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  #981  
Old 05-14-2019, 10:14 AM
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Mary Pat Campbell
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ILLINOIS

https://chicago.suntimes.com/columni...-bill/#new_tab
Quote:
Suburban double dippers hit taxpayers in the wallet

Spoiler:
Several collar county board members are being paid salaries for their work at the same time they also are collecting pensions for the same county board work. Did you know that?

It’s true. And at the moment, it’s perfectly legal, though some Illinois lawmakers are trying to change that and fix what they see as other corruption problems in county governments.

OPINION

More than a dozen county board members in Lake, McHenry, Will and Kane County are being paid both salaries and pensions at the same time for their work as county commissioners. They’ve received as much as $82,124 in annual pension payouts from the Illinois Municipal Retirement Fund for jobs in which they’re also still getting salaries of between $21,000 and $43,018, according to an analysis by the Daily Herald’s Jake Griffin.

This is happening because of a 2016 law that says county commissioners cannot continue to work toward a pension unless they provide documentation they’re working at least 19 hours a week at that job. Elected officials who did not provide that proof were kicked out of the Illinois Municipal Retirement Fund but, because they had contributed previously to IMRF, they were able to start collecting their accumulated pensions even though they’re still working, and being paid, as commissioners.

Senate Bill 1236 aims to stop that, along with three other problems that have surfaced in county governments because of a lack of accountability and transparency. Sponsored by Democratic state Sen. Terry Link of Indian Creek, the bill passed the Senate 45-6 last month. It passed 13-3 out of a House committee last week and could get a full House vote soon.

“The pension is a retirement vehicle,” state Rep. Sam Yingling, a Round Lake Beach Democrat, said in an interview. “It’s not something for public officials to use to double dip at the taxpayer trough.”


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If Link and Yingling succeed in getting their legislation enacted, elected local officials would be prohibited from receiving a salary or other compensation if they are collecting pension benefits from IMRF for the same job. An official’s salary would be zeroed out at the start of a new term if that official is collecting a pension for the same job.

Several Lake County board members, the Illinois Association of County Board Members, the Illinois State Association of Counties and the Illinois Municipal League all filed witness slips opposing passage of SB 1236 before last week’s committee hearing.

Some lawmakers questioned why the legislation didn’t cut off the pension rather than the salary for officials who are collecting both. Yingling noted people can defer their pension payments if they win re-election to a local office they once held.

Others wondered about scenarios in which a teacher could retire from full-time work, begin collecting a pension, but want to then work part-time or as a substitute.

State Rep. Daniel Didich, a Buffalo Grove Democrat, answered, noting those officials could begin collecting their pensions once they finally quit working at those jobs.

“I think the public is absolutely fed up with this type of behavior and practice in government,” Yingling added. “This is good government to install these protections and measures for taxpayers and I strongly believe in them.”

Other provisions in the legislation would allow for the removal of county board chairs, who are elected to that leadership role by their fellow commissioners by a four-fifths vote of the board. Yingling said that provision was needed after the revelation that former Lake County Board Chairman Aaron Lawlor had abused a county credit card and submitted fraudulent charges for reimbursement. Lawlor resigned after the abuses came to light and sought treatment for addiction.

SB 1236 also boosts transparency by requiring that vendors in line for a county contract of more than $30,000 must disclose any family relationships with county officials. Yingling said some vendors in Lake County have been awarded no-bid contracts and then it’s come to light they have relationships with officeholders.

Lastly, the legislation requires county boards to alert new countywide officials that they have the option to ask that a transitional audit be conducted at county expense when they take office.

Lake County Circuit Court Clerk Erin Cartwright Weinstein said she fought with a prior county administrator and board members for months after she took office to try to definitely determine what happened with contracts for an e-filing system that never was completed, even though $4.9 million had been spent on it over a five-year period by her predecessor. County officials since have agreed to pay for an assessment, a less formal form of a forensic audit.

“This bill is a huge step in the right direction to provide accountability and protections to the public against inappropriate spending of taxpayer funds,” she previously told state lawmakers.

Illinois leads the nation in numbers of governments, which makes it that much harder for taxpayers to hold them all accountable. SB 1236 should help if it becomes law.

The public, Yingling said, is “demanding that action be taken to stop rampant fraud and abuse.”

Madeleine Doubek is executive director of CHANGE Illinois, a nonpartisan nonprofit that advocates for political and government reforms.


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  #982  
Old 05-14-2019, 11:08 PM
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https://www.forbes.com/sites/edwards.../#408938046471

Quote:
Financial Advisers Can Help State and Local Government Workers Understand Their Imperiled Pensions

Spoiler:
A network of financial advisers capable of responding to growing concerns of workers participating in our nation’s largely underfunded public pensions is needed—immediately.

With nearly 80 million Baby Boomers retired, or on the verge of retiring, news that the overwhelming majority of this population is unprepared financially for retirement is finally getting the attention it has long deserved.

Ten Years ago I wrote in Forbes,

“We are on the precipice of the greatest retirement crisis in the history of the world. In the decades to come, we will witness millions of elderly Americans, the Baby Boomers and others, slipping into poverty. Too frail to work, too poor to retire will become the “new normal” for many elderly Americans.

That dire prediction is already coming true. Our national demographics, coupled with indisputable glaringly insufficient retirement savings and human physiology, suggest that a catastrophic outcome for at least a significant percentage of our elderly population is inevitable. With the average 401(k) balance for 65 year olds estimated at $25,000 by independent experts – $100,000 if you believe the retirement planning industry - the decades many elders will spend in forced or elected “retirement” will be grim.”

It is well known that the percentage of full-time private sector workers who have a pension has declined dramatically in recent decades. In the public sector, pensions are still the norm, so most state and local government employees have been promised a stated amount of retirement income for life.


Note I said, “promised.”

Whether state and local workers will ever get the full retirement benefits they have been promised is, with each passing year, becoming more and more uncertain. A great many of the states and local pensions are massively underfunded.

States with the biggest pension crisis include Connecticut, Arkansas, Mississippi, Kentucky, Hawaii, Alaska, Oregon, Illinois, California and Colorado.

On April 12th I was invited by PeakProsperity to do an hour-long podcast focused upon the subject of underfunded public pensions.

Tens of thousands listened to the podcast, making it clearer than ever to me that people are starving for experts to explain in plain language how pensions work, or don’t work—fail.

On May 20th, I will be participating in another lengthy interview on Oregon NPR focusing on that state’s pension. The folks at PeakProsperity and I are planning additional podcasts focusing on the worst funded states.

In addition to seeking clear explanations about how these pensions work and what taxpayers and participants should expect in the event of a bankruptcy, people keep asking me what they can do.

My message is clear: you are not helpless. There are steps you can and should take today.

Very simply, there are three main contributors to any pension’s health. First, how much money goes into the pot (contributions); second, how the money in the pot is managed over workers' lifetimes, say, 30 years (investments) and third, how much flows out of the pot (benefits). If any of these three elements is out-of-whack, trouble ensues.

The issue of contributions to government pensions by taxpayers typically is hotly debated because taxpayers are already stressed about their own woefully inadequate retirement savings. Equally, taxpayers often cite too-rich state worker retirement benefits as a concern. These taxpayer responses have been attributed to so-called private sector “pension envy.”

Mismanagement of pension investments is the one key element to pension health that no one talks about—ever. However, in my decades of experience forensically investigating public pensions, I have repeatedly discovered that the greatest cause of pension underfunding is mismanagement of investments—not contributions or benefits.

Most investigations I have undertaken have concluded that if the pension had been properly managed, most or all of the underfunding would have never happened.

