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  #951  
Old 06-19-2018, 09:05 AM
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Mary Pat Campbell
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WOBURN, MASSACHUSETTS

http://homenewshere.com/daily_times_...d33d9464f.html

Quote:
As OPEB funding mandate looms
Mayor’s plans to alter health care questioned
- By City Council
Spoiler:
(Editor's Note: This is Part 1 of a series examining Woburn's OPEB obligations and Mayor Scott Galvin's proposal to offset that liability by increasing to 25 percent the share future retirees' must contribute towards their health care premiums).

WOBURN - The City Council recently challenged Mayor Scott Galvin's proposal to begin chipping away a $218 million debt by immediately restructuring future retirees' health care benefits and obligating them to foot an additional 15 percent of insurance premiums.

During a recent council meeting in City Hall, Mayor Scott Galvin outlined his plans to unilaterally hike to 25 percent the total contribution future city pensioners must pay for their medical coverage on July 1.

According to Galvin, who first notified Woburn Retirement Board Administrator Maureen Marcucci of his intentions in 2014, the 15 percent increase will bring the city/retiree split of premium costs in line with the respective 75/25 percent rates that were negotiated with active employees during the last round of contract talks.

The mayor insists the action must be taken before the bill for Woburn's massive Other Post Employment Benefit (OPEB) liability, estimated at $218 million and growing by the year, cripples the financial stability of the community.

"This requirement has and will continue to have an adverse effect on our city balance sheet when the OPEB liability is not fully funded on an annual basis," Galvin recently wrote in a memo to the council. "In addition, bond rating agencies are becoming more and more concerned about the challenges in funding OPEB liabilities, when assigning ratings."

The City Council, which is being asked by the mayor to adopt a local-option statute to address an existing gap in the city's pension benefit funding mechanisms, recently referred that matter to its Liaison Committee for additional scrutiny.

Generally, the council agrees the city must act as soon as possible to address the OPEB liability before the debt obligations strangle the community. However, the aldermen universally oppose the mayor's July 1 deadline for restructuring future retiree benefits.

In their opinion, active employees, many of whom have carefully and methodically planned their retirements, should at a minimum be given a year's notice before such a drastic change in their benefits are enacted.

"I don't think it's fair during a three-week period to change a benefit that people have potentially been planning for their whole careers," said Ward 7 Alderman Lindsay Higgins.

Technically, the City Council isn't being asked to sign off on the mayor's planned benefit restructuring, as he insists he retains the sole authority to make the change and is under no obligation to solicit feedback.

Instead, Galvin has asked the aldermen to correct a decades-long oversight, in which the city is funding more than half of retiree health care premiums without the authority to do so.

Discovering the legal issue a few months ago, when the mayor was readying to alter future retirees' benefits, City Solicitor Ellen Callahan Doucette has opined the city must adopt M.G.L. 32B Section 9E, which authorizes communities to pay more than 50 percent of retiree's up front health plan costs.

"Before I made the change, I wanted to make absolutely sure the executive branch had that authority [to unilaterally change benefits]. So I had the city solicitor do some research, and she found out I didn't have the authority to make any changes, because the city never adopted 9E."

Despite claims to the contrary, the aldermen contend they have leverage over the mayor's planned health care alterations, as without their acceptance of the requested local-option statute, Galvin is unable to implement that change.

OPEB and benefit funding authority

Not to be confused with the community's unfunded pension obligations, OPEB deals strictly with state and local retirement systems' inability to cover financial obligations for retiree benefits, including the provision of promised medical, dental, disability, and life insurance coverage.

Back in 2001, the Government Accountability Standards Board (GASB) directed all cities and towns to begin the process of calculating the size of their OPEB funding gaps, as virtually no community had any reasonable grasp on those figures.

As the result of subsequent GASB statements, initial estimates of each community's OPEB debts, for both active and retired workers, were released in 2014. However, with workers continually flowing in and out of the system - and returns investment income resulting in further changes - the size of the debt is in constant flux.

According to Galvin, the size of Woburn's OPEB obligations is estimated at $218 million.

As of 2016, the Mass. Public Employee Retirement Administration Commission (PERAC) pegged the state retirement system's liability at $16.7 billion, while municipal retirement systems like Woburn's reportedly owed a combined $30 billion.

So far, cities and towns are under no obligation to begin making payments towards their OPEB liabilities. However, many local officials have in recent years established and begun making deposits into an OPEB Trust Fund.

Presently, Woburn has just $4 million sitting in that account.

Addressing the council about the major debt earlier this month, Galvin has insisted the city can no longer afford to ignore the issue, as delaying action will only hurt Woburn's bond rating.

The mayor also warns OPEB payments, once mandated by GASB, could so stress city finances that the community has no choice but to consider drastic measures like layoffs or service cutbacks to cover the obligation.

"Kicking the can down the road is not an option. We can send [this request] to committee, but we have enough information," he said. "OPEB is the 800 pound gorilla in the room. We don't want to end up like Detroit or some other city like that."

Pension payment liabilities

In contrast to the OPEB debt, Woburn's annual budget already includes an annual contribution towards outstanding pension system obligations, which involve the community's promises in regards to pensioners' day-to-day living allowances.

With the line-item increasing by about $800,000, the city's FY'19 budget includes about $8.2 million to cover those outstanding pension obligations.

