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Old 12-21-2017, 05:15 PM
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Mary Pat Campbell
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More Pension Math
The real reason CalPERS hasn’t recovered.
Many legislators don’t understand why massive gains in the stock market have barely improved the Funded Ratio of California’s principal pension fund, CalPERS. The answer is simple: massive growth in liabilities.

See for yourself. Below is a schedule of CalPERS’s Funding Progress. On June 30, 2009, when the Dow Jones Industrial Average was at 8440, CalPERS reported assets of $179 billion and liabilities of $294 billion, producing a Funded Ratio of 61%. Fast forward to June 30, 2016 by which time the DJIA had risen more than 100 percent to 17,456 and CalPERS’s assets had grown more than 66 percent to $298 billion. Yet the Funded Ratio had risen only 11 percent, to 68 percent.

CalPERS 2016–17 Comprehensive Annual Report, page 119
That’s because by 2016 liabilities had grown to $437 billion, nearly 50 percent more than 2009. Because liabilities in 2009 were already 64 percent larger than assets, there’s no way assets could catch up, even with a fast-rising stock market.

That growth in liabilities was not a surprise. It’s the consequence of CalPERS’s board choosing to suppress the initial reported size of liabilities at the cost of explosive liability growth down the road, as explained here. In other words, as Chicago Mayor Rahm Emanuel once pointed out, it’s the consequence of a lie.

Because of that lie, much worse is on the way, especially when the stock market takes a pause. The lie results in thefts from school, local and state budgets. Legislators will have their hands full addressing the consequences.

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Old 12-28-2017, 07:31 PM
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Iowa lawmakers grill IPERS officials about public pension funding

State lawmakers grilled officials representing Iowa's largest public employees' pension fund Monday, saying they are pleased with the retirement program's direction but concerned about long-term liabilities of nearly $7 billion.

The Iowa Legislature's Public Retirement Systems Committee adjourned without making recommendations for legislation during the upcoming 2018 session. But lawmakers signaled they will continue to closely scrutinize IPERS in the months ahead to protect the interests of taxpayers and the system's 355,000 members.

Sen. Charles Schneider, R-West Des Moines, the committee's vice chairman, told the Des Moines Register on Monday it's good that IPERS made changes in economic assumptions earlier this year that include lowering the pension fund's target for investment gains from 7.5 percent to 7 percent annually. Those changes have also revised assumptions for inflation, wage growth, payroll, and interest on contribution balances.

But while the adjustments are a better reflection of economic realities, Schneider said he and his fellow legislators still have questions and they want to gather more information.

“We can’t just bury our heads in the sand and pretend like we don’t have a $6.9 billion unfunded liability. I know that there is a plan to pay it off. But that plan is only as good as the assumptions on which it is based," Schneider said. "And if those assumptions aren’t realistic then we are going to have to go right back to the drawing board and create a new unfunded liability. ... I just want to make sure that we are truly providing retirement security for our hardworking public employees and that they know that they can rely on their retirement security."

Iowa legislators meet at the Iowa Capitol on Monday,Buy Photo
Iowa legislators meet at the Iowa Capitol on Monday, Dec. 18, 2017, to review the status of the state's public employees' pension funds. (Photo: William Petroski/The Register)

Both Schneider and Rep. Dawn Pettengill, R-Mount Auburn, who chairs the pension committee, said they do not anticipate the 2018 Legislature will attempt to pass legislation to implement 401(k)-style defined contribution plans for newly hired public employees. Such plans, which do not guarantee a monthly pension check, are less risky for government employers and are favored by conservative groups and taxpayers' organizations.

The committee devoted the day to hearing presentations from representatives of several public employees' retirement organizations while peppering them them with questions about actuarial reports and other details. This included IPERS' officials describing how they have a long-term plan to amortize the pension system's liabilities over the next 27 years. To accomplish this goal, IPERS needs to raise annual pension expenses by $42.4 million for state and local governments and by $28.4 million for public employees, starting July 1, 2018.

"It looks like we are in good shape — on an upward trajectory," Pettengill said. But she agreed with Schneider that the committee needs to continue to closely monitor Iowa's public pension plans.

IPERS' officials said the long-term unfunded liability resulted from over a decade of insufficient contributions, coupled with recessions in 2001 and 2009, changes in mortality tables, and unfunded benefit enhancements.

The Iowa Legislature in 2010 adopted pension reforms that include allowing increased contributions for both public employees and employers, a longer period for pension vesting, changes in the pension formula, and an increased reduction in benefits for early retirees.

