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  #31  
Old 01-15-2020, 11:36 AM
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CONNECTICUT

https://www.ctnewsjunkie.com/archive...XQRs54.twitter

Quote:
UConn Generates $5.3B In Economic Activity, But Worries About Legacy Pension Costs

Spoiler:
A report released Tuesday at the UConn Graduate Business School in downtown Hartford says the university employs nearly 26,000 residents who pay about $277.5 million in state and local tax revenue.

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The report also found that UConn’s research supports about 1,394 jobs and the total economic impact of its $265 million in research spending is about $485 million.

Research and development is an area UConn President Thomas Katsouleas wants to double over the next 10 years.

But that’s not an easy task given the school’s multibillion-dollar unfunded pension liability.

The unfunded pension liability adds to the “fringe” rate for any employee hired on a research grant. Fringe costs for university employees include paid time off, health insurance, and any other benefits aside from their salary.

“We took it upon ourselves to reduce those [fringe] rates,” Katsouleas said. “That will be a $6 million hit to our budget.”

But it’s not a long-term solution, and Katsouleas said he wants to partner with the state to find one.

The cost of the unfunded pension liability for UConn and its Health Center in Farmington is $80 million a year, Katsouleas said. Last year, lawmakers found an additional $32 million to help UConn Health subsidize the unfunded accrued liability fringe benefit costs for some of its employees.

“We’re looking for creative ways to shift that burden to a different place,” Katsouleas said. “Because right now it disproportionately falls on things like faculty competing for federal funds, and it’s just not working well for the state.”

He said he won’t be able to spend hundreds of millions of dollars on research if the faculty aren’t on a level playing field to compete.

And if the state doesn’t help the university pay for these costs, Katsouleas said that it then it may be shifted to parents and students through their tuition. He said $700 of every student’s tuition already is used to cover the unfunded pension liability.

But Katsouleas added that shifting the burden on a spreadsheet “doesn’t make new revenue appear.”

The report, which was given Tuesday to lawmakers who are contending with a $28-million budget deficit, will be used as part of UConn’s plea to maintain their state funding.

christine stuart / ctnewsjunkieThe General Assembly will convene on Feb. 5 to adjust the two-year budget they approved last June.

Under that budget, the University of Connecticut and UConn Health Center are expected to get an allotment of $328.6 million this year.

Katsouleas said they are hoping the state holds them harmless and doesn’t cut that expected funding.

Gov. Ned Lamont said he’s going to try and “hold them steady,” and make sure they can complete the capital projects they’ve already started.

Lamont said people have to understand that the fringe benefit rates are related to “legacy costs,” and it doesn’t mean they are paying professors too much money.

“We’re not winning grants if we have to put all those legacy costs into that,” Lamont said.

But Lamont said he didn’t have an immediate answer for how to resolve the issue.


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Old 01-15-2020, 01:44 PM
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ILLINOIS

https://www.forbes.com/sites/ebauer/.../#3d36556f659d

Quote:
Was The Illinois Constitution’s Pensions Clause Meant To Be A Suicide Pact? Three Important Pieces Of Historical Context

Spoiler:
On twitter, I joked that I was drafting an article I was tempted to call, “Beating a Dead Horse Into The Ground: More Historical Context On Pensions Than Any Reader Is Remotely Likely To be Interested In.” But — I’m sorry to disappoint you — I suspect this will not be the last time I address the context of the pension clause, especially as it drives my conviction that it is indeed necessary to amend the Illinois constitution before pensions can be reformed, but that, no differently than the flat-tax-only provision of the Illinois constitution, the path is cleared for legislation if that happens.

So here are three key pieces of historical context to keep in mind with respect to this clause in the Illinois constitution which forbids any action which would “diminish or impair” pensions. (See “What The Illinois Supreme Court Said About Pensions - And Why It Matters” for a catch-up on the topic.)

First, the pensions clause was bipartisan. It’s easy to think of Illinois as a “blue state” in which the Democratic party has a lock on governance, but that clause, debated on over only the course of a single day, was principally sponsored by four Republicans — two judges, a lawyer, and a land developer — with 15 co-sponsors (yes, including Chicago Mayor Richard M. Daley) from both parties. Some sponsors believed, however mistakenly, that the clause would be the impetus for moving pensions towards full funding — that is, believing that, if legislators knew that future generations couldn’t escape pension funding by reneging on promises, they’d be more responsible about funding (I know, you can resume reading after you’re done laughing and I apologize if you’ve gotten coffee on your keyboard); others had no such illusions.

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(For more historical context, an undated page at the Illinois Senate Democrats’ website provides links to multiple sources of further information, including a 2013 Chicago Tribune article, and a 2014 report which provides background on the 1970 clause and funding history since then.)

Second, although the five state systems had more or less the same funded status then as now (41.8% in 1969, according to that 2014 report, and 40% in 2019), the magnitude of the unfunded liability, the debt accrued as a result of promising benefits without funding them, has grown at an incredible rate in the past 50 years.

That same 2014 report cites an unfunded debt of $1.46 billion.

In 2019, the debt stands at $137 billion.

That’s an increase of 9,078%.

Is that perhaps a bit of an unfair comparison, because of inflation?

If we take into account inflation, that’s an increase of 1,354%.

Even if we take into account the increase in GDP in Illinois in this period, that’s an increase of 578%. Or if we look at increases in total personal income in Illinois, it’s an increase of 553%.