Generally, a fully-vested worker is eligible for annual pension payments equivalent to 80 percent of the average of their five highest consecutive years of annual compensation, though employees hired before the state's 2012 Pension Reform Act calculate their retirement income off of a three-year average.

All communities are required by state law to fully fund their pension systems by 2040.

Unlike some of its neighbors, Woburn is on track to meet that obligation about five-years in advance of the deadline.

Prior to the 2007 subprime mortgage crisis, the Woburn Retirement Board had agreed the city must fully fund its pension system by 2028.

However, the worldwide recession brought about by the housing market collapse decimated local retirement system investments - their value plummeted by 26 percent in 2008 alone - and in order to spare city officials from having to make up for those losses through its annual pension system contribution, the local Retirement Board voted to push out the funding schedule to 2035.


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  #952  
Old 06-19-2018, 09:16 AM
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KENTUCKY

https://www.courier-journal.com/stor...uit/709485002/
Quote:
Hedge fund advice didn't wreck Kentucky pension system, advisers say

Spoiler:
Correction: This story has been updated to reflect that Barbara Edelman is a Lexington attorney.

FRANKFORT, Ky. — Money managers who sold hedge fund investments to the Kentucky Retirement Systems say their investment advice was transparent and sound, and they’ve asked that a lawsuit accusing them of misrepresentation and conspiracy be dismissed.

Late Friday, attorneys for big hedge fund firms — KKR & Co., Pacific Alternative Asset Management, Prisma Capital Partners and Blackstone Group — filed briefs in Franklin Circuit Court arguing that a lawsuit filed in December by eight current and former state government employees be thrown out.

The plaintiffs filed the case on behalf of state taxpayers and Kentucky Retirement Systems, the pension system for state and local government employees. They allege that the asset management firms misrepresented the risk and massive fees tied to about $1.2 billion in hedge fund investments sold to KRS in 2011.

The plaintiffs allege that the financial outlook for the state pension system would be much better if it had made prudent, simple investments instead of hedge funds.

The latest: State government workers retired in droves - not so much with teachers

The plaintiffs seek to recover losses from the allegedly irresponsible acts of defendants for the Kentucky Retirement Systems — not for themselves. The suit does not seek a specific dollar amount, but it claims KRS is "billions of dollars" worse off today because of the defendants' actions.

KRS retirement funds report combined unfunded liabilities of more than $27 billion.

Barbara Edelman, a Lexington attorney representing Prisma and Pacific Alternative Asset Management, said in a statement that her clients “did exactly what KRS hired them to do — pursue a diverse range of low-risk investment strategies, which earned over $200 million for KRS and its members. All of this was done transparently and according to contract.”

The filings by the defendants on Friday complete briefings on motions of defendants to dismiss the case.

Ann Oldfather, a Louisville attorney representing the plaintiffs, said in a statement on Monday that from the outset of the case through Friday the defendants have filed 1,242 pages of argument — plus 2,214 pages of exhibits — seeking to dismiss the case.

"Sounds like there must be a lot of smoke with our fire," Oldfather said. "We expect these motions to be overruled and are anxious to expose the wrongdoings that caused KRS to take a major wrong turn in 2011."

You may like: Chief justice denies Bevin's request to remove judge in pension suit

The lawsuit names many other defendants besides the hedge fund firms — including various consultants to KRS and some former and current KRS board members and officials — for allegedly violating their fiduciary duty in making certain investments and approving allegedly faulty assumptions.

One consolidated memorandum filed by all defendants argues that the eight private citizens who filed the case lack standing to sue on behalf of KRS.

“If allowed to go forward, this suit would be the first of its kind,” the defendants argue. “It would usurp the authority of duly appointed government officials, destabilize government contracting in Kentucky, and open the floodgates to private plaintiffs bringing opportunistic claims in the name of government.”

More: Best lines and other key moments at Thursday's pension lawsuit hearing

Other pleadings filed Friday are specific to particular defendants.

KKR & Co. said it never sold investments or investment advice to KRS. “KKR has been named as a defendant for just one reason: KKR was an indirect owner of Prisma from October 2012 — more than one year after KRS began investing with Prisma — until June 2017,” the company argued.

PAAMCO and Prisma argued that the record shows that the 2011 move by KRS to invest some of its assets in hedge funds was not a risky gamble. And they say that public action dating to at least the 2008 pension reform legislation passed by the Kentucky General Assembly shows there was no conspiracy by defendants to conceal the financial crisis at KRS.

“These investments were not intended, as plaintiffs now argue, as a high-risk strategy to ‘catch-up’ for the Fund’s prior losses …” the two big money management firms argued. “The public record also shows that KRS’ absolute return investments performed exactly as intended.”

Among its other arguments, defendants say a five-year statute of limitations applies to this kind of lawsuit. “The claims in this case are stale. They are based on decisions made by KRS more than six years before the tardy litigants before the Court filed their original Complaint.”
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  #953  
Old 06-19-2018, 09:39 AM
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CALIFORNIA
CALPERS
PRIVATE EQUITY

https://www.ai-cio.com/news/eliopoul...s-will-shrink/
Quote:
Eliopoulos: Without Direct Investment Model, CalPERS’s Private Equity Class Will Shrink
CIO tells investment committee there aren’t enough top-tier firms to invest in to sustain growth.


