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  #91  
Old 01-18-2018, 05:51 PM
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KENTUCKY

https://www.courier-journal.com/stor...in/1028338001/

Quote:
Kentucky's budget puzzle is missing a huge piece: pension reform
Spoiler:
FRANKFORT, Ky. – A major missing piece in the lean 2018-20 state budget proposed by Gov. Matt Bevin on Tuesday is the impact of a pension reform bill that legislative leaders are secretly writing and hope to file soon.

“If the General Assembly intends to pass a pension bill, then I don’t think the budget outlook is complete. And from what I’m expecting in the pension bill, it would make a very big difference,” said Jason Bailey, executive director of the Kentucky Center for Economic Policy.

With the pension bill yet to be filed, Bevin proposed a budget that fully funds pension plans under current law — about $3.3 billion in state General Fund money over the next two years.

More: KSP officials 'feel good' about their place in Bevin's budget proposal

More: Bevin's budget proposal eliminates program aimed at empowering women

But while the pending pension reform plan is still being finalized, Bevin and Republican leaders in the House and Senate have all strongly endorsed a new approach to funding pensions that — according to one estimate by the Legislative Research Commission staff — would require $392 million more in annual funding for the Teachers’ Retirement System.


Bailey said he was pleasantly surprised that Bevin did not include that new approach in his budget proposal because he said it would give too much to the Teachers’ Retirement System at the expense of the rest of the budget that already is suffering deep cuts in the Bevin proposal.

Currently, contributions to pension plans are based as a percentage of the government payroll, with payments increasing year to year as payroll grows. But under level dollar funding, the state would pay the same amount of dollars each year to pay off obligations over 30 years. This is much like a mortgage, meaning much higher payments in the early years but lower payments during the later years of the 30-year period.

Bevin’s budget office said Wednesday that the budgetary impact of whatever pension bill is filed will depend on many factors and other provisions of the bill — not just level dollar funding for the Teachers' Retirement System.

More: Bevin's budget draws support for pensions, school funding but 'sobering' cuts unnerving

More: Bevin's Kentucky budget proposal includes surprise on teacher pensions

House Speaker David Osborne, R-Prospect, repeated Wednesday that he strongly supports the level dollar approach for pension funds. “We have made a complete commitment to level dollar funding,” Osborne said.

Asked if level dollar funding will cost a lot more additional money in the budget, Osborne said, “We’ll let the actuarial report (on the fiscal impact of the pension bill) speak to that."

As to when a pension bill will be filed, Osborne said, “Just as soon as we have something that we feel like is ready to be unveiled, we will unveil it.”

Sen. Chris McDaniel, the Taylor Mill Republican who chairs the Senate budget committee, said that if level dollar funding is required in the bill for the teachers' system, then the additional required boost in money would normally not start for three years – or until the next state budget.

Bailey said that a delay, or a phase-in of level dollar funding for the teachers' system is perhaps what is being considered. “But I don’t know what’s going on. But it is clear that level dollar funding will cost much, much more. That’s why they say that want it – to make these big increases to TRS funding starting now.”

The level dollar funding issue primarily affects the teachers' system – the biggest of the state pension plans. That’s because the Kentucky Retirement Systems board adopted new lower assumptions last summer that included no payroll growth for plans covering state workers. Under those assumptions, state funding for the plans covering state workers is about the same as would be required by level dollar funding.

Tom Loftus can be reached at tloftus@courier-journal.com.


http://www.bgdailynews.com/opinion/l...1be7ea492.html

Quote:
LETTER TO THE EDITOR
Finding pension solution will be difficult

Spoiler:
Our state government faces a formidable task regarding the Kentucky Retirement System, which operates eight separate public employee pensions. Nationwide, public pensions are funded at a median rate of 75 percent of pension liabilities, while Kentucky’s eight funds are in the aggregate funded at less than half that percent.

One of the larger Kentucky pensions, the Kentucky Teachers’ Retirement System, has a funding ratio of about 55 percent, while in 2002 it stood at over 90 percent. Clearly, KTRS has been on a severe downhill slide for well over a decade, resulting in it having an unfunded liability of $10 billion – yes, billion – the worst of the eight Kentucky pensions.

While unfunded liabilities reflect the long-term financial health of a pension, of serious concern as well is the annual net cash flow situation of pensions. Over the recent period, all but one of Kentucky’s eight pensions had a 10-year negative cash flow, i.e., more money flowed out for pension benefits than flowed into the pension funds from premiums, asset earnings, etc. This forces the pensions to sell investments, which makes managing the pension funds extremely difficult.



You don’t need to be an accountant to understand that a pension cannot withstand continuous negative annual cash flows, yet KTRS has had a negative cash flow in nine of the last 10 years.