In other words, even in the most charitable way of massaging the numbers, the degree of unfunding is far, far higher than it was in 1970.

What’s more, this is not merely due to failures to fund, or to demographic changes. Plan benefits were regularly increased, over and over again, until the legislature finally realized that fixes were necessary in 2011.

Consider the Teachers’ Retirement System. In 1971, the basic benefit formula was increased, the maximum benefit was increased from a range of 60 - 70% by age, to 75%, and early retirement reductions were eliminated for retirees with 35 years of service. In 1972, the cola was increased to 2% and in 1978, it was increased to 3%. In 1979, an early retirement program was established, the provisions of which changed and were renewed periodically in the coming years. In 1984, credit for up to one year’s accrual via sick leave was implemented and in 1988, employees could use sick leave credit from former employers. In 1991 and 1993 early retirement incentives were implemented. In 1998, the basic benefit formula was increased again. In 2003, teachers were permitted to use two years of sick leave to count towards pension accruals. In other words, the pension benefits being guaranteed in 1970 were considerably less than now.

And, third, legislators utterly lacked an understanding that pension liability is a real form of debt. In this, they weren’t alone. The landmark law requiring funding for private sector plans, ERISA, was passed in 1974. It took until 1985 for the FASB to issue regulations governing accounting for private sector pensions, in the form of FAS 87 and FAS 88.

As the 2014 report I cited earlier describes, for many years following the 1970 constitution, Illinois’ funding policy, if you can call it that, was to fund the benefits being paid out in any given year, a dreadful pyramid-scheme that only works if you’re indifferent to the consequences for future generations, or believe that economic and population growth mean that those future generations can easily manage the bills that will come due. Turns out, if those delegates and politicians in 1970 had believed that future population growth meant that there was no need to worry, that was about the last point in time in which they could reasonably believe this, as the decade from 1960 to 1970 was the last decade of meaningful population growth.

So, no, the Illinois pensions clause wasn't meant to be a suicide pact. But it will turn out to be if we don't change it.


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Old 01-15-2020, 03:21 PM
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PENSION OBLIGATION BONDS
CALIFORNIA

https://www.bondbuyer.com/news/hunti...-bond-in-years
Quote:
Largest deal yet brewing for California’s new pension bond boom

Spoiler:
Add Huntington Beach to the list of California cities contemplating pension obligation bonds to alleviate pressure from unfunded pension liabilities.

The City Council in November approved a resolution to issue the pension bonds to refinance $436 million in public employee pension debt and is undergoing a 90-day court validation process. If the court validates the debt, the matter would return to the council in March for final approval.

Signage stands outside the offices of the California Public Employees' Retirement System (CalPERS) in Sacramento on Sept. 13, 2010
Huntington Beach, California, may turn to the bond market to fund payments to the California Public Employees' Retirement System.
Bloomberg News

A POB deal for the full amount would be by far the largest issuance of POBs the state has seen in the past five years.

“We have evaluated the risks and benefits associated with pension obligation bonds and the data clearly demonstrates the need to move forward on this opportunity,” said Councilwoman Kim Carr, a Democrat, in an emailed response.

The council for the Orange County city of 200,000 sees issuing the bonds as a way to swap the 7% interest rate the city pays the California Public Employees’ Retirement System with a bond interest rate as low as 3%, Carr said.

A presentation by City Manager Oliver Chi estimated the city could save $8.5 million a year.

“This debt is not going away and we need to be proactive and find ways to reduce our payments. The POB is a creative and smart solution to our current financial situation,” Carr said.

Chi told the City Council it could issue POBs, raise taxes or make steep budget cuts. The annual cost to the city budget from the unfunded liability has risen from $4.58 million in fiscal year 2009 to $24.93 million in 2019. The city’s analysis projects it will double to $46.02 million in 2031.

To cover the increase, the city would need another $21.09 million a year by 2031.

Approved by a 6-1 vote, Huntington Beach’s measure allows staff to proceed with the steps necessary to issue bonds.

The vote included approving Orrick Herrington and Sutcliffe LLP to handle the judicial validation proceedings and as bond and disclosure counsel, KNN Public Finance as municipal advisor and US Bank as trustee. An underwriter wasn’t named.

The city’s finance team filed the paperwork necessary to start the 90-day process of seeking a court validation to issue the bonds the week after the council vote.

The resolution allows for the sale of several bond issues.

Mayor Lyn Semeta supported the move with the caveat that the city could pull out of the process if the market has changed by the time the 90-day court validation process is completed, according to the council’s meeting minutes.

Carmen Vargas, Ramirez & Co. managing director, gave a presentation at The Bond Buyer’s California Public Finance conference in September showing that there was a surge in POB issuance by California cities in 2018.

California cities have issued $2.2 billion in POBs since 2015, according to data from the California Debt and Investment Advisory Commission. There was a surge in issuance in 2018 approaching $700 million, according to data CDIAC provided to The Bond Buyer.

CDIAC has taken the position that issuers should proceed with caution, because POBs are an arbitrage play relative to growth in the pension fund itself, said Robert Berry, CDIAC’s executive director.

“POBs offer issuers an actuarial arbitrage opportunity, which, in theory, can reduce the cost of pension obligation through investment of the bond proceeds in higher risk/higher return assets,” according to a report published in 2014 by the Center for State & Local Government Excellence looking at how POBs fared after the financial crisis. “By commingling POB proceeds with pension assets, the assumption is that bond proceeds will return whatever the pension returns.”