Spoiler:
Chief Investment Officer Ted Eliopoulos warned the California Public Employees’ Retirement System (CalPERS) Investment Committee Monday that the retirement plan’s best return-producing long-term asset class—its $27 billion private equity program—will shrink without a restructuring that would allow direct investments in private equity and venture capital.

Eliopoulos’ comments are a part of a major attempt by the top management of CalPERS to convince the system’s investment committee on the merits of starting an independent organization that would invest billions into later-stage venture capital companies in technology, life sciences, and healthcare. A second part of the program by CalPERS, the largest defined benefit retirement plan in the US with more than $350 billion in assets, would be to make direct investments into corporations in a buy-and-hold strategy.

Investment committee members gave general support to the plan in public comments Monday, but the investment committee has yet to approve the plan. A vote is expected before the end of the year.

The plan is a first for a US public retirement system and was revealed publicly last month.

Eliopoulos said that without the direct investment proposal, CalPERS’ private equity portfolio could shrink to 5% from the current 7.7% of the overall portfolio. He said that was because there weren’t enough top-tier private equity funds to invest in due to intense competition from other institutional investors wanting to be part of the asset class.

CalPERS’s interim private equity target is 8% of the portfolio, but ultimately CalPERS officials want to get up to 10% of the total portfolio for private equity investments.

They envision a way to do that is the direct investment organization, since investors would solely be looking at CalPERS’ interests in their capacity working for an entity set up by the pension plan. The direct investment effort, known as CalPERS Direct, would initially invest as much as $13 billion.

Eliopoulos said the difference between having a 5% private equity allocation and a 10% private equity allocation over the next two decades, assuming CalPERS meets its return objectives for the asset class, could be additional investment earnings of $15 billion to $20 billion.

Private equity is the only asset class that CalPERS expects to earn an average return of over 7% on an annualized basis for the next decade. Even then, the pension system expects to earn an 8.3% return, which is below the more than 9% return over a 10-year period that was estimated for the asset class back in 2013.

While stocks have propelled CalPERS’ returns over the last several years, it has been private equity that has delivered the best long-term returns for the retirement system.

For all longer time periods, ranging from three to 20 years, CalPERS private equity asset class has outperformed the system’s other major asset classes: equities, fixed income, and real estate.

CalPERS private equity portfolio had a 10.8% return for the three-year period ending April 30, 2018, 12.1% for the five-year period, 8.7% for the 10-year period, and 10.7% for the 20-year period.

At Monday’s meeting, CalPERS CEO Marcie Frost and Ashby Monk, executive director of the Stanford Global Project Center, who was invited by CalPERS to speak, also discussed the benefits of the direct investment model.

“We are looking at an opportunity to really put us first in the United States,” said Frost.

Monk said institutional investors are all chasing the same private equity funds, meaning general partners can keep fees high, “using more tricks than I could fit into a 20-minute conversation.”

Private equity general partners generally charge a 1% to 2% management fee and take 20% of profits.

“Everybody you know in the world is ramping private equity exposures,” he said. “So, there’s a flood of capital coming to private equity. Into the 1990s it was something like 5% of pension in America was in alternatives. And that number today is approaching 30%. And that directionality will continue… I’ve seen sovereign funds around the world looking to get 50% of assets” in private equity.

Monk noted CalPERS had paid $700 million in private equity fees and carried interest, profit splits with private equity firms, in the fiscal year ending June 30, 2017.

“The take-it-or-leave-it mentality [from general partners] has probably gotten worse and will continue to get worse unless you break out,” he said. “You can continue to do what you’re doing. That $700 million number will go up.”

CalPERS Board President and Investment Committee member Priya Mathur expressed support for the direct investment program at Monday’s meeting. She said the CalPERS private equity model involves being limited partners in private equity funds in which portfolio companies are sold every five, seven, and 10 years. “We should be owning companies that we are going to deliver value over the long term for a very long term,” she said. “And that’s what I think, in my opinion, is one of the major advantages of this approach.”

But not all board members agree.

CalPERS board member Margaret Brown said she still has not been given any information from CalPERS officials explaining the economic feasibility of the program.

“I have yet to receive any data or analysis,” she told CIO in an interview. Brown said she remains skeptical about the program, particularly in the absence of solid data.

CalPERS officials have acknowledged that the fund would likely have to pay top-dollar compensation packages that could potentially entail millions of dollars per employee in some cases, to attract top-tier investment teams in the direct investment program.

The push for direct investments comes as CalPERS is only 71% funded. Cities, school districts, and the state that contribute to the system on behalf of employees are paying higher contributions. The higher contributions come as the system attempts to increase its funding and because its yearly rate of return has been reduced to 7% from 7.5% due to lower future return assumptions.
http://www.pionline.com/article/2018...19#cci_r=73393
Quote:
CalPERS gears up for private equity portfolio changes

Spoiler:
Private equity was a big theme at CalPERS' investment committee meeting on Monday.

The $356.5 billion California Public Employees' Retirement System, Sacramento, adopted a new investment policy statement that includes lowering the benchmark return for its private equity portfolio. The committee also discussed a proposal to change its private equity investment structure that includes creating an outside corporation to make direct investments, and it reviewed the first draft of a new private equity investment policy.

Chief Investment Officer Theodore Eliopoulos kicked off the meeting by stressing the importance of private equity to the system's total portfolio.