Part of the reason investments at even the largest public pensions, such as CalPERS, are such a mess is that the boards of these funds lack even basic knowledge of investing pension assets. Public pension boards consist of laymen—school teachers, cops, firefighters, and sanitation workers. Generally, in my experience, it is foolhardy for workers to put their trust in these boards. Even if they wanted to do the right thing-- which (for political and other reasons) they often don't-- they wouldn't know how to.

Likewise, most participants in public pensions lack the financial expertise required to divine whether the investment program securing their retirements makes sense.

Now for the good news.

Virtually all public pensions today have websites that disclose the key information regarding the investments, as is generally required under state Freedom of Information Acts. All pension stakeholders should visit these websites and learn as much from them as you can.

In addition, there are tens of thousands of financial advisers nationally who could assist state and local workers evaluate the strengths and weaknesses of public pension investment programs. (Obviously, some advisers are more skilled than others.) My advice to every financial adviser is to spend some time studying your state and local pension’s website and comment about your findings. It’s a great way of responding to the needs of potential clients who are government workers and your efforts will help address a growing national concern.

I encourage all financial advisers and public pension stakeholders to work with me to create a national network to scrutinize and improve public pension investing before it's too late.


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  #983  
Old 05-16-2019, 05:27 PM
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TEACHERS

https://reason.org/commentary/as-tea...till-relevant/

Quote:
As Teacher Pensions Turn 125, the Old Lessons Learned Are Still Relevant
The failure of America's first public teacher retirement plan offers valuable insights for today.s policymakers.

The first public school teacher pension plan in the United States was established 125 years ago in New York. While that initial system went bankrupt 21 years after its founding, the debate over the plan’s creation and its structural flaws still offer important lessons to us today.


Spoiler:
Early Debate

The debate over public teacher pensions dates back to at least 1876, when two New York Republican state legislators—Senator William Woodin and Assemblyman James Husted—introduced a bill to provide pensions to male teachers after 30 years of service and female teachers with 25 years of service. The New York Times supported the measure in an April 24, 1876 editorial, making arguments that might resonate with modern education reformers.

The Times began by noting that public education limited opportunities for teachers:

It is safe to conclude that, if the public schools were abolished, private schools would spring up, giving employment to teachers equal and perhaps superior in number to those of the public schools. These private schools would have smaller classes, less system, greater variety of methods, and, necessarily, a more active demand for teachers. In substantially suppressing private schools, as in any sense competitors with the public schools, the State limits the opportunities of those who seek employment under it in this service. One effect which this has is to make teaching in the public schools a transient occupation. Very few men and a still smaller number of women enter the calling with any hope of acquiring even a modest competence in it, still less with any notion that by remaining in it they can achieve any considerable honors or satisfy any but the most insignificant ambition.

The editorial concluded that some incentive was needed to make teaching in public schools something other than a transient occupation. The solution, they decided, was to offer a pension as a reward for a long period of service. The option of raising teacher compensation and offering them more autonomy was not on the table.

While transient teachers may not have been attractive in the 19th century, it could improve education today. Many gifted young people are motivated to teach underprivileged students early in their careers while mature professionals with diverse experiences also become interested in the profession. If talented, motivated Individuals want to devote two-to-four years to teaching, they will generally forfeit any pension benefits because most teacher pension plans today involve at least a five-year vesting period, if not longer.

The 1876 legislation failed as did a number of subsequent attempts, but a robust debate continued not only in New York, but in other parts of the country as well. In 1892, the Journal of Education invited several experts to contribute essays on the topic. U.S. Commissioner of Education, W. T. Harris, expressed skepticism of teacher pensions, arguing that they “would tend to lower salaries actually paid from year to year” and concluding:

[M]y personal feelings would lead me to urge anything that can in anywise make the work of the teacher more pleasant, and attract better and abler persons to enter it. Inasmuch as the establishment of pensions is likely to diminish annual salaries, I think it will be likely to keep out of the work the more enterprising and adventurous class of men and women and therefore injure the cause.

But other commenters favored pensions, making arguments like those advanced in the Times 16 years earlier. One writer, L.R. Klemm, noted that teachers were already receiving pensions in 10 European countries, including Germany, France and Russia.

Creation and Failure of the New York Teacher Retirement Fund

The New York State Legislature finally authorized teacher pensions in 1894. The law was limited to the New York City (Manhattan) Board of Education and required longer terms of service than the 1876 bill. Male teachers could receive a pension after 35 years of service; female teachers after 30 years of service. The pension was 50 percent of salary with a cap of $1,000 (equal to about $30,000 in current dollars).

Unfortunately, the measure was not actuarially sound. Payments to eligible beneficiaries began immediately, restricting the pension plan’s ability to accumulate assets. Further, there were no actuarially determined employer or employee contributions. Instead, sources of funds for the new benefit were money docked from teacher wages due to absences (paid sick leave was rare in those days), donations and investment income. In his signing statement, then-Gov. Roswell Flower declared, “Had the bill proposed a system of pensions for teachers at public expense I should not have approved of it.” This proved to be penny wise and pound foolish.

By 1897 annual benefit payments exceeded the three revenue sources specified in the original legislation. The state legislature responded by providing new revenue sources: 5 percent of the proceeds from New York City excise taxes and (from 1905) a 1 percent employee contribution.

But along with the new revenues, there were benefit enhancements as well. For example, a minimum pension was added, men were able to retire with 30 years of service after 1901, and after 1907 both men and women became eligible for pensions after 20 years if they were disabled.

By 1914, the New York City Teacher’s Retirement Fund had less than $900,000 in funds to cover almost $70 million in actuarial liabilities—yielding a funded ratio of just over one percent. In 1915, the fund balance declined to zero, causing missed payments and a freeze on new retirements: teachers eligible to retire were obliged to continue working.

Restructuring

The city formed a pension commission to review the bankrupt teacher pension fund, as well as other troubled municipal plans and make recommendations. The commission concluded:

It is unjust to taxpayers that they should be asked in any one year to meet the obligations for service rendered in the past. … No method other than annual payments on an actuarial basis can be advanced for currently accruing funds to meet liabilities as they accumulate.

In 1917, the state legislature adopted a pension reform that mirrored many of the commission’s recommendations. These included increased employee and employer contributions, a minimum retirement age (in addition to a minimum service duration) and regular actuarial reviews.

After 23 years, New York City teachers finally had a sustainable pension system. But it was also one that locked in the lifelong service model, making the profession less attractive as a starter or encore career.

Lessons Learned

Offering teachers retirement security is one way to attract more qualified people into the profession. But, if retirement benefits are not properly structured, they can create problems that undermine the quality of education.

Promising retirement benefits and then not properly funding them is a false economy. Creating a program that theoretically had no public expense, as stated by Gov. Flowers in 1894, led to a collapse of the system in 1915. Teachers who were ready to retire instead were obliged to remain in the classroom. We can be sure that they weren’t pleased, and one can imagine the possible toll this took on their classroom performance.

Offsetting low cash compensation with pension benefits is a mixed blessing. The public schools can attract higher quality professionals this way, but only those who intend to make teaching a lifetime career. Students in public schools thus lose out on the chance to learn from individuals with diverse career backgrounds who may be looking for supplementary income in their 50s, 60s or even 70s. Students may also be exposed to fewer recent college graduates who might like to teach for a couple of years early in their careers before entering a different field.

Fully funding pension benefits when they are earned and providing portability after a short vesting period would have been a better design approach 125 years ago, and it still is today.


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  #984  
Old 05-17-2019, 01:56 PM
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https://www.investmentnews.com/artic...tbed-for-fraud

Quote:
Whistle-blower Ted Siedle sees pensions as hotbed for fraud
The man who won the largest whistle-blower award in SEC history thinks pension mismanagement is hobbling U.S. retirement security

Spoiler:
Ted Siedle has a bleak outlook about U.S. retirement security. That's the case particularly with public pensions, which Mr. Siedle suggests are essentially hotbeds for fraud and theft.