CalPERS' 7% discount rate is down from 8.25% after several rounds of reductions. That means higher contributions are required from its member governments.

Low interest rates and the push to reduce pension liabilities have driven an increased interest from California cities in issuing POBs.

“They are taxable issues, so just the compression in the taxable market might be causing people to look at it again,” Berry said.

Huntington Beach Pier, California, at sunset
Huntington Beach may issue up to $436 million of pension obligation bonds.
Adobe Stock

The POB financing vehicle had fallen out of favor after a series of municipal bankruptcies gave poor treatment to holders of pension obligation bonds. In Detroit and in Stockton and San Bernardino, California, in particular, pension obligation bondholders or their insurers suffered significant losses.

The most recent strain of POBs includes shorter maturities in the 15-year to 20-year range, 10-year calls and elimination of the make-whole provisions more common with taxables, according to Vargas’ September presentation.

POBs traditionally have been a solution for cities that tend to be the most vulnerable with little control over timing of the bond sale, Alicia Munnell, director of the Center for Retirement Research at Boston College, and Jean-Pierre Aubry, the center's Associate Director of State and Local Research, said in a joint interview.

They co-authored the Center for State & Local Government Excellence 2014 report on POBs along with researcher Mark Cafarelli. That report found that POBs on average had produced a real internal rate of return of 1.5% in 2014 after five years of recovery. But if assessed in the middle of 2009, right after the market crash, most POBs appeared to be a net drain on government revenues, according to the report.

If POBs were such a great idea then more cities that are not in financial distress would be issuing them, Munnell said.

“The debt is still there whether you issue a bond to pay it off or pay it off directly,” Munnell said.

If you set the arbitrage aside, the only advantage of a POB is being able to choose the timing on paying back the bond payments, as opposed to having CalPERS set the schedule, she said.

“One of our concerns is that cities often set up bond payments for the first five years as interest only — and they are just kicking the can down the road, rather than amortizing the cost in the pension fund,” Aubry said.

The pair were unimpressed by the shorter maturities and call options in the newer POBs.

“They are going after arbitrage,” Aubry said. “If doesn’t work out, they still have to pay CalPERS more money. I think it’s the same old story. The debt is going to need to be paid somehow.”

State Sen. John Moorlach, R-Costa Mesa, whose district includes Huntington Beach, was alarmed enough to both co-write a newspaper op-ed and send a letter to the City Council discouraging them from issuing the bonds.

The only council member to respond was Mike Posey, the lone council member to vote against the resolution, who called to say he agreed with the senator.

Moorlach understands the appeal when someone walks in the door and says they can help save a city money.

“Cities in California are struggling,” Moorlach said. "Cities up and down the state have reduced police and fire by 20% to make pension payments. Huntington Beach has reduced staffing by 18%, but its pension contribution has gone up by 80%.”

He also says trying to time the market can make you either a hero or a goat.

Inserting a large amount of cash into a pension plan at the wrong time would be very expensive, Moorlach said. Inserting a large amount of cash into a pension plan when the Dow Jones Industrial Average is approaching 29,000 is a signal that it's the wrong time, he said.

The drive by CalPERS to meet even the lower 7% assumed annual return, with current low inflation and low fixed income yields, means the pension fund is motivated to invest in riskier securities to offset those lower returns in its overall diversified portfolio, Moorlach wrote in editorial, co-authored with Shari Freidenrich, the Orange County treasurer and tax collector. "With this exposure, if the CalPERS fund were to take a significant market loss, the HB proceeds in the portfolio would suffer the same loss."

Interest payments on the POB debt will not be reduced even if the bond proceeds paid to CalPERS lose value, Moorlach said.

“Trying to assume, the yield curve and equity markets will cooperate is not something I think is advisable,” he said. “You don’t control either of them and that is what Orange County learned 20 years ago” when it landed in bankruptcy court.


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  #34  
Old 01-15-2020, 03:25 PM
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NEW YORK
ESG

https://www.nydailynews.com/news/pol...dyy-story.html

Quote:
NY Comptroller appoints director to oversee green investments for state pension fund amid calls for divestment from fossil fuels

Spoiler:
ALBANY — Comptroller Tom DiNapoli is going green.

Facing renewed pressure from environmental advocates and lawmakers looking to divest the state’s pension fund from from fossil fuels, DiNapoli on Thursday appointed a point person to oversee the eco-friendly investments.

DiNapoli named Andrew Siwo, a Wall Street veteran who most recently worked “mission-related investing” for Colonial Consulting, as the director of Sustainable Investments and Climate Solutions.

“Climate change is an increasingly urgent risk facing all investors, and I am determined to protect New York State’s pension fund by keeping it at the forefront of those addressing it," DiNapoli said.

The comptroller is the sole trustee of the $210 billion state Common Retirement Fund, the largest pension fund of its kind in the nation. Siwo will oversee about $12 billion of green investments.

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“Comptroller DiNapoli’s innovative Climate Action Plan puts New York’s pension fund at the forefront of the low carbon economy,” Siwo said. “I have spent much of my career sourcing, assessing, and managing sustainable investments and am looking forward to growing the Fund’s sustainable investments portfolio.”

State lawmakers will weigh a bill later this year that could force the comptroller to pull pension funds from pollution-spewing oil and gas giants.

The environmentally-friendly legislation replaces a measure introduced last year after changes were made to reduce financial risks and to ensure the measure is constitutional.