It is relatively easy to design pensions with the “best” benefits, but the more challenging undertaking is to finance those “best” pension benefits. Kentucky state government has allowed this deteriorating financial situation to nearly get out of hand, but fortunately the current governor and much of the legislature recognizes the finances of our pensions are in need of serious repair.

Still, acknowledging we have a problem is just a start. Finding a long-term solution is the difficult part.


https://www.amnews.com/2018/01/17/pe...rement-income/

Quote:
People shouldn’t expect pensions to be main source of retirement income

Spoiler:
Dear Editor,

Just a few comments about the letter the young lady had printed in last weekend’s edition of The Advocate-Messenger about the condition of the Kentucky Pension Fund.

Yes, I agree that this should be remedied soon. Just look at the condition of the state of Illinois and their pension system. Also the state of New York had major issues with the “Teachers Union Pension Fund” several years ago, as well as all state employees and their fund. They were simply going broke and the major reason was the payout of pensions.

We knew personally a local teacher and a person who worked directly for the State of New York and both of these gentlemen retired early at 55 years of age with 20 or more years of service and they drew/are drawing 80 percent of their salary since they retired.

Stop and think about this … pension funds should never be able to pay out that kind of money. This is one reason pension funds are going broke, plus people are living longer, so they are going to be drawing longer.

I personally worked for 47 years in the away-from-home towel and tissue industry (paper manufacturing/converting operations). When I started in the business there were not any 401K plans, they simply allowed you to purchase company stock with no broker fees and of course they had a pension plan.

Yes, I began to purchase company stock and as I was promoted etc. my pension did offer increases that would allow me to draw more money when I retired. After spending 31 years with two companies (same building), one company bought out the other; the stock was simply transferred into the new company so I didn’t lose anything.

Here is the breakdown now that I am retired; Social Security accounts for about 52 percent of our income, pensions account for about 26 percent of our income and self-invested income accounts for around 22 percent (our IRAs, an annuity we purchased, etc.)

The main point is people cannot expect that when they retire they are going to get 80 percent of their income from a pension plan. You have to prepare, plan ahead and invest to help yourself.

Now, the mishandling of pension fund money such as borrowing from these funds, etc., is of course a different story and should be addressed.

Fred Cummings

Junction City
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  #92  
Old 01-18-2018, 05:52 PM
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TAX REFORM
SCHOOL CHOICE

(yes really, it's about pensions)

https://www.realclearpolicy.com/arti...ol_choice.html

Quote:
Will Tax Reform Spur States to Embrace School Choice?
Spoiler:
One of the unforeseen consequences of the Republican tax reform bill will be to increase pressure on state and local unions to soften their half-century opposition to school choice. To be sure, this would be a remarkable reversal for public labor. But the emerging incentive is a powerful one: The modest subsidy of public school alternatives is now the only way to both rescue government public pension plans — the cumulative underfunding of which has been estimated as high as $6 trillion — and thus keep promised benefits reasonably intact.

For decades, union leaders and their political allies have tacitly placed their hopes for salvaging troubled pensions on tax increases. The assumption was that, like it or not, voters would have to cover any shortfall. But, as MIT economist Robert Pozen has argued, the recent loss of deductibility for city and state taxes has severely limited that option. This especially relevant in blue states where adequate pension funding would require tax increases of anywhere from 14 percent in Connecticut to 26 percent in New Jersey.


Even before the tax overhaul was passed, state and local resistance to bailing out government pensions was already surfacing. For instance, last February Connecticut Gov. Dannel Malloy proposed to charge the state’s 169 towns an extra $400 million annually to bail out the teachers’ pension plan — one of America’s worst funded, according to the National Council on Teacher Quality. His own Democratic-controlled legislature refused to go along.

If taxpayers are averse to saving government pensions with higher levies, they are no more likely sacrifice essential services to pay them. According to a report by PublicCEO, California voters recently defeated a proposed one-fourth-cent sales tax increase — purportedly for road repair and other transit improvements — thanks to a widespread suspicion that the measure was really a “bait-and-switch” tactic to fund pensions.

Of course, public employees will argue that state legislatures are legally bound, constitutionally or contractually, to deliver on promised benefits, no matter the cost. But some judges have already begun ruling that pension payouts can, in fact, be adjusted to accommodate a government’s means. In a 2016 precedent-setting decision by California’s First District Court of Appeal, Justice James Richman upheld Marin County’s right to end pension vesting based on the overtime racked up in the last few years of work, a technique known as “spiking.”

In other states, such as Illinois, courts have thus far upheld the sanctity of previously legislated benefits. But how much have public employees really gained over the long run? The city of Chicago has been reduced to dealing with its growing pension problems by floating bonds that give investors first call on its sales tax revenues — a stop-gap measure that merely postpones the day of reckoning.