RELATED COVERAGE
California funds on separate paths to direct investmentCalPERS on lookout for emerging manager private equity fund-of-funds managerCalPERS' investment committee to review private equity policy on direct investmentsCalPERS eyes creating corporate structure for direct private equity investingCalPERS puts another $50 million in Grosvenor emerging manager fund of funds
Private equity has had the highest return of any asset class and that is expected to continue, Mr. Eliopoulos said. He said the private equity portfolio has added $11 billion over public equities. Private equity also expands the investible universe and has exhibited the most growth in the capital markets, he said.

"There's no obvious public markets substitute for the private equity portfolio," he said.

This is important because CalPERS is 71% funded and has an expected rate of return of 7%, which is "relatively high" and could be difficult to achieve, especially with a lower interest-rate environment, Mr. Eliopoulos said.

"Private equity is the only asset class projected to provide more than 7% return over the next 10 years," he said.

CalPERS' new investment policy for the entire plan lowers the private equity benchmark to FTSE Global All-Cap index plus 150 basis points, lagged by a quarter, from a custom benchmark of 67% FTSE U.S. Total Market index and 33% FTSE All-World ex-U.S. index plus 300 basis points , also lagged one quarter. The new policy also requires prudent person opinions by an outside firm for private equity co-investments and customized separate accounts.

During the discussion of its new private equity structure, Mr. Eliopoulos noted that CalPERS would have to commit about $10 billion to $13 billion a year to get to and maintain a 10% private equity allocation. Currently, the private equity target allocation is 8% plus or minus 4 percentage points.

"This strategy reflects our conclusion that CalPERS needs to substantially add to our current business model and to our internal resources to achieve our objective of a substantial and successful private equity portfolio over time," he said.

The structure has four pillars: the partnership model; emerging managers; and two strategies that would be run by a separate corporation, CalPERS Direct — private equity and venture capital.

CalPERS executives would like to invest more capital in its emerging private equity manager fund-of-funds program and add co-investments with the managers, Mr. Eliopoulos said. CalPERS currently has $350 million in two private equity emerging manager funds-of-funds portfolios.

During the discussion on the new private equity structure, Ashby Monk, executive and research director at Stanford University's Global Projects Center, told the committee it was not the only asset owner considering establishing an "arms-length" entity to invest in private equity.

Investors are stuck with private equity, even if they don't like the alignment of interest or the fees, because it is likely to produce better returns than the public markets, Mr. Monk said.

"So, you need it but the challenge is that everybody else has realized they need it too," resulting in a flood of money into the asset class, Mr. Monk said. "We need to be innovative," he said.

A few committee members noted that time is of the essence and that CalPERS needed to create a new structure soon or it would be left behind.

"The fact that it's not going to get better where we are today ... we have a lot of choices in how we design this, how we construct it," said Bill Slaton, board member. "I don't think we have a lot of choice doing it. I think we'll be compelled by the marketplace to do it."

Mr. Monk agreed. "You're not alone," he said. "You guys are on a journey I can think of probably 20 or 25 plans like you right now are saying, 'how are we going to do this?'"

CalPERS' investment committee also had a first look at a new private equity investment policy statement that removed direct investments in private equity firms as a transaction type. The current policy includes direct investments "including independently sourced investments." However, during the investment committee meeting, Sarah Corr, interim head of CalPERS' private equity program, explained that "direct investments" referred to investments in private equity general partnerships.

The only direct investments CalPERS has made in private equity are stakes in general partnerships, said Megan White, spokeswoman.

CalPERS invested in private equity firms only a few times on an opportunistic basis and hadn't taken a general partnership stake since 2007, she told the investment committee. In that year, CalPERS took minority stakes in Apollo Global Management and Silver Lake. CalPERS had also taken a minority stake Carlyle Group in 2001.

In an interview, Ms. Corr said the new private equity investment policy, if adopted, would remove the strategy as a simplification measure.


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  #954  
Old 06-19-2018, 11:51 AM
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NEW JERSEY

https://www.politico.com/states/new-...ensions-471127
Quote:
Lawmakers rush to pass another bill to sweeten elected officials’ pensions
Spoiler:
New Jersey lawmakers are once again working to boost elected officials’ pensions, under a proposal that would have taxpayers picking up the tab.

Assemblyman John McKeon (D-Essex) last week introduced a bill that would add to an already controversial law that allows some public officials to vastly boost their pensions. The bill, NJ A4176 (18R), which was introduced on June 14, is scheduled for a hearing in the Assembly Budget Committee Monday afternoon.

Under the bill, elected officials who are already receiving a pension for a previous elected job would be able to request that their current elected position be counted towards that pension without forcing them to re-enroll in the pension system; re-enrollment requires officials to stop receiving pension payments until they retire.

Upon retirement, those officials’ pensions would then be recalculated to take into account their current salaries and additional years of service. They would receive a retroactive payment based on the difference between how much they had already received in pension benefits and how much they should have received under the more generous calculation.

Despite the improved benefits, the bill would not require the officials to pay any more into their pensions than they already have.

“This is crazy,” said Fred Beaver, who directed the New Jersey Division of Pensions and Benefits from 2002 to 2010. “The whole thing is screwy. It makes no sense. It’s a total gift. Nobody is paying for it.”

Beaver said the bill could have a major impact beyond pensions: increasing an elected official's years of service in the pension system could also qualify him or her for lifetime retirement benefits from the state.

McKeon did not respond to a phone call seeking comment.