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Old 01-15-2020, 05:34 PM
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ILLINOIS

https://www.chicagotribune.com/subur...hie-story.html
Quote:
Western suburbs taking ‘wait-and-see’ approach toward benefits of new pension consolidation plan backed by Gov. J.B. Pritzker

Spoiler:
Officials in many western suburbs are taking a “wait-and-see” attitude toward a new law that consolidates hundreds of suburban and downstate police and fire pension funds.

The plan, which Gov. J.B. Pritzker signed in December, pools hundreds of funds into two statewide funds — one for police and one for firefighters — in an effort to increase returns through access to a broader range of investment opportunities and alleviate the property tax burden on homeowners.

The existing police and fire pension funds now collectively have $11.5 billion in unfunded liabilities. The funds’ assets cover only 55% of liabilities, which is far short of the state-mandated target of 90% funding by 2040. That has dropped from nearly 63% before the Great Recession, according to a report earlier this year from the legislature’s bipartisan Commission on Government Forecasting and Accountability.

Maureen Potempa, finance director for Clarendon Hills, said village officials support the consolidation efforts, but they also believe many unknowns remain regarding how the new law will be implemented and its full effect on the village.

“It is our hope to see greater investment returns with the pooled funds,” she said.

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Potempa said that by consolidating all investing, auditing and actuarial services, administrative costs may be reduced.

“And most importantly, we hope to see future (property) tax levy requests reduced for the police and fire pension funds,” she said.

Hinsdale Village Manager Kathleen Gargano said the new law provides for a three-year transition for implementing the reforms.

“The village expects to receive some pension relief as a result of the legislation, but to what degree the village will benefit will be determined over the next few years,” Gargano said.

Western Springs Finance Director Grace Turi said village officials also are in "a wait-and-see mode” until the full transition happens. But officials are hopeful the consolidation will benefit Western Springs, despite the uncertainties, Turi said.

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Western Springs contributed about $1.3 million to its police pension fund in 2019, and officials are budgeting $1.45 million for police pensions in 2020, Turi said. The village contributed about $10,000 to its firefighters’ pension fund last year — about the same amount that’s been budgeted for 2020.

Firefighter pension contributions are low because the majority of firefighters in the Western Springs Fire and Emergency Medical Services Department are paid on-call and do not receive a firefighter pension through the village, Turi said.

Oak Brook Finance Director Jason Paprocki said the village’s actuary put together some projections regarding pension plan changes for police officers and firefighters hired after Jan. 1, 2011.

The final average salary of police officers and firefighters hired after that date serves as the basis for calculating monthly and annual pension payments at the end of a career. A calculation in the new law now will be based on the highest four out of the last five years rather than the highest eight of the last 10.

The new law also reinstates surviving spouse benefits for those tier of police officers and firefighters.

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“For Oak Brook, these changes add a projected $8.2 million to pension costs over the next 30 years,” Paprocki said. “The major piece we don’t know, yet, is if the investment consolidation will result in greater investment returns that will exceed this added cost.”

In Burr Ridge, staff members have done an assessment on the effect of pension consolidation effort, but they don’t expect any benefit in the near future, said Village Administrator Douglas Pollock.

“We anticipate the impact . . . will likely be from long-term improvement on the return on investment,” Pollock said.

Officials in La Grange did not return requests for comment.

In 2019, a state task force concluded in a report that each day the pension funds remain separate, they collectively forfeit $1 million in potential investment returns. Citing an analysis from the Illinois Department of Insurance, the task force estimated that if the consolidated funds were to perform similarly to other larger Illinois pension funds, it would mean additional investment returns of $820 million to $2.5 billion over the next five years.

The task force’s report was sparse on specifics regarding upfront and transition costs related to consolidation, acknowledging only that there could be “initial costs for transitioning assets into the consolidated pool,” but those costs would be “substantially less than the upside from stronger investment returns over a matter of a few years.”

Pension fund consolidation has been discussed for decades in Illinois, but failed to gain traction in the General Assembly, as police and fire unions and other interests have fought to retain local control.

But the state’s largest firefighters union backed the consolidation plan Pritzker rolled out this past October. It also gained support from police unions.


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Old 01-15-2020, 05:35 PM
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HAMDEN, CONNECTICUT

https://www.newhavenindependent.org/...ses_and_gains/
Quote:
Hamden Pension Avoids Losses … And Gains

Spoiler:
Hamden paid more into pension fund in 2019 than ever before — and still ended up with an increased future burden.

On the other hand, the days when assets begin to climb and unfunded liabilities dwindle are now in sight, if all goes according to plan.

That’s the upshot of Hamden’s newly crafted audit, presented at the most recent meeting of the Hamden Employees Retirement Board..

Henry Nearing of Segal Consulting presented the findings of his 2019 actuarial valuation of the town’s pension to the board at the meeting last Wednesday.

His report shows that even though the town contributed $15.9 million to the fund in the last fiscal year, the town’s unfunded pension liability increased by about $6.5 million, in large part due to an underpayment by $6.7 million into the fund.

As of the 2018 valuation, Hamden had a total pension liability of $457.7 million. Of that, about $165 million was funded.

The new audit shows an increase in total liabilities to $464.4 million, of which still $165 million was funded as of July 1, 2019 (using the actuarial value of assets, not the market value). The pension’s funded ratio decreased from 36.03 percent to 35.55 percent. Though the unfunded liability increased, as it has done for the last few years, it did so by a slightly smaller margin than last year’s $6.9 million increase.