Given the political difficulty of funding pensions with either tax increases or service cuts, the public unions’ only hope for sustaining anything close to their current plans is by accepting the one government reform that would allow it: school choice.The per pupil cost of the average public school student ($12,760) is now much higher than parochial school, online academy, and homeschooling alternatives. As a result, modest choice programs involving relatively few students could easily generate the needed savings without raising taxes, cutting voter services, or forcing public employees to accept radically reduced benefits.

In a recent study of Connecticut for the Yankee Institute for Public Policy, Marty Lueken of the EdChoice Foundation and I gathered the most recent data on per-pupil costs and student census for every one of the Nutmeg state’s 169 school districts. We found that if just 10 percent of public school students had a yearly budget of $5,000 for private education — $1,000 more per year than the average tuition at Connecticut parochial schools — the annual savings of $385 million would fully fund state’s teacher pension plan.

But would government unions agree to such a policy, if it meant the slightest thinning of their teacher ranks?

Fortunately, the same flood of baby boomer retirements now threatening the solvency of pensions also means that any reduction in local district staffing could be accomplished naturally through attrition. The Learning Policy Institute has estimated a national shortage of at least 112,000 public school teachers for years to come.

Of course, one cannot expect the same union leaders who so strongly resisted school choice policies for decades suddenly to embrace them as a solution to their pension dilemma. But there is a telling consistency in renegotiated labor pacts for Atlanta, Detroit, Lexington, West Warwick, and other cities recently facing bankruptcy. Whatever their initial demands, current and retired public workers have consistently agreed to whatever concessions are necessary to preserve previously negotiated retirement benefits.

By capping the state and local tax deduction, the Republican tax bill makes state and local tax increases far more difficult. As a rest, the ever-growing number of government workers may be forced to conclude — however reluctantly — that a guaranteed pension is well worth a little school choice.

Dr. Andrews was executive director of the Yankee Institute for Public Policy from 1999 to 2009.
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Old 01-18-2018, 05:53 PM
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INDIANA

http://www.tribstar.com/news/police-...7a7571084.html

Quote:
Police officers', firefighters' pension fund bill passes committee
Spoiler:
A bill authored by State Sen. Jon Ford (R-Terre Haute) that would reduce the age from 52 to 50 at which a member of the 1977 Police Officers’ and Firefighters’ Pension and Disability Fund is eligible to receive full retirement benefits passed out of the Senate Committee on Pensions and Labor by a vote of 8-0 Wednesday.

Senate Bill 75, authored by Ford, would increase the amount a Fund member would receive for each six months of active service over 20 years. It would also reduce the maximum number of service years that may be used to compute a retirement benefit for a 1977 Fund member from 32 to 28 years.

"This bill will help those who have devoted their lives to serving our communities and state," Ford said. "After speaking with local police officers and firefighters, this is an issue they need addressed. Many are serving longer than they should in order to receive their full benefits, which might hurt their quality of life once they retire."

The 1977 Fund was established for eligible public safety officers and their survivors. The Fund pays pension, disability and survivor benefits.

Senate Bill 75 will now move to the full Senate.
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Old 01-18-2018, 05:54 PM
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NORTH CAROLINA

http://wlos.com/news/local/reality-c...ension-spiking


Quote:
Reality Check: Buncombe County has paid the state $540,000+ for pension spiking
Spoiler:
BUNCOMBE COUNTY--(WLOS) — Buncombe County has written several six-figure checks to the state to cover pensions of high-wage employees, including a payment made as recently as Jan. 1 for a retirement.

The county started making payments in 2015, when a law went into effect to stop what's called pension spiking. Pension spiking is when high earners get raises right before retirement, which then boosts their pensions. The law only applies to employees in the state or local government retirement system who make $100,000 or more.


Taxpayers fund the county's employees' salaries, and now they're also helping fund some Buncombe County employees' retirement spikes.

"Not in all cases, but in most cases, it's people in power, or know people in power, who are able to adjust their final four years of income, which is what the ultimate pension benefit is based on," North Carolina Treasurer Dale Folwell said.

This is the list of publicly funded employers the Treasury Department has billed:

NC Treasury Department Pension Spikes Invoices by Aaron Adelson Wlos on Scribd



A News13 analysis of the document counted 140 invoices. No employer was billed more times than Buncombe County. UNC Chapel Hill, the Department of Public Safety, the UNC Health Care System and Buncombe County have all been billed five times.

"We're not out to tell people how to run their local governments. We're just saying, if you do something at the local level that results in a pension spike, we're going to send you a bill for that," Folwell said in a Skype interview.

