Court justices.

The top judge on the list was William Kocher, a judge in Ontario County, who made nearly $336,000 last year in salary and pension, according to the Comptroller's Office.

State workers over age 65 can generally collect a salary and a pension without an income limit.

The state's data included only the employees who were in the pension system and stayed in state service through year's end.

The comptroller's office could not provide a list of those who collected a state pension and work in local government.
In New York, 1,748 state workers collected a salary and pension in 2017, and the agencies above had the most.
For the Court of Appeals and Motor Vehicles, most of the workers received small, hourly pay to go along with their state pension.



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Old 07-22-2018, 05:41 PM
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On the Wirepoints comparison of GDP growth and total pension liability growth

https://www.forbes.com/sites/ebauer/.../#580c6c697b4e

Quote:
New Study: The Public Pension Crisis Is Not The Result Of Legislators' Failure To Fund

Spoiler:
Or, to be more, precise, it's not the primary cause. Rather, a study by Wirepoints made available on their website yesterday points to a far more troubling cause: the value of promised benefits has skyrocketed in the years since 2003, both in absolute terms and relative to measures such as those states' GDP growth.

Here is their headline, eye-popping chart:


From http://www.wirepoints.com/overpromis...state-survey/; used with permissionWIREPOINTS

What's going on?

In some cases, there is a simple answer: as readers will recall from my prior article, the accounting rules for public pensions differ, depending on whether there's enough future projected assets, including future scheduled contributions, to cover promised pension benefits. If there is, the plan discloses liabilities based on the expected future returns from those assets. If not, then for the portion of the benefits which are not even hypothetically funded from planned future contributions, a municipal bond rate is used instead. This can lead to swings in the liability, based solely on whether the legislature has a future contribution schedule in place -- when, of course, the real pension debt doesn't change whether you have a plan to fund it, any more than a hypothetical balloon mortgage isn't any more or less of a debt depending on how you plan to save up for it.


But this accounting rule is new, with the change being phased in starting in 2015. Previously, plans could use this expected asset return even if the level of funding was only a trivial sum relative to the overall funding level. As Bloomberg reported in 2017, Minnesota saw a dramatic increase in its liability, and a decrease in its funded status, as a result of the new accounting standard.

But much of the growth in benefit liability is, in fact, growth in benefits promised. As detailed at Crain's in 2015, the history of Illinois public pensions has been a litany of pension increases. In 1989, the state increased its cost-of-living adjustment from a non-compounded to a compounded basis.

MORE FROM FORBES
As Crain's reports,

The bill's sponsors, including former Democratic Senate President Emil Jones, never said during floor debate how much that change might cost, once again leaving lawmakers in the dark about what they were voting on. It wound up passing by lopsided margins of 41-12 in the Senate and 108-4 in the House.

Subsequent legislation increased benefit formulas for "regular formula" state employees and teachers (1998), increased "alternative formula" benefit formulas for state employees and implemented earlier retirement ages for state employees (2001), and provided for early retirement benefit enhancements, described again by Crain's:

In 2002, as it became clear Democrats would retake state government, [former governor George] Ryan signed off on a lucrative exit strategy for thousands of state employees who got their starts under Republican administrations.

Ryan declined an interview request from Crain's. His plan, touted as a way to avoid nearly 7,000 layoffs, gave state workers and downstate and suburban teachers the option of speeding up their retirements by buying age and service credits needed to qualify for a pension.

Initial forecasts by the nonpartisan Illinois Pension Laws Commission estimated that 7,365 people would take advantage of the plan at a cost to the pension systems of $543 million over 10 years. . . .

The offer of full pension benefits to retirees as young as 50 proved so enticing that some state workers took out home-equity loans to generate enough money to gain eligibility. All told, 11,039 employees took the offer, a CGFA analysis in 2006 showed. That increased the liability to the state pension systems to $2.3 billion.

It's a pattern that is repeated over and over again: legislators using pension benefits as a form of "free money" to give away without the immediate and tangible financial consequences that would arise if they gave the affected employees pay raises.