A 2007 law took newly elected officials out of the Public Employees Retirement System and shifted them into 401(k)-style defined contribution accounts. Under that law, elected officials who changed elected offices after 2007 were placed into the defined contribution accounts, with the pensions they had been earning for their previous elected office frozen in place.

Last year, Democrats who control the Legislature hastily introduced and passed a law to allow elected officials who changed offices after 2007 to re-enroll in the pension system and to buy back the time during which they were out of the pension system. The law, which was signed by former Gov. Chris Christie in January, also allows those elected officials to remain in the same, most generous pension tier, rather than one of the more recent pension tiers enacted after state cutbacks to public employee retirement benefits.

The law signed by Christie appeared to have been written mainly to benefit former Camden Mayor Dana Redd, who had seen her pension earnings frozen when she was elected mayor after serving as a Council member. Without the change in law, Redd’s pension benefits upon retirement would have been based on 20 years of service and a salary of $92,000. But a week before Christie signed the law, Redd was hired without competition for a job leading an obscure university board that pays $275,000 a year — triple Redd’s pensionable salary — and her future pension was further sweetened, with more years of service added to it.

Assemblywoman Eliana Pintor Marin, who chairs the Assembly Budget Committee, said she also has questions about the McKeon bill and plans to talk to legislative leaders about it.

“I actually have a question about that bill and I’m meeting with leadership at 10:30,” she said in a brief phone interview. “I won’t be able to comment on it.”

It’s not clear how many people the bill would impact, but sources in the Legislature said it would affect at least two lawmakers: Assemblyman Ralph Caputo (D-Essex) and state Sen. James Beach (D-Camden).

Both Caputo and Beach currently receive pensions from PERS in addition to their $49,000 legislative salaries, according to their financial disclosure statements: Caputo’s is between $10,000 and $25,000, while Beach’s is between $25,000 and $49,000.

Caputo’s pension is based on his years as an Essex County freeholder, from 2003 to 2011. (This is actually Caputo’s second stint as an assemblyman; he also served from 1968 to 1972).

Beach was a Camden County freeholder for three years and the Camden County clerk for 13 years clerk before joining the Senate in 2009.

Under the bill, Beach and Caputo would be able to improve those pensions upon retirement by having their legislative service counted, without having to re-enroll in the pension system and buy back time.

Caputo said he’s aware the bill could affect him and will refrain on voting on it to avoid a conflict of interest. He said he did not request the bill be written.

“The pension department will have to review this. They’ll make the decision whether people fit into the regulations,“ Caputo said. “I can’t prejudge it but I’ve got to make sure I stay away from it.”

Beach could not immediately be reached for comment.

The bill comes despite the pension system being underfunded by billions of dollars.

“It’s gamesmanship. They talk about the system being in so much trouble. Why do you keep aggravating it with special deals?” Beaver said.
https://reason.com/blog/2018/06/18/h...is-worse-nj-of
Quote:
How to Make a Pension Crisis Worse: N.J. Officials Want Back in, Without Paying for It
A bill would allow some officials retroactive access to potentially 10 years of pension payments. Guess who would be on the hook for it?
Spoiler:
New Jersey's public pension fund is a terrible black hole of debt and unfunded obligations, a familiar story for those who follow various state pension crises. The state is $60 billion short to pay off its pension commitments and it would consume 15 percent of the state's budget each year until the year 2049 to get it back into balance.

It looks like some New Jersey lawmakers are trying to make the problem even worse and undo at least one attempt to defuse this ticking time bomb.

In 2007, New Jersey shifted elected officials from the state's pension fund to a defined contribution 401k-style program. This is better for taxpayers than pensions—the state contributes into the fund up front and is not committed to any payments to the official after he or she retires. That post-retirement commitment is what has been causing the pension crises—states and municipalities are obligated to pay out specific amounts that exceed what the funds contain (due to undercontributing or fund underperformance), and taxpayers are expected to make up the difference.

These officials don't lose the pension commitments they've already earned under the former retirement system. They'll get those payments when they retire. And now they're saving under a different system.

The state had already wimped out last year and passed another bill allowing officials back into the pension system and to buy back the lost time. Now a new bill introduced in New Jersey by Assemblyman John McKeon (D-Essex) would allow lawmakers who had previously been earning pensions to go back and have their pensions recalculated with their current earnings, position, and time worked without actually re-enrolling into the pension system.

That is to say, when they retire, they'd "earn" pension payments from a time they weren't actually in the pension system. They'd get their 401k payments. But who would pay for that gap during which they weren't contributing into the pension fund at all? Who do you think? Spoiler: Not them. Politico notes today:

Despite the improved benefits, the bill would not require the officials to pay any more into their pensions than they already have.

"This is crazy," said Fred Beaver, who directed the New Jersey Division of Pensions and Benefits from 2002 to 2010. "The whole thing is screwy. It makes no sense. It's a total gift. Nobody is paying for it."

Beaver said the bill could have a major impact beyond pensions: increasing an elected official's years of service in the pension system could also qualify him or her for lifetime retirement benefits from the state.

While New Jersey's average pension for government employees is $31,000 a year, the state has nearly 3,000 retirees (or their beneficiaries) earning six-figure pensions.