The committee on Monday asked dozens of questions from pension fund officials, including queries about methodologies used by actuaries, efforts to prevent public employees from manipulating the system to secure bigger pensions, and strategic plans to cut costs by hiring internal investment managers for some asset classes. They also asked about allocation of investments in categories that include domestic and international stocks, bonds, cash, and several other types of assets.

“The classic struggle every year when you are looking at asset allocation is how much risk is prudent," said Karl Koch, IPERS' chief investment officer. He added, “In general I would say that our approach is more conservative than our peers."

For the 12 months ending June 30, 2017, IPERS' investments earned 11.7 percent, net of fees. Over the past 10 years, IPERS has had annualized returns of 5.89 percent and over the past 20 years it has had annualized returns of 7.45 percent.

IPERS is currently 81.4 percent funded, which some Democratic elected officlals and others have cited as evidence the pension fund is in good shape with about $32 billion in assets. The funded ratio of a pension plan equals the value of the assets in the plan divided by a measure of the pension obligation.

However, Patrice Beckham, a consulting actuary for Cavanaugh Macdonald Consulting LLC, of Bellevue, Nebraska, told lawmakers Monday that there is “no magic funded ratio” and that the funded ratio is just one piece of an equation to evaluate a pension fund’s stability. Cavanaugh Macdonald prepared IPERS' actuarial report.

The American Academy of Actuaries supports Beckham’s view, describing what it says is the “80 percent pension funding standard myth.”

The academy says an 80 percent funded ratio often has been cited in recent years as a basis for whether a pension plan is financially or “actuarially” sound. But the Pension Practice Council of the American Academy of Actuaries finds says that while the funded ratio may be a useful measure, under*standing a pension plan’s funding progress should not be reduced to a single measure or benchmark at a single point in time. Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time, the academy says.

Want to highlight this bit:

The American Academy of Actuaries supports Beckham’s view, describing what it says is the “80 percent pension funding standard myth.”

The academy says an 80 percent funded ratio often has been cited in recent years as a basis for whether a pension plan is financially or “actuarially” sound. But the Pension Practice Council of the American Academy of Actuaries finds says that while the funded ratio may be a useful measure, under*standing a pension plan’s funding progress should not be reduced to a single measure or benchmark at a single point in time. Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time, the academy says.

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Old 12-28-2017, 10:13 PM
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How Big Is Your State’s Share of $6 Trillion in Unfunded Pension Liabilities?
Despite a solid year for investment returns, the unfunded liabilities of state and local government pension plans increased by $433 billion, the most recent estimate from the American Legislative Exchange Council shows.

According to ALEC’s report—which uses more appropriate assumptions on investment returns than the plans use themselves—state and local governments’ unfunded liabilities now exceed $6 trillion.

That’s a whopping $18,676 for every man, woman, and child, or nearly $50,000 for every household in America.

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This is bad news for taxpayers in states and localities where government workers have been promised far more in pension benefits than politicians set aside to pay them. That’s because most states have strong protections for promised pension benefits, meaning there is little prospect of reducing a pension benefit or asking employees to contribute more to it.

Contractual or constitutional obligations for government pensions could mean that paying the pensions of retired government employees may take precedent over paychecks for current employees.

Moreover, some state constitutions prevent any changes to government employees’ pension benefits. That means current government employees can’t ever be required to contribute more to their pension plan than they did on the first day they were hired. And, actually, not a single term of their initially promised pension benefits ever may be altered.

Just imagine how detrimental it would be to private employers if they never were allowed to alter the benefits they initially offered their employees.

With an average funding ratio of only 33.7 percent across state and local pensions and every single state at risk of defaulting on pension obligations (as measured by Pension Protection Act standards, assuming a risk-free rate of return), taxpayers across all states face significant tax increases to pay for their governments’ unfunded pension promises.

Taxpayers in certain states are looking at greater risks and liabilities than others, however.

Taxpayers in Tennessee, Indiana, Nebraska, Wisconsin, and North Carolina, for example, must deal with the lowest unfunded liabilities per person, ranging from about $7,600 to $10,900.

Taxpayers in Alaska, Connecticut, Ohio, Illinois, and New Mexico, on the other hand, face the highest unfunded pension liabilities, ranging from about $28,100 to $45,700 per person.

Overall, the American Legislative Exchange Council estimates that pension plans have only about a third of the funds on hand—33.7 percent—that they need to pay promised benefits. Some states have significantly lower funding levels, which means they are at risk of running out of funds in the near future.