Another state on this chart of most dramatic increases, New Hampshire, again, has a similar list of benefit increases over time, from multipliers and early retirement eligibility made more generous in 1974, to the use of asset gains in good years to fund cost of living adjustments, rather than reserve for lean years (1983), as well as expansions in medical subsidies, spouse's benefits, and a special program allowing for voluntary savings with generous interest crediting.

(Nevada appears to be something of an exception, since the benefits, while exceptionally generous, have been only modestly enhanced in recent years. To what extent their growth in benefit liability is a long-term consequence of its earlier explosive population growth, from 800,000 in 1980 to 3 million now, requires some further math.)

Yes, reports on pension contribution holidays, or the "Edgar Ramp" detailed at Crain's, in which the former governor put together a funding plan which amounted to "let future generations pay" are enough to make your blood boil. But this wouldn't have been avoided, only mitigated, if only shortsighted governors hadn't taken contribution holidays. Even after reducing benefits for new employees in 2011, the cost of the annual new pension accrual for active employees amounts to 20% of pay in the Illinois Teachers' Retirement System, and 21% for the Illinois State Employees' Retirement System -- and, for the latter system, due to the generous early retirement provisions, the liability for retirees is double that of those still working.

How does your state rank? Take a look at the Wirepoints full 50-state listing to see.
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Old 07-22-2018, 06:35 PM
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Originally Posted by campbell View Post
On the Wirepoints comparison of GDP growth and total pension liability growth

https://www.forbes.com/sites/ebauer/.../#580c6c697b4e
This is a horrible article and a horrible comparison. The wire points study offers up this comparison as if the liability growth is unusual or unexpected. Given the liabilities are generally being discounted at 7-8% (or more), the expectation is they will grow at 8% even if no one earns any additional benefits so given people are earning additional benefits one would expect them to grow at something more than 8% per year.

Proper advance funding of the benefits with a focus on 100% funding and amortization of both gains and losses over a reasonable period of time absolutely would result in the ability to maintain contributions at a fairly steady level % of pay contribution. You can argue about issues with the assumptions but any conclusion that attempts to claim that the growth of benefits by itself is the issue and not proper measurement and funding shows a gross misunderstanding of the entire topic.

If the authors of the study or this article are actuaries they are coming very close to violating Precept 2 of the code of conduct. I question their qualifications to opine on this subject.
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Old 07-22-2018, 07:32 PM
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Originally Posted by Kenny View Post
This is a horrible article and a horrible comparison. The wire points study offers up this comparison as if the liability growth is unusual or unexpected. Given the liabilities are generally being discounted at 7-8% (or more), the expectation is they will grow at 8% even if no one earns any additional benefits so given people are earning additional benefits one would expect them to grow at something more than 8% per year.

Proper advance funding of the benefits with a focus on 100% funding and amortization of both gains and losses over a reasonable period of time absolutely would result in the ability to maintain contributions at a fairly steady level % of pay contribution. You can argue about issues with the assumptions but any conclusion that attempts to claim that the growth of benefits by itself is the issue and not proper measurement and funding shows a gross misunderstanding of the entire topic.

If the authors of the study or this article are actuaries they are coming very close to violating Precept 2 of the code of conduct. I question their qualifications to opine on this subject.
Neither of the authors are actuaries.


And as for your bolded statement -- do you actually have any practical experience with public plans? Maybe with some modest plans, this is true. But this is not what I've seen.

No, I'm not any kind of pension actuary, but I do know how to read financial statements, CAFRs in particular. Here is what I found about 100% ARC payers.

http://stump.marypat.org/article/805...ing-fundedness

Quote:
WHY AREN’T 100% ARC-PAYERS 100% FUNDED?

So here’s the question: why are those plans with “full contributions” not fully-funded?

They’re paying 100% of what they’re supposed to, at least since 2001. (I can’t speak to earlier time, based on data I get from the Public Plans Database.)

....

SO WHAT’S GOING ON?

Yeah, what is going on?

Let’s look at how median funded ratios have done, and include a line for all plans:



Look at that.

So it really calls into question that the ARC really defines what should be contributed.