This legislation by McKeon is the exact opposite of what the state needs to be doing. It might not even get passed. But it's worth taking note of this as an example of how hard it is to reform under-funded pension systems when the people responsible for doing so are more interested in making the problem worse.
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JACKSONVILLE, FLORIDA

https://www.news4jax.com/news/local/...cent-sales-tax

Quote:
Court upholds Jacksonville pension half-cent sales tax
Group argued measure approved by voters should be tossed
Spoiler:
TALLAHASSEE, Fla. - A state appeals court Monday rejected a challenge to a 2016 ballot measure aimed at addressing an underfunded pension system in Jacksonville.

The city’s voters approved the measure, which called for a half-cent sales-tax surcharge to help deal with the pension problems.

More Headlines
City Council unanimously approves 'historic' pension overhaul
Pension numbers increase budget pressure
Fire department wish list includes more firefighters, stations
Sheriff needs $1.3 million for body cameras, wants more officers
Mayor Curry pushing pension reform with ads
But a group of citizens filed a legal challenge to the measure, including arguing that the ballot title and summary misled voters and that the referendum should be voided, according to Monday’s ruling by the 1st District Court of Appeal.

A Duval County circuit judge upheld the ballot measure, and a three-judge panel of the appeals court agreed.

“None of appellants’ (the measure’s opponents) various arguments demonstrate that the ballot title and summary are clearly and conclusively defective, or affirmatively misleading,” said the eight-page ruling, written by appeals-court Judge Timothy Osterhaus and joined by Chief Judge Brad Thomas and Judge M. Kemmerly Thomas.
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Old 06-19-2018, 03:44 PM
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PUERTO RICO

http://thehill.com/opinion/finance/3...-of-bankruptcy

Quote:
Puerto Rico pensioners are facing devastating effects of bankruptcy

Spoiler:
Puerto Rico is facing a dire fiscal and economic crisis. It is one that many have called the largest and most complex bankruptcy in U.S. history. Amid the range of issues facing the island, from disaster recovery efforts to financial woes, lies an often overlooked human tragedy. Despite being a key piece in the island’s economic recovery, thousands of pensioners in Puerto Rico are facing the devastating consequences of an economic calamity. They are American citizens who devoted their lives to public service and put money away for their retirement.

There are about 167,000 public pensioners in Puerto Rico, and more than half are over the age of 70. On average, they receive about $12,000 in pension benefits a year, well below the federal poverty line considering the number of people within a household supported by this modest amount. Most rely on pensions to pay for their basic needs like food and housing, and many support not only themselves but also their extended families. Because of the economic crisis, an increasing number of pensioners care for their grandchildren and even their elderly parents.


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Already walking a financial tightrope on modest incomes, our retirees saw pensions cut significantly back in 2013, and have not seen a cost of living adjustment in more than 10 years, and to boot, the cost of living on the island is about 13 percent higher than in cities on the U.S. mainland. Making matters worse, over the years, the government routinely failed to remit the required funds to the public pension systems to ensure that benefits could be paid. Yet, during all these years while our pensions were being cut and pension systems were being shortchanged, bondholders were getting paid billions of dollars in full debt service payments.
As Puerto Rico’s bankruptcy proceeds through the federal court system, the island’s retirees are facing a startling reality of fighting with bondholders for their fair share. But Puerto Rico’s pensioners did not bankrupt the island. We worked hard and were confident in that the modest pensions we earned would be available to us in retirement. That promise has already been shredded, and to take even more from us now would be unjust and, even more so, unwise.

Unlike creditors angling for a larger slice in Puerto Rico’s bankruptcy, most retirees live, pay rent, and buy goods and services on the island. This means that practically every dollar we receive will support Puerto Rico’s economy. Less money for pensions would set off a chain reaction by curbing economic activity on the island, further reducing tax receipts, and ultimately limiting the government’s capacity to meet obligations. Puerto Rico’s pensioners are already on a financial ledge. Additional reductions to pensions would force many to leave the island and seek federal assistance such as Medicaid, putting more pressure on our nation’s struggling social services.

Puerto Rico’s financial restructuring is being executed under a federal law known as Promesa, which established the Financial Oversight Management Board to oversee the negotiation and debt restructuring process. In the recently approved fiscal plan, the board proposed aggregate pension cuts of 10 percent, which could result in up to 25 percent cuts for various individuals. This action would have a devastating impact on pensioners, on extended families, and on the economy.

In most financial restructurings, it seems fair to ask every creditor to bear a share of the burden. But through no fault of our own, retirees have already seen forced cuts to our hard-earned pensions while bondholders continued to get paid. We are facing threatening circumstances and any further cuts to our pensions and retirement benefits would cast our ability to cover our most basic needs into serious danger, driving many into extreme poverty. The board’s position is not justified. Cutting the pensions is not the answer to protect the wellbeing of a vulnerable segment of our society and safeguard the economic recovery of Puerto Rico.

Miguel Fabre Ramirez is president of the Official Committee of Retired Employees of the government of Puerto Rico. He was appointed by the U.S. trustee to represent more than 167,000 retirees of the government of Puerto Rico in the federal case before Judge Laura Taylor Swain.


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Old 06-19-2018, 03:44 PM
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CALIFORNIA
PENSION OBLIGATION BOND

https://www.mercurynews.com/2018/06/...-pension-debt/

Quote:
Borenstein: MTC considers risky scheme to reduce pension debt
To pay CalPERS, “What you’re suggesting is that we take out a loan on our credit card and invest in the stock market.”
Spoiler:
The Metropolitan Transportation Commission will be asked soon to consider a risky borrowing-and-investment scheme to try to reduce its employee pension debt.