Mr. Siedle is a bit of an authority on the subject — he collected the largest whistle-blower awards in the history of the Securities and Exchange Commission and the Commodity Futures Trading Commission, for $48 million and $30 million, respectively. The former SEC attorney, who also previously served as compliance director at Putnam Investments, currently does forensic pension-fund investigations for his firm Benchmark Financial Services Inc.

InvestmentNews sat down with Mr. Siedle to get his take on the U.S. retirement system and why stealing from pensions is the perfect crime.

Greg Iacurci: You've said the U.S. is "on the precipice of the largest retirement crisis in the history of the world." Why do you believe that?

Ted Siedle: It's not what I believe, it's a fact. The U.S. is going through a demographic historical moment, where we have the largest elderly population in the history of this country. Because of the confluence of the decline of defined-benefit plans, the rise of defined-contribution plans, the systemic failure of defined-contribution plans and the underfunding of defined-benefit plans, the elderly baby boomers aren't prepared. I believe the new normal will be "too frail to work, too poor to retire."

GI: Cumulatively, state pensions have a $1.4 trillion deficit, according to The Pew Charitable Trusts. Some states are severely underfunded — Kentucky and New Jersey about 30%, for example. You suggest investment management plays a big but largely overlooked role.

TS: There are three components to the health of pensions: how much money goes in, what happens to the money while it's in the pot, and how much money goes out. If any of those things are askew, the pension is in trouble. The one thing no one wants to talk about is how the money is managed. We find all over the place that, more often than not, had the pension been properly managed consistent with fiduciary standards, it may not be 100% funded but a 20% funded pension would be 70% funded.

GI: How does this mismanagement play itself out on the investment side?

TS: The value of hard-to-value assets in public funds is clearly inflated. It will always be, in my experience, due to conflicts of interest. The manager has an incentive to inflate. A public pension that has hard-to-value or illiquid assets — real estate, venture capital, private equity — when you say it's 50% funded, it probably isn't. That's the best-case valuation.

The last 15 years, fees paid by public funds have gone up dramatically — by 10 times. When I first went into Rhode Island, the pension was disclosing fees of $7 million a year. I told them they were wrong, and within a year they started disclosing fees of $70 million a year. Private-equity and alternative investment managers got greedy and went around the country and systematically eviscerated the public records laws in every state, every county, every city. There's now legal precedent for alternative investments to not have to disclose to the public their contracts, their investments, their fees, their performance.


GI: You've said stealing from public pensions is the "perfect crime." Can you explain that? What's the scope of this theft?

TS: Public pensions are unique in that they're subject to public records laws. Because of that, public pensions have gotten very defensive and very reluctant to comply with public records laws. Public pensions hide a tremendous amount of what they do. They also resist reporting crimes. One of the reasons public pensions are the perfect place to steal is because they won't report.

(More: Some public employees face Social Security hurdles)

You will generally find political consensus within a state to not investigate or tear into what's going on at the local public pension. It's a perfect place for high-level theft. And the growing secrecy of alternative investments also make it a perfect place to steal, because no one can see what's really going on.

Both the victim (the public fund) and the perpetrator (the manager or intermediary) agree to a secrecy scheme and are complicit in it. You actually have, in many cases, the victim agreeing not to report any criminal behavior and that the [investment] manager need not report any criminal behavior. There are managers who say in their Form ADV, "If you are a public pension and we were to disclose criminality on our part to you, which you would then have to disclose to the public, we will not disclose criminal activity to you and you agree that's OK." Why would anybody agree to that?


Right now, in Kentucky, the trustee has been convicted and is in jail and the pension fund is paying his legal bills.

GI: What do you think the chances are of a federal bailout of these pensions?

TS: I think it's a certainty. If Illinois goes bankrupt, what do you think will happen? Armageddon. Garbage is not going to be picked up, water's not going to be filtered and clean, snow is not going to be plowed, toilets are not going to flush. Everything is going to completely fall apart. If a state goes into bankruptcy it will have to be bailed out by the federal government.


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Old 05-17-2019, 01:57 PM
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CALIFORNIA

https://www.heartland.org/news-opini...roblems-remain
Quote:
CALIFORNIA SUPREME COURT UPHOLDS PENSION REFORMS, BUT PROBLEMS REMAIN
The court upheld reform that curtailed employees purchasing service credits to increase their pensions.


Spoiler:
The California Supreme Court upheld reforms to the state’s pension plans for public employees, which will save taxpayers billions of dollars but leave the system with hundreds of billions of dollars in unfunded obligations.

The court’s March 4 ruling upheld Gov. Jerry Brown’s 2012 reform that curtailed the practice of allowing employees to purchase service creditss in order to increase their pensions. Brown also raised the amount employees must contribute to retiree health care coverage. The changes will save $29 billion to $38 billion over the next 30 years, reports the nonprofit news service CALmatters.

California has two state retirement systems: one providing pension incomes and health benefits for local and state government employees, and one for public school teachers. The systems have total estimated unfunded future obligations of $400 billion, based on 2016 data, CALmatters reports.

Nationwide, the unfunded liabilities of state and local public employee pension plans total about $4.4 trillion, according to Moody’s Investor Service.

Lower Expectations for Returns

The reason public pension systems in California and other states are underfunded is that pension fund managers make overly optimistic assumptions about the rate of return on investments, says Olivia S. Mitchell, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School of Business.

“Public pensions should use a discount rate consistent with the public sector’s cost of borrowing money,” said Mitchell.

“So, for instance, instead of the far-too-high 7.5 percent to 8 percent current rates, they should be closer to 4.5 percent to 5 percent,” Mitchell said. “Of course, this change would massively blow up funding costs, but this is a fairer picture of what is actually owed to public employees.”

Joe Barnett (joepaulbarnett@att.net) is a research fellow with The Heartland Institute.

Internet Info

Chief Justice Cantil-Sakauye, Opinion: Cal Fire Local 2881 v. California Public Employees’ Retirement System, Supreme Court of California, March 4, 2019:

https://www.heartland.org/publicatio...irement-system

Judy Lin, “Everyone is saying they just won a big court case on pensions. What does that mean for you?” Calmatters, March 4, 2019:

https://calmatters.org/articles/cali...brown-airtime/


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Old 05-17-2019, 01:58 PM
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KENTUCKY

https://www.nakedcapitalism.com/2019...ven-worse.html

Quote:
How Kentucky Tried to Make the Country’s Worst-Funded Public Pension Plan Even Worse
Spoiler:
Yves here. Earlier this week, reader chuck roast asked about how to break the public pension fund addiction to alternative investments, which given how much money has been pouring into these high-fee, high risk strategies, are just about certain to underperform. We’ve pointed out for years how private equity has failed for the prior ten years to earn enough to justify its higher risks. Ludovic Phalippou of Oxford reached an even more damning conclusion, that private equity funds on average have not even outperformed the S&P 500 since 2006

So it seemed timely to discuss other, sounder approaches to the desperate reaching for returns.

In the world of public pension reform, there are agitators for a 401(k) or hybrid plan solution (Pew, Laura and John Arnold Foundation, Reason Foundation, ALEC, etc.), public employee/retiree organizations (which largely advocate for increased funding), and academics (which explore best solutions and legal impediments, yet steer clear of advocating innovation or orchestrating transitions).

One small non-profit, Pro Bono Public Pensions, seeks to fill the innovation and orchestration void and create fair, secure and sustainable solutions. The Founder and President is Gordon Hamlin, who got started in the field when he (and 44,000 others) signed up for Josh Rauh’s MOOC on the Finance of Retirement and Pensions. Gordon was one of a handful of students selected to participate in the final forumat the Stanford Graduate School of Business, based upon his team’s proposed constitutional amendment and Vanguard-type indexing of the Mississippi PERS portfolio. In 2016 he was a Fellow in Harvard’s Advanced Leadership Initiative.