The Treasury Department explained the point of the law is so employers like Hendersonville and Henderson County are not absorbing a liability created by another employer.

The state describes a pension spike as, "a substantial increase in compensation that results in unusually high liabilities to the North Carolina Retirement Systems." So, instead of the whole state paying for this liability, the employer gets billed. Buncombe County has been paying.

The first bill Buncombe County received was for $138,807.73 for a retirement on March 1, 2015. Personnel records show that is the date former finance director Donna Clark's retirement began. However, a treasury spokesperson said the department cannot reveal which employees triggered the pension spiking invoice.

The next two Buncombe County payments totaled more than $121,000 for retirements on Jan. 1, 2016, and Sept. 1, 2016. News13 made a public record request for Buncombe County to provide a list of employees who retired on those dates and made six figures.

The fourth bill Buncombe County received was July 1, 2017. That is the date of former tax director Gary Robert's retirement. It it also the date of former county manager Wanda Greene's retirement. The county paid $163,282.57.

For a retirement on Jan. 1, the county paid $121,432.87. Jan. 1 was the date assistant county manager and planning director Jon Creighton retired.

To date, the county has paid the Treasury Department $544,537.38 for pension spikes.

“Generally, we’re talking about a visible winner, somebody who gets a massive bump in their pension benefit for the rest of their life, but the invisible losers are all the other people in the pension plan who didn’t know this was going on," Folwell said.

A county spokesperson said it's not public information to detail which former employees triggered pension spike bills. The Treasury Department said it gives each employer a monthly report, listing which employees would create a pension spike invoice if they retired this year.

16 Jan

Aaron Adelson

@AaronAdelson
Pension Spikes: Since a law went into effect in 2015 Buncombe County has paid the state Treasury Dept $546,537.38 for pension spikes.


Aaron Adelson

@AaronAdelson
Five Commissioners told me they didn't know the County has made any of these payments. Six told me they were unaware of the most recent payment.

4:55 PM - Jan 16, 2018
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The county spokesperson said the county plans for these pension spike payments and budgets for them.

(Note: In the video story we miscalculated the total Buncombe County paid as $546,537.38 instead of $544,537.38)
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Old 01-18-2018, 05:55 PM
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LINCOLN, NEBRASKA

http://journalstar.com/news/local/go...d18e67b87.html

Quote:
City police, fire pension plan not in trouble
Spoiler:
The pension plan for police and fire is in adequate shape — actuarially speaking — though it is still recovering from the stock market crash in 2008, based on a report to the City Council this month.

Investment returns of 11.2 percent last year, plus some changes the council made last year relating to the plan, helped put the plan on more sound financial footing.

The plan covers defined benefit retirement plans for more than 1,100 current and former police and firefighters.

Defined benefit means the employee is guaranteed a specific monthly benefit at retirement primarily based on years of service and end-of-career salary.

Most city employees have defined contribution plans, similar to 401k savings plans for employees with private companies.




The city should contribute about $8.33 million next fiscal year and another $8.43 million the following year in order to maintain stability in the pension fund, based on the recent actuarial report from Cavanaugh Macdonald Consulting.

For those few who understand this complicated topic, the funded ratio for the pension plan (as of Aug. 31) was 81 percent, up from a low of 63.9 percent in 2015. That's one measure of the financial health of the plan.

Prior to the stock market crash, the funded ratio for the plan hovered between 95 to more than 100 percent.
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Old 01-19-2018, 05:26 PM
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CALIFORNIA
CALPERS
https://www.ai-cio.com/news/calpers-...immicks-false/

Quote:
CalPERS: Ring’s Flippant Claim of “tricky accounting gimmicks” Is False.
CalPERS responds to Ring’s column.
Spoiler:
About a week ago, The California Policy Center published a column by Edward Ring, a political consultant for California Prosperity Alliance, that stirred some debate about hiking pension payments due to catch-up provisions for underfunded plans. Ring cited what could become 99% increases in some city and county pension payments by 2024, and claimed CalPERS is using “tricky accounting gimmicks” to appease unions and politicians. CalPERS believes the columnist didn’t account for investment returns and other savings programs.

In his column, Ring presented the top 20 cities that are predicted to face the steepest pension cost increases by 2024, using research done in partnership the Reason Foundation and the California Policy Center, which compiled data for the agency clients of CalPERS, including 427 cities and 36 counties. (In the summary, data has been distilled to present two sets of numbers—payments to CalPERS for the 2017-2018 fiscal year, and officially estimated payments to CalPERS in the 2024-25 fiscal year.) “In calculating these results, the only assumption we made (apart from the assumptions made by CalPERS), was for estimated payroll costs in 2024. We used a 3% annual growth rate for payroll expenses, the rate most commonly used in official actuarial analyses on this topic,” Ring wrote.