The problem is that there are no magic bullets for covering the ever-increasing retirement payments. And, unfortunately, some government officials never learn from the mistakes of the past.

Brian Mayhew, the transportation agency’s chief financial officer, told the commission last week that he’s working on a plan to issue bonds and turn the proceeds over to CalPERS to invest.

Fortunately, at least one commissioner, Nick Josefowitz, who is also a BART director, understands exactly how bad an idea this is.

“To me, this is like if you get behind on your mortgage,” he told Mayhew. “What you’re suggesting is that we take out a loan on our credit card and invest in the stock market.”

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Although the borrowing would not be at credit-card interest rates, Josefowitz’s analogy is otherwise spot on. The commission would borrow money so it could gamble on stock, real estate and other investments.

The profit would then be used to reduce the transportation agency’s pension debt, which at last count is about $43.6 million. Because of payments on that liability and other rising costs, MTC’s annual payments to the California Public Employees’ Retirement System are projected to increase 43 percent over the next four years.

The transportation agency is not unique. Most local government agencies whose pensions are also administered by CalPERS, the nation’s largest retirement system, are badly underfunded and face similar payment increases.

What makes MTC’s proposed response especially egregious is that the commission should be leading by fiscally prudent example. After all, MTC administers most of the transportation funding for the Bay Area, including the tolls that voters just agreed to increase for the region’s state-owned toll bridges.

However, the scheme Mayhew floated last week would be a gamble with public money. Mayhew is still working out the details, but the basic concept has been tried elsewhere — often unsuccessfully.

He proposes that the agency borrow money over a 10- to 15-year period, and envisions that the interest rate on the bonds would be roughly half what CalPERS could earn investing the money.

But the spread depends on the cost of the bonds and how successful CalPERS is with its investments. The pension system is notorious for its overly rosy investment forecasts, which is one of the big reasons local governments face large pension debts.

CalPERS continues to insist it will earn 7 percent returns on investments even though its chief investment officer and outside investment advisers forecast only 6.1 percent annual returns for the next decade.

If CalPERS could guarantee the 7 percent return, Mayhew’s plan would make sense. But it can’t — and it won’t. And if the pension system investment returns fail to cover the cost of the MTC-issued bonds, the transportation commission would be stuck holding the bag.

The success of the scheme depends greatly on timing, whether the commission invests the bond proceeds as the economy is going up or as it’s on the decline.

The problem, of course, is that we don’t know when the next recession will hit. What we do know is that the economy is in the ninth year of one of the longest expansions in modern history. We are overdue for a downturn. This is probably not the best time to invest large sums of public funds.

The sort of borrowing Mayhew proposes is commonly referred to as a pension obligation bond — although he insists, incorrectly, that that’s not what he’s pushing.

John Bartel, an actuary who advises local governments in California, has analyzed pension obligation bond proposals for three agencies in the past two years.

“Every time we’ve done an analysis,” he said, “our clients have come to the conclusion that the risk is not worth the potential reward.”

According to academics at the Center for Retirement Research at Boston College, agencies that borrowed and invested before the Great Recession found themselves deeply underwater in 2009 and had only barely broken even by 2014.

That’s in large part why Josefowitz last week urged his transportation commission colleagues to reject pension obligation bonds even before Mayhew formally proposed them.

Related Articles
Borenstein: Toll hike vote indicates Bay Area struggles ahead
“Sometimes if you get behind on your mortgage, you just need to put more money aside,” he said. “There’s no fancy financial footwork which is going to get you out of a large obligation.”
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Old 06-20-2018, 05:56 AM
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CALIFORNIA

https://www.davisenterprise.com/loca...pension-costs/
Quote:
Grand jury explores Yolo cities’ rising public pension costs

Spoiler:
Pension and retiree health insurance costs for the cities of Davis, West Sacramento, Winters and Woodland are consuming increasing portions of city budgets, putting extreme pressure on other city service priorities, according to a Yolo County grand jury report released Tuesday.

In Davis, 19 percent of the city’s general fund budget now goes to pensions and retiree health benefits, a share that will rise to approximately 26 percent by 2025. West Sacramento can expect its pension and retiree benefits to increase from 16 percent of its general fund budget this year to approximately 17 percent by 2025.

Winters will see that share jump from 12 percent to 16 percent and in Woodland, it will climb from 14 to 18 percent. The projections were based on information provided by each city.

Across California, pension payments alone now represent 11 percent of a city’s general fund budget, on average, according to the League of California Cities. The statewide average is expected to rise to 16 percent over the next seven years.

Pension payments alone now represent 12 percent of the general fund budget in both Davis and West Sacramento, 11 percent in Winters and 10 percent in Woodland.

“Historically, elected city councils have been pressured to agree to pension benefit enhancements based on overly optimistic, often inaccurate investment earnings projections,” the report states. “As a result, too many decision makers failed to realize that pension contributions would eventually become a significant burden on cities, counties and other governmental entities, and by extension, taxpayers.”

The grand jury also concluded that city-level financial information regarding pension and retiree health insurance costs and liabilities should be easier for citizens to find and understand.

According to the report, Yolo County’s four cities are facing 67 to 90 percent increases in pension costs over the next seven years. In dollars, these increases are projected to amount to $8.7 million for Davis, $6.9 million for West Sacramento, $0.4 million for Winters and $6.3 million for Woodland. The projections are taken from CalPERS and city annual financial reports.