Segal uses an actuarial model to analyze Hamden’s pension, meaning it smooths out fund amounts based on an average of previous years’ returns on invested assets in order to keep abnormally good or bad investment years from skewing the long-term outlook of the fund. That means there is a market value of assets and an actuarial value of assets. The market value of assets is the amount the town currently has in the bank. The market value of the fund’s assets increased to $167 million, from $164.5 million in fiscal year 2018. Most analyses, however, are generated using the “actuarial value of assets,” which is an adjustment to the market value of assets to make sure that fluctuations in the market don’t skew the numbers that are used to generate future projections. The report shows that the actuarial value of Hamden’s $167 million of invested pension assets is $165 million.

In market-value terms, total income topped what the town paid out in benefits by $2.5 million, resulting in a corresponding increase in market value of assets. Income totaled $29.7 million: $15.9 million from the town’s contribution, $2 million from employee contributions, and $11.8 million from investment returns. The town paid out $27.2 million in benefits to pensioners.

Though the fund’s market value increased by $2.5 million, that increase was due in large part to a good investment year. While the market value of investment income totaled $11.8 million, the actuarial value of that income, generated using a smoothed-out rate of return based on previous years, totaled $9.5 million, partly explaining the difference between the market value of assets ($167 million) and the actuarial value of assets ($165 million). The actuarial value of investment return is generated using experience from the last five years, explained Nearing. Based on the previous five years, the “actual” rate of return on invested assets was 5.95 percent, while this year’s market-value rate of return was 7.41 percent. The investment returns of four and five years ago were very poor, while the last three years have been quite good, Nearing said. That means that next year, the actual rate of return will likely increase because it will no longer take into account the bad investment returns of five years ago.


Henry Nearing of Segal Consulting.

While the actuarial value of assets remained relatively stagnant from 2018 to 2019, the unfunded liability increased because total liability increased and town paid $6.7 million less than it was supposed to, which would have offset that liability increase. On a market-value basis, unfunded liability increased from $293.1 million to $297.3 million. On an actuarial basis, unfunded liability increased from $292.8 million to $299.3 million — $6.5 million.

“The major part of that increase is because the full ARC was not contributed,” said Nearing, referring to the actuarially required/recommended contribution (ARC). The ARC is the amount the town must pay into the pension each year in order to fully fund it by 2044. 2044 is 30 years after the town floated a $125 million pension obligation bond to inject cash into the pension to keep it from becoming insolvent. When the town floated the bond, it kicked into effect a state statute that requires town pension contributions to ramp up to ARC over the course of a few years.

In the 2019 fiscal year, the town’s ARC was $22.6 million, and the town budgeted that much in its 2018-2019 budget. State statute, however, only required that the town pay 70 percent of its ARC. After contributing that 70 percent — $15.9 million — the town stopped contributing in order to pay for overages in other parts of the budget. In the spring, the Legislative Council fought a number of late-night battles over whether to divert funds allocated for the pension to other expenses. In the end, the council ended up transferring about $2.4 million of pension-allocated funds to pay for overages in utility bills, police and fire overtime accounts, and the town’s Connecticut Municipal Employees Retirement System (CMERS) bill. (In 2007, the town switched all employees into CMERS, which is the state’s pension plan for municipal employees, and it now has annually increasing payments into that system). Read more about those transfers here and here.

The remaining $4.3 million covered various other accounts, according to Mayor Curt Leng and Interim Finance Director Myron Hul. Leng said that both revenues and expenses ended up coming in lower than projected in the 2019-fiscal-year budget, and that the $4.3 million originally budgeted for the pension helped the town end the fiscal year in the black with about a half-million-dollar surplus. He said the $4.3 million covered various expense overages and revenue shortfalls.

A Step Forward, And A Long Way To Go
Sam Gurwitt Photo
SAM GURWITT PHOTO

Mayor Curt Leng: Town is moving forward.

Since the injection of cash from the pension obligation bond in 2015, the actuarial value of assets has not changed — in fact, it has decreased slightly. In 2015, it was $167.6 million, which decreased steadily to $164.9 million in 2018. For the first time, this year reversed that trend, increasing the actuarial value of assets by a little under $200,000. From 2015 to 2019, market value of assets increased from $163.6 million to $167.1 million.

“I feel that stabilizing the fund is a very small step forward,” said Leng.

Assets have remained the same because town contributions have not been large enough to offset payouts. Every year, benefit payments will continue to increase as more people retire and existing benefit payments increase with inflation. Next year, Nearing projected payments to reach $29 million. They are projected to reach $40.5 million by 2034.

“We’re still in sort of a negative cash-flow position where there’s more benefits coming out of the plan than contributions coming in, but investment return is helping offset quite a bit of it,” Nearing told the board. He said he strongly recommends that the town start to pay its full ARC.

“Contributions below the actuarially recommended contribution, or ARC, may be the most significant risk that the Plan currently faces,” Nearing wrote in his report. Underfunding is the reason the town now faces $300 million in unfunded liabilities, he explained. For decades, the town underfunded the pension. In 2013, just before the injection of pension obligation bond-cash, the fund was 14 percent funded and creeping rapidly toward insolvency.

In the 2020 fiscal year, the report explains, the ARC is $23.2 million. The town must contribute either 85 percent of ARC or $3 million more than last year, whichever value is lower. 85 percent of ARC is $19.7 million, and $3 million more than last year is $18.9 million. The mayor budgeted $19.2 million for payment into the pension in 2020. That number is based on 85 percent of a previous, slightly lower projection of what the 2020 ARC would be. In 2021, the town must pay 100 percent of its ARC, which is now projected to be $23.6 million for the 2021 fiscal year.