By 2024, due to catch-up costs on the city’s unfunded liability, the research predicts that Millbrae will have the highest total pension payments of the cities in the CalPERS system. Not including employee withholding pay, Millbrae currently contributes 59 cents for each dollar in active employee base wages to CalPERS. By 2024, the research estimates the contribution will hike to 89 cents. The catch-up provision will be “six times as much as their normal contribution, and “in just six years Millbrae’s payment on its unfunded liability will increase by 99%, from $2.9 million today to $5.8 million in 2024,” Ring wrote.

Also topping the list is Pacific Grove, with payments to CalPERS, estimated by Ring to spike from 40 cents per dollar to 75 cents, mainly due to the catch-up provision increase from $1.7 million to $4.4 million.

Ring went on list four reasons why the increases are “outrageous.” “Virtually every pension “reform” over the past decade or so has exempted active public employees from helping to pay down the unfunded liability via withholding,” he penned. He also claimed the normal costs are based on “financially optimistic projections” in which actuaries juggle lifespans and investment earning predictions in order to keep costs lower, insinuating it was a ploy to please unions and cajole elected officials. He wrote, “because cities and counties couldn’t afford to pay down the growing unfunded liabilities attached to their pension plans, tricky accounting gimmicks were employed, where minimal catch-up payments were made in the present in exchange for bigger catch-up payments in the future.” He adds, “The closest financial analogy to what they did would be the “negative amortization” mortgages that were popular prior to the housing crash of 2008.”

Yet, CalPERS said the column failed to mention quite a few important factors, including investment returns, which are continuing to grow the fund. CalPERS investments gained 11.2% last fiscal year, with gains led by its public equity program, which returned 19.6%.

Since July, the fund has grown another $30 billion to more than $355 billion.

“As a long-term investor, we’ve averaged an 8.4 % annual return over the past 30 years, well above our current 7% discount rate,” said CalPERS spokeswoman Amy Morgan. “We’re careful to balance our positive returns with the other risks to the system so the fund will be sustainable for generations.”

Ring’s opinion piece also failed to point out the savings generated by 2013’s Public Employee Pension Reform Act, or PEPRA, CalPERS said. “Over the next 30 years, PEPRA will save as much as $38 billion. In fact, more than 285,000 public employees, or 32% of the active public employee workforce, already are accruing benefits under the lower PEPRA formula,” Morgan said.

She added, “Ring’s flippant claim of ‘tricky accounting gimmicks’ is false. Our professional actuaries fully comply with industry standards and best practices so that financial risks to the system can be better understood, communicated, and managed.”

She noted CalPERS has “a clear path to full funding” which is built on three strategies: “addressing the financial challenges, operating efficiently to contain costs, and following sound investment principles.”
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Old 01-19-2018, 05:27 PM
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KENTUCKY

https://www.ai-cio.com/news/kentucky...rm-kept-wraps/

Quote:
Kentucky Pension Reform Being Kept Under Wraps
Proposals not addressed at state budget meeting.
Spoiler:
While all eyes are on Kentucky Gov. Matt Bevin and his pension reform plans, his Tuesday proposal for the 2018-20 state budget did not include them, the Courier Journal reports.

The bill, which has seen many setbacks over the past year, from regular session delays to a 2017 special legislative session that never materialized, was expected to be addressed alongside the budget. While a pension reform bill is being quietly written by the legislature and should soon be filed, the Bluegrass State currently faces a $41 billion shortfall.

While a budget Bevin proposed would fully fund pension plans under the current law with roughly $3.3 billion from the Kentucky General Fund until 2020, the Journal reported under a level dollar funding that would require nearly $400 million more in annual funding for the $19.8 billion Teacher’s Retirement System. While also not addressed at Tuesday’s meeting, the mortgage-like level dollar funding would have the state pay the same annual amount in order to pay off obligations over a 30-year period, with higher early payments in the beginning and lower payments in the end.

Pension plan contributions currently operate under a government payroll-based basis, linking payment increases with budget raises.

The plans most affected by the level dollar funding strategy would impact the teachers, primarily due to the Kentucky Retirement System lowering the assumed rate of return for its Kentucky Employees Retirement System hazardous pension plan, County Employees Retirement System hazardous and non-hazardous pension plans, and five insurance plans from 7.5% to 6.25%. The assumptions also halted payroll growth for state employees.

On the subject of level dollar funding, House Speaker David Osbourne was one of several Republicans on board with the changes, telling the Journal the House has, “made a complete commitment to level dollar funding.” In terms of whether the funding will cost more in the budget, he determined that it’s best for the actuarial report on the bill’s fiscal impact to adhere to that.