.....
I highlighted the part that is significant: a sensitivity to valuation parameters, especially the discount rate used.

And public pension plans get to choose that for themselves. Many plans have been revising that parameter downward… slowly. But the point is that the plans are often optimistic on parameter choice.

And it goes beyond that. The discount rate is just the most obvious parameter choice. There are many others that go into the mix.

I found out that there was a lot of negative amortization of the unfunded liability, due to assumptions including not only the return assumption, but also the contribution pattern assumption (that was a big one), etc. Only a few of these plans have had a mild increase of % of payroll to pay... many have seen steeply increasing amounts. Like Calpers, which forces 100% contributions on its members (and when you want to leave -- "surprise!" -- liabilities are discounted at 2 - 3%).


So let's look at Calpers, the largest non-federal pension plan in the U.S.

http://publicplansdata.org/quick-fac...plan/?ppd_id=9

ARC went from 15.5% of payroll in 2010 to 21.9% in 2016. That's a cumulative increase of 41%, if we assume payroll stayed steady. [Narrator: It did not stay steady. Covered payroll went from $44,984,000,000 in FY 2010 to $49,833,000,000 in FY 2016, so the full increase in ARC was more 56% in 6 years]

That's not a modest increase.

So, Kenny, when one has a funding approach where you have an increasing % of payroll as ARC, and you keep falling behind, or at best you are treading water.... who is at fault?

The actuaries for using ridiculous valuation/funding assumptions? Yes, I know their clients hand them some of the assumptions (like the return on assets assumption). But a truly moral actuary would refuse to work with absurd assumption sets, wouldn't they? They would warn about impending disaster, right? It's not like it happens overnight.



Trying to stand on actuarial expertise when funding ratios are deteriorating even when the plans are doing what their actuaries tell them to means that actuaries aren't exactly the most credible bunch in this regard.
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Old 07-23-2018, 12:19 PM
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Neither of the authors are actuaries.


And as for your bolded statement -- do you actually have any practical experience with public plans? Maybe with some modest plans, this is true. But this is not what I've seen.

No, I'm not any kind of pension actuary, but I do know how to read financial statements, CAFRs in particular. Here is what I found about 100% ARC payers.

http://stump.marypat.org/article/805...ing-fundedness



I found out that there was a lot of negative amortization of the unfunded liability, due to assumptions including not only the return assumption, but also the contribution pattern assumption (that was a big one), etc. Only a few of these plans have had a mild increase of % of payroll to pay... many have seen steeply increasing amounts. Like Calpers, which forces 100% contributions on its members (and when you want to leave -- "surprise!" -- liabilities are discounted at 2 - 3%).


So let's look at Calpers, the largest non-federal pension plan in the U.S.

http://publicplansdata.org/quick-fac...plan/?ppd_id=9

ARC went from 15.5% of payroll in 2010 to 21.9% in 2016. That's a cumulative increase of 41%, if we assume payroll stayed steady. [Narrator: It did not stay steady. Covered payroll went from $44,984,000,000 in FY 2010 to $49,833,000,000 in FY 2016, so the full increase in ARC was more 56% in 6 years]

That's not a modest increase.

So, Kenny, when one has a funding approach where you have an increasing % of payroll as ARC, and you keep falling behind, or at best you are treading water.... who is at fault?

The actuaries for using ridiculous valuation/funding assumptions? Yes, I know their clients hand them some of the assumptions (like the return on assets assumption). But a truly moral actuary would refuse to work with absurd assumption sets, wouldn't they? They would warn about impending disaster, right? It's not like it happens overnight.



Trying to stand on actuarial expertise when funding ratios are deteriorating even when the plans are doing what their actuaries tell them to means that actuaries aren't exactly the most credible bunch in this regard.
Yes I am a pension actuary and I have experience with public pension plans. I also understand the differences in the different liabilities that are being calculated and what they actually mean, which frequently gets glossed over or misrepresented in these discussions.