The increases are needed for cities to catch up on the revenues they will need to pay pension costs through mid-2025. Currently, Davis has only 64 percent of the funds invested with CalPERS that it will need to cover its pension obligations, and it has been falling behind.

Three years ago, the city had 72 percent of the needed funds invested. West Sacramento now has 71 percent, down from 79 percent three years ago. Winters has 76 percent, down from 84 percent. Woodland has 63 percent, down from 70 percent.

Overall, Davis faces $110.1 million in unfunded accrued pension liabilities, CalPERS data and city annual financial reports show. For West Sacramento, the number is $70.3 million. In Winters, it is $4.4 million and in Woodland it is $86.9 million.

The picture is even worse for retiree medical insurance, the grand jury found. West Sacramento has assets to pay just under half its liability for future retiree medical insurance. Davis has assets to fund only a quarter of its obligation. In Woodland, the figure is 6 percent, while Winters has funded none of its liability.

As pensions and retiree health benefits consume more of a city’s budget, local governments face increased pressure to find other sources of revenue to fund competing priorities, the report emphasizes.

“The most common method of finding new revenue sources for retirement costs is through proposed new city taxes and fees, such as sales tax increases or parcel taxes,” the report states.

The grand jury report calls on local governments to be transparent when such taxes and fees are necessary to offset rising pension and retiree benefit costs.

To conduct its analysis, the grand jury requested statistics from city finance departments, reviewed city budgets and annual financial reports, studied CalPERS annual valuation reports for public employee pensions, and interviewed city managers. The Grand Jury compiled this information into a set of simple tables.

The grand jury made four recommendations to help cities address the looming crisis in pensions and retiree benefit costs:

• Cities should educate residents about impacts of the crisis on other city services, from parks to public safety.

• Cities should create simple statistical graphs that show three-year past and projected pension costs and liabilities, as well as the percentages that these costs represent of total city budgets.

• Cities should investigate and consider alternatives to the existing CalPERS-managed pension systems, such as the alternative hybrid-defined pension option described in the proposed Public Employees’ Pension Reform Action of 2018 (Senate Bill B-32).

• Cities should collaborate to share best practices in analysis and cost containment of pensions and other retiree benefits.

In addition, the grand jury highlighted several positive steps that cities have already taken:

• Woodland has negotiated labor contracts in which public employees will contribute more to their retirement.

• Beginning in fiscal year 2013-14, Woodland increased its contributions to fund future retiree health insurance benefits.

• Davis has developed a financial forecasting tool that shows the evolution of the pension costs as a share of city general funds.

• Woodland also uses a pension and retiree health benefits forecasting analysis to educate its elected officials and staff.

View the full report on the grand jury’s website: http://www.yolocounty.org/business/c...d-jury-reports


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Old 06-20-2018, 05:57 AM
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JACKSONVILLE, FLORIDA

https://floridapolitics.com/archives...reform-lawsuit

Quote:
Jacksonville wins appeal of pension reform lawsuit

Spoiler:
Monday brought good news for the city of Jacksonville, as the First District Court of Appeal rebuffed five plaintiffs challenging the city’s pension reform referendum of 2016.

The city prevailed in circuit court last year over plaintiffs Joseph Andrews, Connie Benham, Dr. Juan P. Gray, Lynn Price and Reverend Levy Wilcox.


They objected to the wording of the referendum, which passed 65 to 35 percent on the August 2016 ballot.

Per the DCA order: “The trial court found that the summary clearly articulated the chief purpose to ‘reduce or eliminate the City’s unfunded pension liability through the use of a dedicated 1/2-cent sales tax to be adopted for not more than 30 years once the Better Jacksonville 1/2-cent sales tax ends’.”

“We see no problem with this conclusion,” the DCA asserted.

The appellants also objected to the timing of the referendum on the ballot, as Council’s action in May approving the referendum preceded the July 1 effective date of the state law allowing the referendum. That objection was also spiked.


The pension reform legislation allows the city to extend the Better Jacksonville Plan half-cent sales tax from 2031 until 2060 to pay off unfunded pension liability on now-closed defined benefit plans.

When the City Council passed the legislation, Jacksonville faced having to spend $360 million on pension costs; because of the re-amortization of what was then a $2.8B unfunded actuarial liability. The cost went down to $218 million, allowing the city to invest in raises for workers and capital improvements.

Employees hired since October 2016 are on a defined contribution plan.


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Old 06-20-2018, 05:58 AM
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NEW MEXICO

http://www.santafenewmexican.com/new...91bc7aff6.html

Quote:
New Mexico pension liabilities trigger credit downgrade

Spoiler:
SANTA FE — Concerns about New Mexico's pension liabilities and general financial health have prompted a downgrade in the state's credit rating by a major ratings agency.

Moody's Investors Services on Monday reduced the state's bond rating in move likely to lead to higher borrowing costs.

It cited extremely large liabilities at two major state pension funds for public employees and teachers.

A Moody's analyst says New Mexico's pension pressures are compounded spending demands linked to the state's large enrollment in Medicaid, a lagging state economy and volatile sources of state government income. The state's financial reporting practices are unusually weak.

At the same time, New Mexico state government is experiencing a surge in tax revenue and royalties linked a rebound in the oil and natural gas sectors.


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