Should the bill phase-in level dollar funding for teachers, Sen. Chris McDaniel reportedly warned that the required boost-in funds would not start until the next state budget in 2021.

While level dollar funding is just one of many variables that will decide what type of pension reform Kentuckians will receive, the Journal quoted Osbourne as revealing a bill, “just as soon as we have something that we feel like is ready to be unveiled.”
https://surfky.com/index.php/179-new...-entire-budget

Quote:
JIM WATERS: Will Pension Funding Engulf Entire Budget?
Spoiler:
KENTUCKY (1/18/18) – Your humble correspondent warned for years the day would come when public-pension funding crowded out government services Kentuckians on both sides of the political aisle care about.

I’ve also warned repeatedly that dumping more money into the systems without stopping the bleeding will create additional pressures on an already-strained budget while failing to fix our pension woes.

Despite fervently hoping such prophecies were wrong, they now find fulfillment in Gov. Matt Bevin’s proposed two-year budget.

Bevin recommends cutting 70 programs, including health services providing screenings for various cancers, which especially benefit low-income, disabled and poor Kentuckians, while at the same time dumping more than $3 billion into the deepening public-pension hole and nearly 15 percent of the commonwealth’s entire General Fund budget.

Even after more than $2 billion was included in the 2016 budget – including an additional $1.2 billion for the Teachers’ Retirement System – the pension plans’ funding levels have continued declining.

That’s because you can’t keep digging the hole and simultaneously expect to move closer to climbing out of it.

Many states face similar pension pressures, yet none have made significant progress by spending, taxing or borrowing their way out of holes, most of which aren’t nearly as deep as Kentucky’s.

The governor deserves credit for taking a stand in his speech against borrowing our way out, making it clear such an alternative is off the table. Doing so, he rightly states, would be like a family using the Mastercard to make payments on an American Express balance.

However, instead of going ahead and doing what that same family would if it wants to climb out of its financial hole – reducing spending - he proposes increasing it for public-retirement plans at the expense of just about everything else.

“Never once in the history of Kentucky has the (actuarially required contribution) been fully funded for all our pension systems – not one time, which is why we now find ourselves in the situation where they are all so severely underfunded,” Bevin said, sounding like many of his predecessors who found it easier to blame pension problems on funding deficiencies rather than on offering benefits at unaffordable and unsustainable levels.

“This year they will be funded in their entirety,” he boasted.

As if I should stand up and clap vigorously like I did when the governor announced something must be done about school systems’ central-office administrators making six-figure salaries while demonstrating little positive impact on student achievement in the classroom.

Bevin’s boast isn’t really that helpful, considering the ARC isn’t “fully funded” because it’s been arbitrarily decided rather than actuarially established.

The ARC is simply the cost of current benefits plus debt payments from the past.

Instead of awarding only benefits that were properly prefunded – as defined-benefit systems are supposed to do – Kentucky’s retirement plans have colluded with the politicians for years to increase benefits retroactively, thus disrupting the funding levels.

Of course, these unfunded benefit enhancements created a bigger “ARC.”

However, to blame Kentucky’s pension woes on inadequate funding by the legislature is like a couple with a $45,000 income getting evicted after purchasing a $1 million home and being unable to make the payments, then blaming their eviction on the fact they couldn’t make the payments rather than on the reality they purchased a home they couldn’t afford.

It’s unfair for politicians and these systems’ administrators to make promises to beneficiaries they can’t afford to keep.

It’s also patently unfair to leave taxpayers working in the private sector to support their families – who often don’t enjoy nearly the same level of retirement benefits – holding the ARC bag into which they must dump their hard-earned dollars to pay the principal and interest on those promises.

Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Read previous columns at www.bipps.org. He can be reached at jwaters@freedomkentucky.com and @bipps on Twitter.
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Old 01-19-2018, 05:32 PM
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Mary Pat Campbell
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ASSET MANAGEMENT

https://www.economist.com/news/finan...set-their-high

Quote:
The hedge-fund delusion that grips pension-fund managers
Most hedge-fund managers are not good enough, on average, to offset their high fees
Spoiler:
HEDGE-FUND managers may be feeling quietly smug about their performance in 2017. They returned 6.5% on average, according to Hedge Fund Research, a data provider, their best year since 2013.

But those returns do not really suggest that they are masters of the investing universe. The S&P 500 index, America’s main equity benchmark, returned 21.8%, including dividends, last year. More tellingly, a portfolio split 60-40 between the S&P 500 and a mixture of government and corporate bonds (an oft-used benchmark for institutional portfolios) would have returned 14.8%. Last year was the fifth in a row when hedge funds underperformed the 60/40 split (see chart).