Last spring, the pension was a contentious topic among council members. Former Majority Leader Cory O’Brien fought to prevent transfers from pension-allocated funds because he said that the town must start paying its full ARC in order to get its finances under control. He said he thinks it’s a good thing that Hamden will be forced to pay its full ARC next year.

“Doing better is not doing good enough,” he said. “It’s time that we actually start doing good enough to make a difference.”

Part of the rest of the increase in ARC over last year, Nearing’s report shows, is due to a 2 percent increase built into the model to account for revenue and budget growth. Most of the rest of the ARC increase is due to underfunding the pension in the 2019 fiscal year. If all goes as planned and the town pays its full ARC every year starting in 2021, ARC will gradually grow to $32.7 million by 2044, when the pension is supposed to reach full funding. After that, it is projected to drop to under $1 million, and will pay only for small administrative expenses.


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Old 01-15-2020, 10:15 PM
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OREGON

https://pamplinmedia.com/ttt/89-news...pension-system

Quote:
Good and bad news for Oregon's public pension system
Peter Wong Tuesday, January 14, 2020
Officials tell Washington County Public Affairs Forum that preliminary 2019 earnings will reduce projected unfunded liability, but contribution rates by member governments will still go up in the next two years. Lawmakers acted in 2019 to moderate the rate increases.
Spoiler:
Oregon's public pension system will continue to take a bigger chunk of payroll costs of state and local governments for the next couple of years.

But the director of the Public Employees Retirement System and the chief financial officer of the Hillsboro School District, Oregon's fourth largest by enrollment, say 2019 legislation and greater investment returns are likely to offer a little relief to the upward trend in the next two-year budget cycle.

Kevin Olineck of PERS, which is based in Tigard, and Michelle Morrison of Hillsboro schools spoke Monday, Jan. 13, at the Washington County Public Affairs Forum.

The Legislature sets benefit levels, the PERS board decides contributions by its 906 member agencies and the Oregon Investment Council and State Treasury manage the $80 billion PERS Fund, which covers a range of investments, including stocks and private equities. It's one of the nation's largest public pension plans.

Oregon PERS unfunded liability at the end of 2018 was estimated at $27 billion. That means the system is well short of the amount it needs to meet its pension obligations over the next 20 years.

But Olineck said that preliminary 2019 returns — estimated at 12.19% as of November — could reduce that projected liability by about $3 billion, according to PERS actuarial consultant Milliman. Including "side accounts," money set aside by governments to reduce their future pension liabilities, he said that total could drop to around $19 billion.

Returns in 2018 were a dismal .48%, and in 2017, 15.3%.

"We are trending in the right direction," Olineck said. "But every year, you have different rates of return and that affects your long-term funding."

He expects that the funded status of PERS will increase from 75% at the end of 2018 to about 80% at the end of 2019.

"When we look at pension-plan funding, we do not look at it on a quarterly or year-by-year basis," he said. "We look at it on the basis of a decade or generation — what is going to happen in the next 20 or 30 years. One thing I love to preach to everybody is patience, because you cannot change a huge public-sector pension plan on a dime."

The PERS board will receive a final 2019 valuation, which will shape the contribution rates for state and local governments in the next two years.

Rates still rising

Still, Olineck said, their total contributions are projected to increase from $4 billion in the current two-year budget cycle to $5.16 billion in 2021-23. Some of that increase is driven by pay increases for current employees and new hires.

According to preliminary rates for the 2021-23 budget cycle — the PERS board will set final rates in the fall — average contribution rates for member governments will rise from 25.23% to 28.39% of payroll costs. Actual rates for individual governments will hinge on their mix of pre- and post-August 2003 employees — the latter group has a less generous pension plan — and their number of police and firefighters, whose pensions are higher than general employees.

Legislation in 2019 extended the period for pension liabilities of workers covered by pre-2003 plans from 20 to 22 years. Olineck said the move will reduce contribution rates for member agencies by about half of what they could have been. But Oregon will still have an unfunded liability in 2037 of about $8 billion.

"It's like re-amortizing your home mortgage," he said. "You will pay over a longer period."

PMG PHOTO BY PETER WONG - Michelle Morrison, chief financial officer of the Hillsboro School District, speaks Monday, Jan. 13, at Washington County Public Affairs Forum
PMG PHOTO BY PETER WONG - Michelle Morrison, chief financial officer of the Hillsboro School District, speaks Monday, Jan. 13, at Washington County Public Affairs Forum

For the Hillsboro School District, Morrison said, every one-point increase in contribution rates means the district must pay $1 million more — the equivalent of eight teachers. From 2017-19 to the current cycle, she said, the increase of 5.2 points cost the district more than $10 million, money unavailable for other purposes.

She said overall payroll costs other than wages amount to about 30%. PERS contributions account for 10%, she said, and debt service on PERS bonds for future pension liability 5%. Much of the rest (11%) is insurance costs.

"PERS is a major consideration for us when it comes to budgeting, no matter what the funding source is," she said.

Although some member agencies still pay the 6% employee contribution as well as the 6% employer contribution into the public pension fund — a remnant from the late 1970s, when high inflation made it easier for governments to increase future benefits — Morrison said Hillsboro schools no longer do so.