There are many different methods for calculating liabilities. The primary method used by public pension plans is intended to be a value calculated for budgeting purposes. For starters, it is not the current accrued benefits of plan participants but instead includes both future service and future pay. The liability is calculated with the express intent of spreading the accrual of the total expected liability over an employee's working career as a level % of pay. That is part of the reason funding on a level % of pay basis makes sense. It is also part of the reason that using a discount rate based on the assets underlying the liabilities is also reasonable.*

Regardless, you ignored one of the more important pieces of my state that you bolded.

Quote:
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Proper advance funding of the benefits with a focus on 100% funding and amortization of both gains and losses over a reasonable period of time absolutely would result in the ability to maintain contributions at a fairly steady level % of pay contribution.
GASB's ARC was never intended to be a basis for sound funding. The fact that it became the de facto funding policy for so many plans is almost certainly the primary cause for the crisis we are facing. But again, that is a funding/contribution problem, not a liability problem.

My main point with the original response is that the increases we have seen in the liabilities should not be a surprise to anyone who understands how the liabilities are being calculated.

Is there a problem? Absolutely. Is it because liabilities grew unexpectedly? Most certainly not. Is it due to chronic under-funding over the past 40 years? Absolutely. Are actuaries to blame? I don't care who is to blame, I care about fixing the problem. Plans, both big and small, look to actuaries to tell them what is reasonable so whether we are to blame for the problem, we CAN be the group to re-educate the community.

The issue IS chronic under-funding because there has been a philosophy that has perpetuated in the public plan community (including among its actuaries) that governments will always be around so re-amortizing the pension debt over a 30 year period, every year, is okay. It is baffling to me that we as a community have stated for so long that constant negative amortization is acceptable. Thankfully that philosophy is finally changing. Both the CCA and SOA have published papers on public plans that have finally stated perpetual negative amortization is not acceptable.

We as a community, specifically the larger consulting firms, are finally starting to educate clients that moving towards full funding truly is the proper approach. Unfortunately, there are some entrenched constituencies that must both be re-educated as well as convinced that while it is unfortunate, we are the generation that must suck it up and take most of the pain. It is the current generation of both the plan members as well as the taxpayers that have to suffer, for mistakes made by people in the past.

Yes it is a pressing issue but the shift in philosophy, as well as the steps taken to correct the issues, can't and won't happen overnight. From a practical perspective reform has to be implemented in pieces but the people implementing the reform need to actually understand the underlying numbers first but unfortunately those talking the loudest seem like they either don't understand them or prefer to misrepresent them because it makes for a better sound bit.


*This somewhat of a tangent so I put it down here. I don't think the budgetary liability discounted at the assumed rate of return on assets is the only liability we should be calculating and communicating to the plans. I would argue that the way pre-PPA corporate plans were funded and the way Canadian plans are funded, which combines a budgetary liability with a pseudo-solvency liability as a floor, is a more appropriate method. People argue this would only serve to confuse our constituency, but I think it is our job is to deal with that and educate them. The current proposed revisions to ASOP 4 would require calculating and reporting a pseudo-solvency/MVL liability alongside the traditional liability, but if it will make it into to final revision remains to be seen. (FYI - the comment period for the proposed revisions to ASOPs 4, 27 & 35 is the end of this month so if you want your opinion to be heard, you only have 1 week left.)
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Last edited by Kenny; 07-23-2018 at 12:24 PM..
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Old 07-23-2018, 02:42 PM
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Originally Posted by campbell View Post
And as for your bolded statement -- do you actually have any practical experience with public plans? Maybe with some modest plans, this is true. But this is not what I've seen.

No, I'm not any kind of pension actuary, but I do know how to read financial statements, CAFRs in particular. Here is what I found about 100% ARC payers.
LOL, so you're not a pension actuary but you read CAFRs so you must know what the problem is. Hmmm... sort of an armchair expert there.


Quote:
Originally Posted by Kenny View Post
GASB's ARC was never intended to be a basis for sound funding. The fact that it became the de facto funding policy for so many plans is almost certainly the primary cause for the crisis we are facing.
This is exactly what I was going to say, though the new rules (GASB 67/68) addressed this. This is something I doubt Campbell or anyone not a pension actuary would know or understand.
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