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That ought to be a salutary lesson for those institutions who think that backing hedge funds is the answer to their prayers. Despite the highs recorded by stockmarkets, many employers are struggling to fund their final-salary pension promises. In 2016 the average American public-sector plan was just 68%-funded, according to the Centre for Retirement Research at Boston College. In the private sector, multi-employer pension plans, covering workers in industries like mining and transport, have liabilities of $67.3bn and assets of just $2.2bn. Worse still, the insurance scheme established to back those schemes is on course to run out of money by 2025, according to the Pension Benefit Guaranty Corporation.

It is hard to cut workers’ benefits and painful to increase contributions. Schemes hope to square the circle by earning a high return from their assets; 7.5% is a common target. But bond yields are very low and equities are trading at very high valuations by historical standards. The temptation is to turn to “alternative assets”—a category that includes property, private equity and hedge funds.

The first two offer a genuine alternative. Property generates a stream of rental income and the hope that capital values will keep pace with inflation. Private equity is, in part, a bet that unquoted firms can generate higher returns than listed ones because they have more freedom to invest for the long term.

But what about hedge funds? A lot of funds specialise in equities or corporate bonds—the same assets that institutions own already. In some other categories, such as macro funds or merger arbitrage, returns are entirely dependent on the manager’s skill. Recent years do not suggest that hedge-fund managers display enough skill, on average, to offset their high fees.

Clients may think they will be able to pick the best hedge-fund managers, not the average ones. But one group of professionals—fund-of-fund managers—tries to do just that. They did manage to pip the average asset-weighted return of hedge funds in 2017, but failed to do so in any of the previous four years. If the experts cannot manage to pick the winners, why should a pension fund or endowment be able to manage the feat?

Another justification for placing money with hedge funds is that they are less likely to lose lots of money in a downturn. That argument was somewhat dented in 2008, when the average hedge fund lost 19%. In any case, pension funds and endowments are investing for the long term; they ought not to be that bothered by short-term volatility.

The Centre for Retirement Research conducted a study* of the effect of investing in alternative-asset categories on state and local-government pension-plan returns in the 2005-15 period. It found that schemes that placed an extra 10% of their portfolio in private equity and property had marginally increased the return on their portfolios (by around a sixth of a percentage point). But investing in commodities or hedge funds had reduced returns, with the latter knocking half a percentage point off the total.

Some investors have seen the light. CalPERS, a public-pension fund in California, announced that it was pulling out of hedge funds in 2014. But Preqin, an information provider, estimated last year that pension funds accounted for 42% of all money flowing into the global hedge-fund industry. North America provided the bulk of the money, with 776 pension schemes investing from that region alone.

Who knows what those schemes are trying to achieve? A few of them may be lucky enough to pick the best performers in the industry. But if they think, in aggregate, that their strategy will reduce their funding deficits, then they are suffering from a delusion.



* “A First Look at Alternative Investments and Public Pensions” by Jean-Pierre Aubry, Anqi Chen and Alicia Munnell, July 2017
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Old 01-19-2018, 05:33 PM
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DETROIT, MICHIGAN

https://www.wxyz.com/news/local-news...avoids-charges

Quote:
Accused of pocketing Detroit pension dollars, connected developer avoids charges
Spoiler:
DETROIT (WXYZ) - A politically-connected Detroit businessman accused of pocketing a small fortune belonging to one of the city’s pension systems avoided criminal charges--after quietly paying the pension system nearly $700,000 in October.

For just over 30 months, Douglass Diggs was a court-appointed receiver for the Detroit Police and Fire Pension System. He was brought in after the pension board gave a $10 million loan to an investor that promised to buy distressed properties throughout the city that he would then resell.


But the deal turned out to be a scam. The pension board lost millions and was left holding on to thousands of homes, many of them in poor condition. To help pick up the pieces, a judge turned to Diggs to serve as the pension system’s court-appointed receiver.

As a well-known and politically-connected developer inside the city, Diggs comes from something of Detroit political royalty. His father was a Congressman; his mother, Detroit’s first black female federal judge.

But instead of cleaning up the mess, the pension board said he created a whole new one.

Other people's money

When Diggs sold off homes, he was supposed to deposit the proceeds into a special fund set up for the pension system. But he didn’t always do that.

In fact, when Diggs sold one bunch of properties for $144,000, he deposited the money in his own company’s bank account. A few days later, according to bank records, he wrote a check for $115,000 from that account to himself.

“Of course it’s concerning,” said John Serda, Chairman of the police and fire pension board. “That’s why we looked into it, that’s why we had our attorneys look into it.”
Diggs was ultimately removed as receiver and the pension board dug into just how he handled its money. In June of 2016, Diggs was deposed and when a lawyer asked him why he put the pension system's money in his company’s account, Diggs replied: “I don’t know.”