Before she came to Hillsboro, Morrison worked in Yamhill-Carlton schools, which enroll about 1,000 students.

A big challenge

Oregon's pension payments to about 150,000 public retirees are based on contributions by the member agencies and earnings on the PERS Fund. Virtually all of those retirees (144,000) are entitled to higher benefits earned before systemwide changes took effect in August 2003.

"Those benefits are crystallized," Olineck said. "What that means is that you cannot take away those benefits. Some say if you change the benefits, you can fix the funding problem. But you would not."

The Oregon Supreme Court overturned some of the 2003 changes, and also a tighter cap on cost-of-living increases that lawmakers passed in 2013. The court held that changes cannot affect pension benefits already earned, but can apply to the future.

The 2019 Legislature enacted more changes, some of which face a legal challenge by public employee unions because it channels some money from the individual account program under the post-2003 plan into the current defined-benefit plan for retirees who are under the pre-2003 plan.

Most of Oregon's 200,000 current public employees were hired after August 2003 and are under a less generous pension plan. But Olineck said about 70,000 hired before then are still in the public workforce and entitled to higher benefits when they retire.

According to "PERS by the Numbers," a report that the agency updated last month, the average pension payment as of a year ago was $31,719. The median payment — half above and half below that figure — was $25,178.

Olineck was hired in mid-2018 to succeed Steve Rodeman, who retired. He was a vice president for nine years at British Columbia Public Employees Retirement System Pension Corp., and worked nine years at Alberta Pensions Services.

Olineck said half of public pension systems are in better shape than Oregon's — and half are worse.

He said he came to Oregon "because I was looking for a challenge. I do not have to say that I found it," as the audience laughed.


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Old 01-15-2020, 10:16 PM
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This is from 2018, but it's new to me...

[or I forgot about this]

https://media4.manhattan-institute.o.../R-DD-0918.pdf

Quote:
THE POLITICS OF PUBLIC
PENSION BOARDS

Executive Summary

Most public pension plans are in poor fiscal health. Funding ratios have deteriorated over the past two decades, as the plans accumulated $5.52 trillion in liabilities and set aside only $3.7 trillion in assets in 2015. Thanks to underfunded pensions, state and local governments have had to make greater and greater contributions to pay for their employees’ retirement benefits, at the expense of spending cuts to education, infrastructure, and other public services.

Among the sources of the underfunding malaise are the boards that oversee the pension funds. Boards make decisions about how funds are invested and determine the assumed rate of return on those investments. Unfortunately, the incentives of board members lead them away from protecting employees and taxpayers from major financial risks.

Political appointees to pension boards are responsive to constituencies—such as local industry or the governor’s budget—that steer them away from acting in the long-term interest of the pension fund’s fiscal integrity. But the representatives of public employees and their unions on these boards are also tempted to trade pension savings tomorrow for higher salaries today.

The incentive problem is inherent in the structure of public pension fund boards. The only lasting solution is to replace state-administered, defined benefit pensions with defined contribution pensions, which, by definition,
cannot be underfunded. In a defined contribution plan, employee contributions, combined with government employer contributions, would be managed by major money-management firms that are not exposed to political
interference.


Defined contribution plans do transfer risk to employees, though no more so than in the IRAs and 401(k)s that are common throughout the U.S. economy. Meanwhile, defined benefit plans also pose risks that are borne both
by employees and taxpayers, at the expense of other government programs and services.
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Old 01-16-2020, 12:37 PM
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ILLINOIS

https://www.forbes.com/sites/ebauer/.../#33c95cf37d93
Quote:
Is Gov. Pritzker Clueless Or Reckless On Pensions?

Spoiler:
Yesterday local PBS station WTTW posted an interview with Illinois Gov. JB Pritzker timed for the first anniversary of his inauguration, an interview with comments on pensions extensive enough to merit comments but brief enough to justify transcribing the interview in full, below. Remember, as context, that he had planned to defer the 90% pension funding target from the already-distant 2045 to an even further 2052, then backtracked in part after pressure from rating agencies, back in May of 2019.

Q. You did scrap plans, as part as this current budget, to defer pension payments. That was due to sort of an influx of tax money. Is that off the table for this next fiscal year?

A. Well, let me characterize it a little bit differently. Remember we put out a number of things that we think you need to do, ways, tools, that you can use in order to help us manage our pensions in the state. One of them is to make sure that we’re lowering the cost to taxpayers by buying people out of their pensions if they want to be.

Q. And selling the Thompson Center, that we’re in right now.

A. Which is asset transfers. Yes, that’s right, exactly you were listening. Thank you. And asset transfers is another piece of it.

Q. But what about this component?

A. This component was really, has to be done in conjunction with these other items, because the whole idea is we’re not, we’re trying very hard not to crowd out the important expenditures that need to be made. Public safety - our state police haven’t added any new state police. They were losing in fact police from retirement and not adding new ones for years, and in fact I think I had the first two state police academy cadet classes in many years, and we’ve got to increase public safety, we’ve to to make sure we’re providing funding for education, for many, many school districts that have been left behind, the EBF helps but you have to add dollars.

Today In: Money
Q. So that deferring the pension payment is still an option for this next year’s budget?

A. No, what I’m telling you is that in order for anybody to ever consider doing something like making sure, you know, that you’re evening out those payments, you’d have to do something more, like what I suggested, which is put more money into the pension system early, so that you can even out the payments going forward. That would be a critical thing for us to do and something that would happen if in fact we had a fairer tax system.