Gordon first came to my attention when he sent details of an indexing proposal for South Carolina, which had become the poster child for rash investing in alternatives and admittedly had among the worst 10-year performance of any state public pension plan.

Gordon and several collaborators have published a comprehensive suggestionon how to transition to a new shared risk model (think New Brunswick, the Netherlands, etc.) through prepackaged Chapter 9 Plans of Debt Adjustment. Prepackaged bankruptcy reorganizations are commonplace in the corporate world, and there is no impediment to borrowing that concept for Chapter 9.

Gordon has submitted proposals to municipalities like Dallas and Birmingham, various states, and several local governments in California. Since last fall, he has consulted with a Pension Liabilities Task Forcein Connecticut. For the last 2 years, he has been working with some allies in Kentucky, writing Op-Eds and appearing on KET. The following article describes recent developments in Kentucky and proposes a specific legislative fix.

By W. Gordon Hamlin, Jr., President, Pro Bono Public Pensions. Please contact him at gordonhamlin@comcast.net

No specialized knowledge of public pensions is necessary to conclude that on March 28 the Kentucky General Assembly took the country’s worst-funded public pension plan out back and tried to put it out of its misery. House Bill 358 pounded nails in the coffin, leaving only one nail left—the Governor’s signature. On the last possible day, Governor Matt Bevin vetoedthe bill, citing a moral and legal imperative to protect benefits earned by public sector employees, and announced he would call a Special Session before July 1, thus creating even more chaos for the Commonwealth. The Senate President claimed he was “disappointed” and “perplexed” by the veto, with the Speaker of the House saying the House had “spent exhaustive amounts of time” developing the bill.

Here’s how one manager interpreted the bill’s impact on his mental health services organization, a “quasi-governmental employer” which participates in Kentucky Employees Retirement System Non-Hazardous (KERS-NH):

Pension Update: So I’ve spent all morning running rudimentary numbers for our company regarding the new pension bill. Here is what it amounts to for any of you who can share to the Governor’s office or other legislators: We’re a private non-profit Quasi. We have paid EVERY DIME ever required by KERS and have over 100 Tier 1 and 2’s active and over 200 retired. For the past several weeks we have met with numerous legislators and tried to explain to them how the bill as written will bankrupt most Quasi’s EITHER option they choose. Well here are our preliminary numbers. In order to Opt to stay IN the system we will be required to pay over $84,000,000 over the next 20 years. This is on a company with a current annual payroll of just over 6 million dollars. In order to Opt OUT of the system we would have to pay over $100,000,000 for the same period. (Someone can maybe help me with how this part was supposed to ‘save’ the Quasi’s).

This guest blog will (1) explore how Kentucky got to this point, (2) discuss some of the current fallout in bankruptcy and litigation, (3) analyze more specifically how HB 358 would have made matters worse, (4) examine an alternative merger plan which the legislature passed up, and (5) ask whether there is a path forward.

How Kentucky Got to This Point

The KERS-NH plan covers over 120,000 employees and retirees, with approximately 80% as direct state employees or retirees and the remaining 20% associated with seven regional universities or quasi-governmental employers (such as district health offices, regional mental health facilities, or rape crisis centers). As of June 30, 2018, KERS-NH admitted that it was only 13% funded, with assets of $2 billion and liabilities of $15.675 billion (computed with a 5.5% discount rate). The Solvency Test in the CAFR asserts that the assets covered 100% of active member contributions, but only 9.4% of the retiree liabilities and 0% of the active member liabilities. For all practical purposes, this plan is already in pay-as-you-go territory.

Several different studies have reached similar conclusions about how KERS-NH slid from over 100% funded status in 2000 to 13% in 2018. First, plan fiduciaries used an assumed 8.25% rate of return for years, thereby creating misleadingly low liabilities. When the Global Financial Crisis approached, the fiduciaries reduced the assumed rate of return to 7.75%. More recently, the assumptions were reduced to 5.5% as funding deteriorated and liquidity needs escalated. Second, the high discount rate and other actuarial assumptions created normal costs that were too low. Third, the General Assembly granted unfunded benefit enhancements, such as COLA’s. Fourth, the Dot-Com Crash and the Global Financial Crisis produced enormous negative returns.

But that wasn’t the entire story. Poor governance, leading to poor investment performance, has been amply documented in the book Kentucky Fried Pensions(written by Chris Tobe, a former Board member) and in last fall’s Frontline special, “The Pension Gamble”. John Farris, a former Board Chair, was quoted in the Frontline special: “I think that the pension board that was put together between 2008 and 2016 was probably the dumbest of money.” Other Board members basically admitted that they did not understand much of what they were expected to vote upon.

But, just as the Board collectively failed in its responsibilities, the General Assembly failed on an epic scale. From 2000-2014, budgeted contributions barely exceeded 30% of the ARC (which itself was always misleadingly low because of the discount rate, high inflation assumptions, unrealistic payroll growth assumptions, and the like). Once the General Assembly established the contribution rate, it applied across the board, even though the regional universities and other entities may have been able to pay more. Here is the history of underfunding:



Bankruptcy and Litigation Fallout
In 2013, Seven Counties Services, a regional mental health services provider in Kentucky and an employer allowed to participate in KERS-NH, filed for bankruptcy protection under Chapter 11, threatening services provided to some 32,000 Kentuckians. The Bankruptcy Court concluded that Seven Counties was eligible to file under Chapter 11, and the Sixth Circuit affirmed on appeal, but certified a question of state law to the Kentucky Supreme Court, where the case now sits. In the meantime, Seven Counties affiliated with another mental health services provider, Centerstone, and KERS-NH has continued to pay pensions to the retirees of Seven Counties. In effect, Seven Counties dumped its obligation to fund pensions into the lap of KERS-NH, just as corporations have dumped their pensions into the PBGC.

In late 2017, a lawsuit styled Mayberry v. KKR was filed in Franklin County Superior Court against KKR, Blackstone, Cavanaugh MacDonald (the actuaries for KERS-NH), Ice Miller (the law firm for KERS-NH), and numerous other parties, alleging breaches of fiduciary duties, fraud, and other torts under Kentucky law. At this point, the best that can be said is that the outcome is uncertain.

The fallout has multiplied even more in recent days, with Blackstone Alternative Asset Management and Prisma Capital Partners filing suit in Delaware Chancery Courtagainst Kentucky Retirement Systems and its board, alleging breach of contract and representations.[1]

In another case, the Franklin County Superior Court recently ruled that the Governor wrongfully failed to produce an actuarial report, which concluded that his proposed changes to the public pension system would actually make the funded status worse.

Without a global solution to Kentucky’s pension problems, the beat will just go on (with apologies to Sonny and Cher).


Under any reasonable analysis, KERS-NH has really been two pension plans—one whose funding has depended on the General Assembly and one whose employers got large portions of their funding independent of the General Assembly and have faithfully paid their contributions, year after year, for decades. Thus, while the General Assembly regularly shirked its obligation to make the annual required contributions on behalf of 80% of KERS-NH members, the other employers—the regional universities, district health departments, mental health organizations and rape crisis centers—stood ready, willing and able to make their ARC payments. But when the General Assembly decided not to pay on behalf of the 80%, it also decreed that employers of the 20% would not pay the full requested ARC.