“It is a little bit incredible to say, ‘I have no idea how that check got in to my bank account,’ said Peter Henning, a former federal prosecutor and a law professor at Wayne State University.


“We’re not talking about a $20 refund check. We’re talking about over $100,000.”

Prosecutors contacted

The pension board believed a crime had been committed and fired off letters to Wayne County Prosecutor Kym Worthy, Attorney General Bill Schuette and then-U.S. Attorney Barb McQuade asking if they’d bring charges.

Letter to McQuade by WXYZ-TV Channel 7 Detroit on Scribd



They never did. In fact, according to pension board officials, neither Worthy, Schuette nor McQuade’s office said they’d even investigate.

“I don’t understand why there isn’t anyone looking into it,” said Reginald Crawford, a retired Detroit Police officer who relies on his pension.

The offices of the U.S. Attorney and Attorney General declined to comment on this case.

The Wayne County Prosecutor’s office said they only respond to referrals from other law enforcement agencies, and not to requests like what they received from pension board.

Even still, they say they couldn’t have pursued the case if they wanted to because of a conflict of interest. According to a spokesperson, Prosecutor Kym Worthy would have to pass on any case involving Douglass Diggs, because she is friends with his wife.

Funds returned, and then some

Diggs may not have been charged, say legal experts, because he agreed to pay back funds after the pension board confronted him.

The board never could come to a final tally of how much money was missing, but Diggs agreed to pay a total of $683,000, a figure that included his fees.

7 Action News has also uncovered a settlement agreement Diggs signed in October, saying just because he gave the money back didn’t mean he was guilty of anything.

“If someone had come up to Mr. Diggs and taken $180,000 from him, that would be prosecuted to the fullest extent of the law,” Henning said.

“That he put it in his pocket but then returned it makes it at least questionable enough that I could see a prosecutor saying, ‘Let’s not take this any further.’”

Diggs refused repeated requests for an interview and when 7 Action News tried to talk him about outside of his home, he wouldn’t talk to us then either.

"I'm on my way to a meeting," Diggs said before stepping into a vehicle.

“If it was criminal, then there should be criminal prosecution,” said Crawford. “Mr. Diggs is no better than anyone else. There shouldn’t be a different standard here”

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Old 01-19-2018, 05:34 PM
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BALTIMORE, MARYLAND

https://www.ai-cio.com/news/judge-ru...sion-contract/

Quote:
Judge Rules Baltimore Violated Pension Contract
Court says 2010 pension overhaul ‘breached its contract’ with city police and firefighters.
Spoiler:
A circuit judge has ruled that former Baltimore mayor Stephanie Rawlings-Blake, and the Baltimore city council, unlawfully broke their contract with police officers, firefighters and retirees with the passage of a 2010 pension overhaul plan that reduced retirees’ pension benefits.

“The court finds that, by enacting ordinance 10-306, the city retrospectively, and therefore unlawfully, withdrew from plaintiffs Houser, Williams and Sledgeski their rights to the variable benefit feature of the plan as it stood prior to the ordinance,” wrote

Judge Julie Rubin in her judgment. “By enacting ordinance 10-306, the City breached its contract.”

The pension overhaul in 2010 was introduced by Rawlings-Blake, who said the plan would reduce the city’s costs by a minimum of $64 million annually, and prevent an impending fiscal crisis. However, the police and fire fighter unions balked at the proposal.

Under the overhaul plan, firefighters and police have had to increase their contributions to the pension fund, which is now 10% of their salaries. Many officers were informed that they would have to stay on the job for 25 years to receive their pensions, instead of 20 years. Retirees also lost a so-called “variable benefit,” which was an annual increase tied to the stock market. Under the mayor’s plan, the youngest retirees received no annual increase through the variable benefit, and older retirees earned only a 1% or 2% annual increase.

In June of 2010, Baltimore was sued in the US District Court for the District of Maryland, Northern Division, with the plaintiffs challenging the federal constitutionality of ordinance 10-306, which amended the codification of the Fire and Police Employees’ Retirement System of the City of Baltimore.

Judge Rubin did not specify any damages the city would have to pay, but city council members reportedly said the city could be forced to pay out tens of millions of dollars in pension benefits dating back to 2010. According to a report from the Baltimore Sun, an actuary has estimated the city could be held accountable for as much as $57 million in payments if the city ends up losing the case.

According to the Sun, City Councilman Eric Costello, who chairs the budget committee, said $24.3 million has been set aside to pay out in case they lose the lawsuit.

“This has been ongoing for seven years,” Costello told the Sun. “I’d like to see it resolved as quickly as a humanly possible.”

The next court date in the ongoing litigation has not yet been announced.
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