Once a state or local pension plan runs out of money, taxpayers have to fund the pension benefits of retirees as well as the contributions of current employees.

Connecticut, Kentucky, and Illinois have the lowest funding ratios, at 20 percent, 21 percent, and 23 percent respectively.

Already, Illinois spends as much on pensions as it does on welfare and public protection (that is, police and firefighters) combined, and nearly half of its education appropriations go toward teacher pensions. If the state’s pension plans reach insolvency, pensions could become its single biggest cost.

Some states have taken measures to improve the outlook for their pension plans, such as shifting new employees to defined contribution retirement plans, limiting future pension benefits, reducing unrealistic interest rate assumptions, and actually making the annually required pension contributions. But the rising tab for unfunded state and local pension liabilities shows most states have failed to address massive shortfalls.

One motivation for states not to address their pension shortfalls is the hope or expectation of a bailout by federal taxpayers. This would force taxpayers in more fiscally responsible states to pay for the financial recklessness of more spendthrift states.

Lawmakers in Washington need to send a strong signal to states that a federal pension bailout is not an option.

Rep. Brian Babin, R-Texas, has introduced a bill that would do just that. His legislation, called the State and Local Pensions Accountability and Security Act, would prohibit the U.S. Treasury and the Federal Reserve from providing any form of bailout or financial assistance to a state or local pension plan.

Unless state and local lawmakers know that a federal bailout is not an option, as Babin’s bill proposes, they will have little incentive to enact much-needed pension reforms now.


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Old 12-28-2017, 10:14 PM
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Mary Pat Campbell
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CalPERS Past The Point Of No Return?

The American Council for Capital Formation, or ACCF, has recently made headlines with their scathing critique of the nation’s largest public pension system CalPERS (California Public Employees’ Retirement System). The report entitled “Point of No Returns” was published two weeks ago and argued definitely that CalPERS “continues to mislead taxpayers and pensioners to the true performance…” of their pension system. The study cited poor fund performance, poor financial, managerial competence, politically motivated decisions, and an artificially inflated discount rate as the reasons for the pension systems increased failure.

These accusations did not sit well with CalPERS Board who issued a rebuttal to the report arguing that ACCF’s study “represent a fundamental misunderstanding about CalPERS’ investment strategy and operations.” The pension system’s board went on to suggest that ACCF’s report was drafted to “subliminally promote at anti-pension ideology.” ACCF retorted by explaining that CalPERS has managed to fail its solvency test. Fundamentally, the present value of the fund is not sufficient to cover future obligations: this is in large part because unfunded liabilities for the ailing pension system have grown by a crippling $138 billion more than assets under management.

ACCF also gave pause to criticize CalPERS interest in poor performing ESG investments. Although the losses absorbed by the pension system accounted for only $600 million, it still represents annual benefits for 12,000 retirees at $50,000 each for one year, or 600 over 20 years. ACCF also went on to criticize CalPERS insistence on using a preconceived exorbitant discount rate to conceivably shield the amount of foreseeable future losses the fund will sustain. ACCF recommends that CalPERS should use a discount rate of 4% to which the CalPERS claimed that such an action “would do serious damage to many California cities, counties, other public agencies, and schools. If implemented, they would forever jeopardize the retirement security of millions of current and retired California public employees and their beneficiaries.”

It appears that from the numbers alone as well as from CalPERS own admission; the California pension system is indeed on the road to complete insolvency: this spells grave alarms for California taxpayers. Currently, CalPERS has a future liability of $436 billion while only having assets of $298 billion.

CalPERS Calls ESG Criticism ‘Laughable’
Report accused system’s ESG practices of ‘jeopardizing the retirement fund.’
The $344 billion California Public Employees’ Retirement System (CalPERS) has scoffed at a report from the American Council for Capital Formation (ACCF) that is highly critical of the systems’ environment, social, and governance (ESG) investments.

The report laid much of the blame for CalPERS $138 billion in unfunded liabilities on “the tendency on the part of CalPERS management to make investment decisions based on political, social, and environmental causes rather than factors that boost returns and maximize fund performance.”

The ACCF said four of the nine worst-performing funds in the CalPERS portfolio as of March 31, focused on supporting ESG ventures, and that none of the system’s 25 top-performing funds was ESG-focused.

“CalPERS has demonstrated a troubling pattern of investments in social and political causes that are truly jeopardizing the retirement fund,” said Tim Doyle, ACCF’s vice president for policy and general counsel, in a statement. “Rather than focusing on getting the fund back on firm financial footing, CalPERS’s management is making questionable investments of pensioners’ money into social and political causes that are not yielding acceptable returns.”