During the recent legislative session, the Public Pensions Working Group (comprised of Senators and Representatives from both parties) held regular hearings and was charged with developing some solutions to Kentucky’s public pension crisis. The regional universities worked with a group of Representatives to develop the first version of HB 358. As presented, the bill froze contribution rates for one year for the universities at 49.47% for pensions and insurance contributions andallowed the universities to exit KERS-NH and pay off their liabilities over a 25-year period. Individual employees could elect to remain in KERS-NH, a provision necessary to comply with the “inviolable contract” public employees have with respect to their pensions under Kentucky statutes and state constitution. See KRS 61.692(1) (“in consideration of the contributions by the members and in further consideration of benefits received by the state from the member’s employment, KRS 61.510 to 61.705 shall constitute an inviolable contract of the Commonwealth, and the benefits provided therein shall not be subject to reduction or impairment by alteration, amendment, or repeal. . ..”).

Although the bill also specified that an actuarial analysis would be performed prior to any exiting decision, it was possible to perform some back-of-the-envelope calculations and conclude that the universities might be locked into a requirement to pay as much as 66% of payroll for 25 years into KERS-NH. Such contribution levels would surely have driven up tuition and made the universities uncompetitive across a several-state region.

The Senate then countered with revisions that allowed the quasi-governmental entities to exit the pension plan, but with little consideration of the rights of current employees. The Governor indicated he would sign the Senate version.

When the House and Senate could not agree on a single bill during the regular session, exactly one day—March 28—was left. The General Assembly reconvened, appointed a conference committee, and late in the day a new bill emerged.

The final version of HB 358 began with the premise that all regional universities and quasi-governmental employers would have been booted out of KERS-NH as of June 30, 2020, unless they affirmatively elected to remain. If they had elected to remain, then they would have paid 49.47% of the 5-year average payroll for the year ending June 30, 2020. The actuaries would have computed a full actuarial cost for all employees and retirees who were last employed by that employer, and the employer’s cost would increase by 1.5% annually until the costs were paid off. The actuaries would have used the lower of the KERS-NH discount rate or the 30-year U.S. Treasury rate prevailing on June 30, 2020, but in no event less than 3%. With the 30-year Treasury currently floating around 2.8%, it seems rational to conclude that a 3% discount rate might well have come into play, again creating a dual pension system, but this time calculating liabilities for the 20% based upon a substantially lower discount rate than for the 80%.

But there’s more! HB 358 gave employees of the regional universities and the quasi-governmental employers the option to remain in KERS-NH, in which case their employers would have remained responsible to pay the greatly increased costs for those employees. However, if (and this is a big if for both employer and employee) the employer failed to pay the monthly required contributions, then pension payments would cease. Governor Bevin highlighted this issue in his veto message, calling it “uncharted territory” and one that might not even be legal.

In other words, an employer electing to remain in KERS-NH may never pay its liability off. Indeed, the actuaries believed that the unfunded liability would actually be higher in 30 years. If the employer stayed out, then it would still have to pay for its retirees and any employees who elected to remain in KERS-NH. This was another concern of the Governor’s.

The actuarial analysis estimates a negative impact of $799 million, with $121 million attributable to the one-year continuation of the contribution rate freeze for the universities and quasi-governmental employers and $678 million attributable to the cessation provisions. The General Assembly would have been faced with higher contribution rates for the 80% of the members it is responsible for funding.

In short, the regional universities and quasi-governmental entities would have faced impossible payroll costs, whether they remained or whether they exited. Their employees and retirees would have faced an extreme forfeiture if the employer failed or ceased to make the monthly payments for some other reason. Governor Bevin called this result “unacceptable.” The General Assembly would face increased contribution rates for all its employees.

Overall, HB 358 was unfair, insecure and unsustainable. It was no solution at all. Everybody would lose.

Was There Any Alternative?

The simple fact that KERS-NH is for all practical purposes already on a pay-as-you-go basis ought to prompt thinking about alternatives.

For example, Kentucky might consider merging the regional universities and quasi-governmental entities, their employees, retirees and assets with the County Employees Retirement System (CERS). That system is much better funded than KERS-NH, and employers in that system include cities, as well as counties. The local health departments, mental health centers, rape crisis centers and regional universities may well have greater affinities with their cities and counties than with the Commonwealth. Nevertheless, this solution would still leave 80% of KERS-NH on a pay-as-you-go basis.

Thinking even more broadly, why not just merge all of Kentucky’s public pension plans, like Wisconsin did over 40 years ago? The Legislative plan is the best-funded of all, making it a convenient talking point for employees of all the other systems, asking “why isn’t our plan funded like the Legislative plan, which is for part-time workers?”

Then, if merging plans is worthy of a thought experiment, what else should be attempted as part of a major merger? One answer from ideologues might be to transition everyone into a 401(k) environment, but the “inviolable contract” under Kentucky law stands in the way of any such effort, not to mention the near-uniform opposition of all public employees and retirees.

There remains one lawful means to transition at least the local Kentucky public employees and retirees into a different environment. That is under Chapters 9 and 11 of the Bankruptcy Act.

Kentucky has already authorized a large array of local governments and special purpose governmental entities to file a Plan of Debt Adjustment under Chapter 9. Any “municipality” filing under Chapter 9 must certify that it has either reached agreement with the impacted creditors (in this case, the employees, inactive employees and retirees) on a plan or that it has attempted to reach agreement and failed.

Given this requirement, it’s easy to see that presenting a group of employees and retirees with a plan to transition them to a 401(k) environment would not meet with many takers. But, what about a shared risk plan along the lines of the New Brunswick Public Service Shared Risk Planor the Wisconsin Retirement Systems or some church plans (like the Christian Church (Disciples of Christ)) or the Presbyterian Church (U.S.A.)?

Given the low level of trust between the General Assembly and the pension fund members, is there some alternative to lobbing the problem back to the General Assembly to solve?

One answer just might be the same approach New Brunswick tried—create a Task Force of expert consultants and stakeholders to work with the actuaries to design a plan and then develop the legislation.

In short, the Kentucky General Assembly could have frozen contribution rates in KERS-NH for a year, created a Task Force of stakeholders, authorized funding for an independent actuary, and charged the Task Force to produce a reform plan.

In addition, the Task Force might propose any appropriate constitutional amendments, such as prohibitions on contribution holidays or unfunded benefit enhancements. A more fulsome analysis of this idea can be found here.

What Can Be Done Now?

Although the General Assembly tried mightily to create an exit ramp for the regional universities and quasi-governmental employers, neither math nor law will permit any similar solution. The cost of exiting and the cost of remaining will be impossibly high. The “inviolable contract” will prohibit the dumping of current employees. The moral and legal imperative of protecting retirees’ earned benefits, as the Governor has indicated, means that someone must pay, whether through a well-funded pension plan or on a pay-as-you-go basis.

Although some of the local health departments may be on the edge of insolvency, it seems unlikely that many would be “insolvent” and eligible to file a Plan of Debt Adjustment under Chapter 9 in the immediate future. Other entities, such as the regional universities, are considered organs of the Commonwealth and are not the special purpose governmental entities authorized to utilize Chapter 9 under Kentucky law. Still others, such as the mental health organizations, would have to utilize Chapter 11 (like Seven Counties Services did).

In other words, at this point, without a coordinated and comprehensive plan in hand or being developed, using bankruptcy to restructure seems problematic, at best.

On the other hand, what if the Governor could be persuaded that it just might make sense to merge all the public pension plans and transition into a shared risk model through maximum use of Chapter 9 and then use some carrots for the direct Commonwealth employees? That might not satisfy ideologues who want to push public employees into a 401(k) environment, but it just might prove to be a global compromise that would allow Kentucky some breathing space for its budgets and create a fair, secure and sustainable solution for its public pension nightmare. In any event, it appears that 60% of each chamber of the General Assembly must support any proposed bill in a Special Session this year.