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So here are my takeaways:

First, Pritzker acknowledges that the state’s pension contributions crowd out spending on all manner of other items not just on his wishlist but widely acknowledged as deficient in Illinois. In fact, pension spending (including contributions to pension funds and repayment of pension obligation bonds) consumes 25.5% of all general revenues. It is, I suppose, a plus for Pritzker to acknowledge that.

But what’s his garbled solution?

It’s hard to make sense of.

He has said in the past that if the constitutional amendment enabling a graduated income tax passes in the fall, and he is able to implement a graduated income tax, some (modest) portion of those revenues will be dedicated to pensions. And, yes, he has talked about asset transfers plenty often in the past (though with no real movement on this — and the revenue from the sale of the Thompson Center was always promised to go into the general state coffers).

But what does he mean by “evening out” the contributions?

Currently, the plans reach their target of 90% funding in 2045 (side comment: the target really ought to be 100%), by means of, after the ramp is finally at an end, setting contributions as a level percent of pensionable pay. From 2022 to 2033, the state contribution as a percent of pensionable payroll is about 47%.; then it jumps to 50% of pay. That’s a rate of increase that’s slightly higher than inflation, but not as high as true payroll costs are projected to increase, because of the bit of Tier 2 pay caps (and, yes, the projections assume those stay in place).

Ralph Martire and the CTBA (Center for Tax and Budget Accountability) have proposed issuing a combination of pension obligation bonds and a reduced, 70% target (well below an appropriate funding level) in 2045, to achieve a reduced and flattened payment schedule. (Remember, anyone who promotes pension obligation bonds as a form of “refinancing” is not to be trusted.)

Is this what Pritzker means?

But what does he mean when he says, “This component [stretching out the funding date] was really, has to be done in conjunction with these other items”? It seems to me that he has in mind making a “down payment” on pensions in order to assuage rating agencies, and be able to, in the longer term, reduce the ongoing contributions without seeing a drop in the state’s credit rating.

This is not okay.

It was not right for our metaphorical fathers and grandfathers (not me - I grew up elsewhere) to have pushed off pension funding onto the next generation. It was not right for lawmakers to come up with a fix that will require a do-over by a future generation, with Tier 2 pensions. And it will be just as unjust to push off the problem for another day, to gain more money in the here-and-now for cops and education, leaving our children (if they stay in the state) to figure out how to pay the benefits that have come due.


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Old 01-17-2020, 05:49 AM
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OHIO
OPEBs

https://www.dispatch.com/news/202001...or-500000-plus
Quote:
OPERS board votes 9-2 to cut retirement health-care benefits for 500,000-plus

Spoiler:
Action comes on the heels of proposed COLA cuts.

Retired public employees will have to pay more for their health care starting in January 2022 following a 9-2 vote Wednesday by the Ohio Public Employees Retirement System board.

“The basic problem is we have no money to fund health care,” OPERS Executive Director Karen Carraher said.

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The health care trust fund, which is separate from the pension fund, will last 11 years with no additional funding. But OPERS’ analysts estimate it will be at least 15 years before the pension fund can resume setting aside money for the health fund.

“So, obviously, the math doesn’t work,” Carraher said.

Related content
Your OPERS benefit cuts questions answered
January 16, 2020
>> Your OPERS benefit cuts questions answered

The goal, she said, is to keep the health care trust fund solvent, and that means cutting health benefits for its 304,000 workers when they retire and 213,000 current retirees.

>> Related story: State pension system asks legislators to freeze cost-of-living raises for retirees

Listen to the latest Buckeye Forum politics podcast:


Here’s what that looks like:

The monthly allowance paid to retirees who are Medicare eligible will drop from between $225 and $405 per month to a range of $178 to $315 per month.

Some retirees will get bigger cuts than others, depending on how many years they worked and their age at retirement. People who worked fewer than 20 years (the current number required to retire with health benefits) will see their monthly payments decline by $108 on average.

Dental insurance and Medicare Part A payments will remain the same.

The other major change was to eliminate the health care plan for retirees who aren’t Medicare eligible. Instead of paying 51% to 90% of their premiums, OPERS plans to give these retirees money to go buy insurance on the individual market.

These hits will be bigger. “Low service employees” will lose $329 per month on average, and everyone on the plan could see higher deductibles. The market average is about $1,100 more than what OPERS’ offers now.

And this new system will be more complicated to navigate, OPERS officer Tonya Brown said. Federal subsidies will be a better choice for some folks, and retirees can’t take both.


“This is one of the more difficult votes,” said Steve Toth, one of the board representatives for retirees.

Toth voted for the changes, but Tim Steitz, his colleague who also represents retirees, voted no.

Steitz said he couldn’t support making these reductions in benefits when the board is also trying to persuade state lawmakers to freeze cost-of-living adjustments. Both changes would take effect in January 2022.

“Why don’t we look at every solution and not put this only on retirees’ backs?” Steitz said after the vote.

Steitz, vice chair Chris Mabe and board chair Ken Thomas all floated the idea of asking lawmakers to increase contributions for current employees and employers.

Thomas said it is his intention to “seek an increase” in the future, but he’s “not going to hang my hat on hope.”

It took nearly three years, Carraher said, to pass a 2012 pension bill, and it could take all of next year or longer to pass a law authorizing the COLA freeze that the board approved in September.


“Hoping that something happens is not an action that we can wait on,” Mabe said.


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