There is time to develop the solution before the end of the year and have it considered by the General Assembly in January, but only if the Governor moves with dispatch. A Special Session held before July 1 can at least freeze the KERS-NH contribution rates for one year, create the Task Force, and come back later in January to receive the recommendations of the Task Force.

During the legislative session, one legislator asked me to craft a “Hail Mary” solution, which I did. It has now been circulated widely within the General Assembly membership and the Administration. What’s needed is for someone to become the “first mover.” One might even say “have a little faith, take a look at some of the church plans, and trust collective bargaining.” The “Hail Mary” solution is embedded below.

_________

[1]The two lawsuits basically seek indemnification from KRS for attorneys’ fees and, in the event of an adverse judgment, for the entire judgment. The general American rule is that, absent an agreement to shift attorneys’ fees, each party is responsible for its own fees and costs. KRS is not formally a party in the Mayberry litigation, so the hedge funds filed suit in Delaware in a plain example of forum-shopping. One could easily conclude that the real purpose of the Delaware litigation is to deter other state pension funds from considering litigation remotely like the Mayberry case.


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Old 05-17-2019, 03:33 PM
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ARIZONA

https://www.azcentral.com/story/opin...se/3693241002/

Quote:
Arizona pension bonuses are troubling. But risky investments are the real crime
Opinion: Arizona's high-risk investments are piling up pension debt, making it more difficult to boost pay for teachers and first responders.
Spoiler:
First responders and taxpayers bristled when they heard the Arizona Public Safety Personnel Retirement System (PSPRS) had paid $120,000 in retroactive bonuses to three executives, given the system’s weak historical investment performance and solvency challenges.

While the bonuses raise important questions, what should really be ringing alarm bells is the excessive risk taking by all of the state’s pension plans, which has helped produce $26.6 billion in unfunded pension promises.

Servicing this pension debt is increasingly crowding out other state and local spending, and stands as a major obstacle to increasing pay for teachers and government workers.

None of Arizona's pensions are truly healthy
PSPRS’s recent struggles are well known. It fell from 100 percent funded — meaning having enough assets to pay for the retirement benefits promised to workers — to just 50 percent funded from 2003 to 2015 due to a combination of poor investment performance and structural flaws in the plan’s design.

Politicians and voters have approved several reforms since 2016 aimed at improving the plan’s financial health. Though PSPRS today still only has $7.5 billion in assets to cover $16.3 billion in promised pension benefits, the reforms appear to have stopped its financial free fall and are starting to reverse a decade of growing insolvency.

Still, given the PSPRS bonus situation, it might be tempting to think the system should be folded into the relatively better performing Arizona State Retirement System (ASRS), which serves most teachers and government employees statewide.

Since ASRS is healthier — on paper — some politicians and pundits have long proposed letting ASRS handle all pension investment. But unfortunately, the grass is not exactly greener on the other side.

Bad investments have driven debt
ASRS currently has $15.6 billion in unfunded liabilities, with $38.6 billion in assets set aside to cover $54.2 billion in pension benefits promised to workers. Back in 2002, ASRS was fully funded, but underperforming investments since have driven well over half of the current pension debt.

Worse, ASRS projects it has a roughly 50/50 chance of hitting its own investment return target over time. Failing to meet investment expectations would increase the system’s debt.

While ASRS’s investment returns have outperformed PSPRS over different recent time spans, that’s essentially irrelevant because all of the state’s four major pension plans have failed to hit their own internal investment targets for some time.

Despite a decade-long run-up in the stock market, with many historic highs, Arizona’s four major pension systems are as bad off as they’ve ever been, with $48 billion in assets to cover $74.9 billion in pension promises.

Taking more risks isn't paying off
Ratings agency Fitch highlighted this situation in a new report ranking Arizona as the number one risk-taking state when it comes to pension investments —with a whopping 86 percent of assets invested in riskier investments like equities and alternatives, such as private equity, hedge funds and real estate.

Yet, despite taking those risks, Arizona was ranked the sixth-worst state in terms of investment return performance relative to expected returns, a factor helping drive the massive growth in state pension debt.

Like any debt, pension debt needs to be paid down over time, which is important for those educator organizations seeking teacher pay increases to understand.

This isn't fiscally or morally sustainable
Back when ASRS was still fairly healthy 15 years ago, teachers paid approximately 4% of their paychecks toward their pension benefits. However, the system’s growing pension debt has driven this amount to nearly 12% today — a figure ASRS actuaries expect to further rise in the coming years.

That larger share of teacher contributions, plus a larger sum of state funding, is going to pay down pension debt instead of toward raises or classrooms.

Arizona’s pension plans have taken on a lot of risk, and the reward has been major losses and rising costs. That’s not fiscally or morally sustainable, and it’s likely to worsen unless the Legislature gets serious about additional reforms that improve pension funding, set reasonable limits on actuarial assumptions and create more effective oversight structures.

Leonard Gilroy is an Arizona resident and directs the Pension Integrity Project at Reason Foundation, which recently published an analysis of ASRS solvency at reason.org/asrs.
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Old 05-17-2019, 03:41 PM
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NEW JERSEY

https://burypensions.wordpress.com/2...t-normal-cost/
Quote:
NJ 7/1/18 Vals (3): Teachers’ Net Normal Cost

Spoiler:
That less-than-$1-billion amount is the total Net Normal Cost as of 7/1/18 as calculated by Cheiron in their valuation reports which happens to be lower than what Milliman and Buck/Conduent calculated in prior years. The biggest drop came in the Teachers’ plan:




These numbers are taken from valuation exhibits on the development of the Normal Cost and show, as one would expect, steady increases over the years in:

Expected member contributions* which increase with salaries, and
Chapter 133 PL 2001: which is the cost attributable to the 9% increase in benefits back in 2001.
However the Gross Basic Normal Cost (based on the 1/60th formula in place prior to 2001) for 7/1/18 where you would expect an increase of about 4% from 7/1/17 instead shows a decrease of about 4%. The only clue we have in the report is this from Appendix B on Actuarial Assumptions and Methods – page 56:

4. Changes since the last valuation

Based on clarification from the Division of Pensions and Benefits, the actuarial liability is based solely on the formula benefit without any comparison to the value of the estimated member annuity.

After reviewing other sections of the 7/1/18 Cheiron report and what Milliman did for 7/1/17 the best interpretation of that line I can come to is:

We were ordered to reduce the Normal Cost so we checked (or unchecked) the boxes in our valuation software that gave us the lowest number.

.

.

.

* Each Member contributes a percentage of Compensation. Effective October 1, 2011, Chapter 78, P.L. 2011 set the member contribution rate at 6.5% and causes it to increase by 1/7 of 1% each July thereafter until it attains an ultimate rate of 7.5% on July 1, 2018. (page 58 of 7/1/18 of report)


https://burypensions.wordpress.com/2...vable-numbers/
Quote:
NJ 7/1/18 Vals (4): The Believable Numbers

Spoiler:
The July 1, 2018 actuarial reports for the New Jersey Retirement System are out and there are a few numbers therein that can be taken seriously (none involving liabilities or even the market value of assets considering all those self-valued alternative investments) since there is very little prettying-up actuaries can do with these ugly numbers:






When you put these believable numbers in historical perspective going back to 6/30/11 a definite pattern emerges with outflow always going up – approaching $11 billion even without COLAs – while inflow varies with political whims.


https://burypensions.wordpress.com/2...funded-ratios/
Quote:
NJ Vals 7/1/18 (5): Phony Funded Ratios
Spoiler:
The official unfunded liability for state-funded plans dropped from $58 billion last year to $43 billion this year. How did this happen? Blatant fraud.


Putting values from the July 1, 2018 actuarial reports. into a spreadsheet (with tabs for similar data going back to 2017, 2016, 2015, 2012 and 2000) yields these totals:



The liability values are ludicrously understated but it is with the assets that the games begin:

Questionable market values,
Actuarial values that consistently exceed market (ASOP 44 be damned), and
$12.6 billion value placed on the NJ lottery considered a real asset.

https://burypensions.wordpress.com/2...-phony-assets/
Quote:
NJ Vals 7/1/18 (6): Phony Assets

Spoiler:
According to the New Jersey Division of Investment there was about $78 billion as of June 30, 2018 in the Public Employee Retirement System but when it came time to determine contributions for the July 1, 2018 valuations that value jumped to over $100 billion.


https://burypensions.wordpress.com/2...aw-introduced/
Quote:
NJ Pension Reform Law Introduced

Spoiler:
According to njbiz:

Senate President Stephen Sweeney, D-3rd District, said at a Thursday afternoon press conference that he would unveil two constitutional amendments to go before voters in an effort to force Gov. Phil Murphy’s hand on the proposals if he does not approve the measures.

One of the proposals, Sweeney said, calls for reducing pension obligations for state workers with less than five years of state service by raising their retirement age to 67 and adopting a hybrid of a pension plan for the first $40,000 of salary and a 401k-style retirement for anything above that amount.

That would save $24.8 billion over the next 30 years for state and local governments combined, and reduce their pension liability by $17.8 billion over that same time frame, Sweeney’s office said.

Sweeney was met by boos, catcalls, and Twisted Sister* at a scheduled event later in the day even though this is all we have on the pension reform:


S3753 Establishes cash balance plans in PERS and TPAF for new public employees and employees with less than five years of service; makes various changes to PERS and TPAF retirement eligibility.
State Government, Wagering, Tourism & Historic Preservation

Sweeney, Stephen M. as Primary Sponsor
Oroho, Steven V. as Primary Sponsor
O’Scanlon, Declan J., Jr. as Primary Sponsor

5/16/2019 Introduced in the Senate, Referred to Senate State Government, Wagering, Tourism & Historic Preservation Committee

I will have more when the text is uploaded but first impressions:

No changes for the richest plans (Judges; Police & Fire).
Depending on what the Pay Credit in the Cash Balance portion turns out to be, this could provide higher benefits.
Why the charade? Who are the politicians trying to convince? If their aim is to lower contributions then why not another ramp-up or tell the actuaries to think up more gimmicks. Could this be about getting a higher credit rating? If so then why not just up Moodys’ fee? It works.

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Old 05-17-2019, 03:45 PM
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NEW JERSEY

https://www.burlingtoncountytimes.co...-benefit-costs

Quote:
Sweeney introduces bills to cut NJ pension, benefit costs

Spoiler:
Senate President Stephen Sweeney unveiled a package of more than two dozen “Path to Progress” bills Thursday, setting the stage for a major political battle with Gov. Phil Murphy and the state’s public employee unions, who have described many of the proposed changes as an assault on collective bargaining rights.

TRENTON — New Jersey’s top Democratic senator is ready to move forward with a plan to try to right the state’s finances and reduce its notoriously high property taxes with a mix of government reforms, including controversial changes to some public employee pensions and health benefits.

Senate President Stephen Sweeney unveiled a package of more than two dozen “Path to Progress” bills Thursday, setting the stage for a major political battle with both Gov. Phil Murphy and the state’s public employee unions, who have described many of the proposed changes — particularly the pension and benefits reforms — as an assault on collective bargaining rights.

Sweeney said he would not be deterred by the governor or union opposition. He planned to introduce all 27 of the bills Thursday and then push for approval of as many as possible before the state’s June 30 budget deadline.

“It’s time to fix New Jersey in a way that’s going to be meaningful and long lasting,” Sweeney said during a Statehouse news conference, where he predicted that the measures would collectively save the state, counties and local governments billions each year and save the pension systems from insolvency.

In order to ensure the savings are returned as property tax relief, Sweeney said he would also introduce two constitutional amendments to both implement the proposed pension and health benefit changes without Murphy’s approval and require that all local savings from them be applied to reducing the local property tax levies.

“People say you can’t do anything about property taxes; we say you can and now is the time,” he said. “We’d like to work with everyone to come to a solution, but if necessary we will go to the voters to have their voices heard.”

To get the amendments on November’s ballot would require approval by three-fifths of both chambers of the Legislature. That’s likely to be difficult given that all 80 members of the state Assembly are up for re-election this fall. Getting the amendments on the ballot next year would be considerably easier, since it would only require simple majorities to approve them in two consecutive calendar years.

The bills rolled out Thursday are hardly new. Each was based on recommendations from a bipartisan group of lawmakers, economists and financial experts Sweeney formed last year to look at the state’s finances and tax policies and address what he described as a “fiscal crisis.”

Sweeney also spent most of the last six months touring the state to hold town hall forums and deliver speeches on the proposed reforms, often times getting significant pushback from public employees and organized opposition.


Hetty Rosenstein, a leader with the Communications Workers of America, the state’s largest public employees union, described the package as a “bait and switch” that targets middle-class government workers rather than wealthy millionaires and corporations.

“This is (Sweeney’s) go-to moment. When there’s attention paid to what’s really happening economically, just push the public workers out there and make them a piņata,” Rosenstein said.

The most controversial of the bills in the package would raise the retirement age to 67 for most public employees and teachers and require new and unvested ones to move from the current defined benefit pension systems into a new hybrid system similar to a 401(k) plan.

The new hybrid system would give those employees a defined pension on the first $40,000 of their salary and allow them to enroll in a cash balance plan for their remaining income, with a guaranteed return of 4 percent or 75 percent of what the account earns from investments.

The proposed changes would not impact new police and firefighters, state troopers, judges or corrections officers. An actuarial analysis provided by Sweeney’s office predicted the change would save state and local governments about $25 billion over the next 30 years, while also carving off billions of the state’s unfunded pension liability, which is now over $100 billion based on some measurements.

More savings are expected from the proposed health care benefit reforms, which call for the state’s School Employees Health Benefits Plan to merge with the State Health Benefits Plan to create a single health care program for most state workers and teachers. It would also require all employees to move from the highest-cost “platinum” health plans to less-expensive “gold” ones.

Sweeney said the state would still cover about 80 percent of employees’ health care costs under the gold-level plans but that the change would save state and local governments hundreds of millions annually and also allow them to escape the Affordable Care Act’s “Cadillac tax” on high-cost plans. That tax is scheduled to take effect in 2022 and could force New Jersey to pay as much as $600 million.


“I don’t know why it’s even negotiable at this point,” Sweeney said.

The other bills in the package are based on recommendations that garnered much less controversy but still could be difficult to implement.

One would require county executive superintendents to develop plans to merge all elementary-only and middle school-only school districts into kindergarten-through-12th-grade regional districts.

New Jersey currently has over 600 school districts, and about 300 of them would be subject to the proposed mergers, including about 22 in Burlington County.

Another bill would require the state to pay for all extraordinary special education expenses above $55,000 and require some administrative law judges to be trained specifically to handle special education placement cases. The change has been pushed by Sweeney as well as Republican senators, who argue it would likely save school districts, and their taxpayers, substantial sums.

Another proposed benefit change would cap payouts for unused sick time at $7,500.

Murphy has said he was open to finding cost savings in health care plans, but he has insisted that any changes be negotiated with unions through collective bargaining and the current Plan Design committees. He has touted $800 million in negotiated health care savings in his proposed 2020 budget as evidence that significant savings can be found in that manner.


Murphy has also pressed for lawmakers to raise the state’s income tax on earnings over $1 million, arguing that the additional revenue is needed to pay for investments in education, mass transit improvements and for middle-class property tax relief.

Sweeney and Assembly Speaker Craig Coughlin have said they would not agree to a tax increase in the upcoming budget. And while Sweeney said he would push to pass reforms by June 30, he said he would not likely incorporate the projected savings into the new budget.

“Not at this point,” he said. “We just rolled it out. We’ll see how much progress we make.”


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Old 05-17-2019, 03:52 PM
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CALFORNIA

https://capitolweekly.net/newsom-boo...f-for-schools/
Quote:
Newsom boosts pension-cost relief for schools

Spoiler:
School districts, some saying CalSTRS rates are forcing cuts in programs and teacher pay, would get more pension cost relief under a revised state budget proposed last week by Gov. Newsom.

The governor’s $700 million plan to lower scheool pension costs during the last two years of a seven-year CalSTRS rate increase would get an additional $150 million, if approved by the Legislature.

Unlike other public pension systems, the California State Teachers Retirement System gets funding from the state, not just employers and employees.

In addition to using non-Proposition 98 state money to pay part of school rates, the governor’s plan would spend $2.3 billion over four years to pay down the school district share of CalSTRS debt, saving more than $7 billion over three decades.


With state aid to get over the hump of the last two years of rising CalSTRS rates, struggling school districts would then face rates, under current projections, that drop slightly and remain stable for more than two decades. (see chart)

Of course, that assumes investment earnings, expected to pay about 60 percent of future pension costs, will average 7 percent, which critics say is too optimistic. But in the complicated CalSTRS system, school districts have some rate protection.

“The employer contribution rate is minimally impacted by investment performance, and when impacted, it generally moves in the opposite direction of the state contribution rate,” a draft report to the Legislature on the 2014 plan said last week.

Unlike other public pension systems, the California State Teachers Retirement System gets funding from the state, not just employers and employees, and has lacked the sweeping power to raise employer rates, needing legislation instead.

The 2014 legislation gave CalSTRS limited rate power, protecting employers. After scheduled rate increases end in 2021 at 19.1 percent of pay, the CalSTRS board can raise employer rates up to 1 percent a year, but no higher than 20.25 percent of pay.

A major increase in state school funding, up 37 percent since the beginning of the rate increase, has helped schools absorb higher pension costs

If investment earnings fall below the 7 percent target, most of the cost will be borne by the state. The CalSTRS board can raise the state rate up to 0.5 percent of pay each year until the funding plan expires in 2046.

For nearly three decades school districts had been paying the same CalSTRS rate, 8.25 percent of pay since 1986. Then the funding plan legislation in 2014 more than doubled their rates over seven years to 19.1 percent.

Total school district CalSTRS pension costs are expected to nearly triple over the seven years, going from $2.3 billion a year to about $6.8 billion, a Legislative Analyst’s office report estimated in March.

School district payments to the California Public Employees Retirement System for the pensions of non-teaching employees also may nearly triple during the seven years, going from $1.17 billion a year to well over $3 billion.

A major increase in state school funding, up 37 percent since the beginning of the rate increase, has helped schools absorb higher pension costs. Inflation-adjusted school funding per pupil is at an all-time high.

With the $150 million increase proposed last week, the new rate in July would drop to 16.7 percent of pay.

But now state funding growth is leveling off, while pension costs continue to rise. Many schools are losing enrollment and per-pupil funding. Some have little or no financial reserves, and thus no cushion if an economic downturn lowers state funding.

Strained school budgets are in the spotlight because of several well-publicized teacher strikes and the struggles of a large urban school district, Sacramento Unified, to avoid a state takeover.

A report last month from Pivot Learning, a nonprofit consultant, used a survey, a decade of budget data, and interviews and focus groups to show the impact of “The Big Squeeze” of rising pension costs on school programs and teacher pay.

Responding to pleas from school groups, the $700 million relief plan the governor proposed in January would have lowered CalSTRS school district rates from 18.13 percent of teacher pay to 17.1 percent in the new fiscal year beginning July 1.

With the $150 million increase proposed last week, the new rate in July would drop to 16.7 percent of pay — a reduction of 1.43 percent of pay instead of 1 percent as originally proposed.

There would be no change in the original 1 percent of pay reduction in the CalSTRS school district rate for the following fiscal year beginning July 1, 2020, which drops from 19.1 percent of pay to 18.1 percent.



CalSTRS remains on a path to reach 100 percent funding by 2046, a new annual valuation showed last week, a total turnaround from projections before the rate increase that had CalSTRS running out of money by then.

But it’s a mountain to climb. The new actuary report also shows that CalSTRS only had 64 percent of the projected assets needed to pay future pensions as of last June 30 and a debt or “unfunded liability” of $107 billion.

Like many public pension systems, CalSTRS funding did not recover from huge investment losses during the financial crisis and deep recession a decade ago, despite a bull stock market of record length.

Some have argued in the past that 80 percent funding is an acceptable goal for pension systems.

When the investment fund plunged from $180 billion in October 2007 to $112 billion in March 2009, CalSTRS funding fell from about 89 percent to 60 percent. As of March 31 this year, the investment fund was valued at $228 billion.

Low funding not only creates a need for higher contribution rates, but it also makes CalSTRS more vulnerable to another market crash or a long period of stagnant investment earnings.

Experts have told CalSTRS and CalPERS that falling below 50 percent funded is a red line, a potentially crippling blow that can make returning to 100 percent funded very difficult if not impossible.

The new actuarial report from Milliman shows a low chance for another CalSTRS funding nose dive. The projection that CalSTRS funding will only reach a little below 80 percent by 2046 is in the 25th percentile, while 100 percent funding is in the 50th percentile.

Some have argued in the past that 80 percent funding is an acceptable goal for pension systems. It’s enough to provide a cushion against dropping below 50 percent funded, but not enough to be regarded as full funding or a “surplus” that can pay for increased pensions.

Because of the complicated CalSTRS funding system, the annual actuarial report makes a calculation of what the funding level would be, 86 percent last year, if there had been no change in pension benefits since 1990.

The little-known SBMA had a $9.8 billion surplus and had only been spending around $165 million a year for three decades.

Although not as well publicized as the contribution cuts and pension increases (SB 400 and AB 616) pushed by CalPERS when it had a surplus around 2000, much smaller pension increases and contribution cuts were made for CalSTRS when it had a brief surplus then.

Notable among a half dozen bills was the diversion for a decade of a quarter of the 8 percent of pay pension contribution from teachers (2 percent of pay) into a new Defined Benefit Supplement, giving teachers a lump sum or annuity in addition to their pensions.

“No (state) general fund effect and no effect to the solvency of STRS,” said the legislative analyses of AB 1509 in 2000, unusually brief for legislation shifting billions of dollars. “The STRS surplus will absorb the cost of DBSP (Defined Benefit Supplement Program).”

An ongoing diversion of CalSTRS pension funding is an annual state payment, 2.5 percent of teacher pay, that goes into a separate fund, the Supplemental Benefit Maintenance Account, that keeps retiree pensions from dropping below 85 percent of their original value.

Pension funding is usually based on money expected to be received in the future from employer-employee contributions and investment earnings. But the unique SBMA is based on keeping enough money on hand to pay expected future costs.

In the last biennial report, the little-known SBMA had a $9.8 billion surplus and had only been spending around $165 million a year for three decades. The annual state payment into the fund two years ago was $699 million. (See details here.)

There has never been an analysis to see if money could be saved, perhaps billions, by switching the SBMA to traditional pension funding. That’s the way CalPERS funds a similar program that keeps its pensions at 75 or 80 percent of their original purchasing power.

Last week, the CalSTRS board elected a new chair, Sharon Hendricks, a Los Angeles City College communications instructor. She succeeds Dana Dillon, who did not run for re-election to the board.

Editor’s Note: Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.


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