However, CalPERS shot back at the accusations, saying that the CalPERS Investment Office’s investment decisions are based on its fiduciary responsibility to sustain the fund and pay the benefits public employees have earned.

“We work to achieve the best risk-adjusted returns possible. Incorporating environmental, social, and governance principles is an important part of our decision-making in our investment office,” said CalPERS spokesman Joe DeAnda in an email to CIO. “We have successfully pushed companies to publicly report on the impact that climate change is having on their business, and we have successfully pushed them to open up their board selection process because companies with a diverse group of talented people on their boards perform better financially.”

Backing up CalPERS is a report from Morningstar that said “academic and industry studies are demonstrating that sustainable investing does not underperform conventional investing, and there is mounting evidence that incorporating environmental, social, and governance factors can have a positive impact on performance.”

The report cited Oxford University researchers who analyzed nearly 200 studies, reports, and articles on sustainability, and found that 90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies. It also said that 88% of the research shows that solid ESG practices result in better operational performance of firms, and that 80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices.

Additionally, research from State Street Global Advisors shows that higher-scoring ESG companies in emerging markets, and within small caps, have outperformed lower-scoring ones in their respective categories. It said that “a thoughtful ESG evaluation process” should be able to find attractive investment opportunities across the capitalization range and within different regions.

“We stand behind our efforts,” said DeAnda. “Any suggestion that we stop engaging with companies on behalf of our members is laughable.”


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Old 12-28-2017, 10:14 PM
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Connecticut pays $14,374 per teacher for teacher pension debt
Connecticut classrooms and teachers could receive a big boost if not for the massive pension debt in the state teacher pension system, according to a study entitled The Pension Pac-Man: How Pension Debt Eats Away at Teacher Salaries.

Connecticut pays $14,374 per teacher per year toward the teacher pension debt, money that could be used to increase teacher salaries or improve children’s education.

“It can be somewhat abstract for teachers to think about pension debt and how it affects them, but it means that their employer and their state have less money to spend on education generally or teachers more specifically,” study author Chad Aldeman wrote. “Regardless of other spending priorities, states, school districts, and individual schools must squeeze other areas of their budgets to pay for rising pension payments.”

Compensation for teachers is rising faster than inflation, according to the study, but that doesn’t mean teacher salaries are growing at a commensurate pace. Instead, retirement and insurance costs — which make up total teacher compensation — are growing extremely fast, while salaries have not risen as quickly.

A large portion of those costs are teacher pension liabilities. In 2016 Connecticut paid nearly $1.2 billion toward teacher pensions. Of that figure, $1 billion went toward unfunded liabilities.

To put that in perspective, during the 2016-2017 school year, Connecticut’s Education Cost Sharing payments to every municipality in the state totaled $2 billion.

The cost of those unfunded liabilities is expected to grow from $1.2 billion per year to possibly $6 billion per year by 2032.

“If states continue to preserve the existing retirement systems at any cost, teachers will see rising pension costs eat further and further into their take-home pay,” the study said.

That prediction has already started to come true. As part of the 2017 budget agreement, teachers had to increase their pension contribution from 6 to 7 percent, equaling $38 million per year. The increase will not help the pension system, however, because the state will decrease its contribution in an effort to save money.

Connecticut teachers are already receive an average pay of $77,000 per year and have the one of the highest average pensions in the country at $59,000 per year, according to the Office of Fiscal Analysis.

But past studies have shown that a large number of Connecticut teachers miss out on those benefits.

A study by Education Next found that only 34 percent of Connecticut teachers actually stay in the profession long enough to become vested in the pension system and see a return on their investment.

Education Next recommended states switch teachers to 401(k) or hybrid plans to better ensure teachers keep what they earn in savings. The state of Michigan recently switched new teachers to 401(k) style retirement plans in order to deal with a $29 billion shortfall in its teacher pension system.

Unlike state employees, teacher pensions are set in statute and can be changed legislatively. Although such changes are politically difficult, they may become unavoidable as the cost of the unfunded pension liabilities continues to grow.

“Teachers in Connecticut, Illinois, Kentucky, Louisiana, Massachusetts, and West Virginia are currently losing out on compensation equivalent to 20 percent of their salaries just to pay down pension debt,” Aldeman wrote.
Shifting pension costs from state to teachers costs CT $20M
Legislators decided this fall that teachers would contribute tens of millions of dollars more annually toward their pensions — and state payments would drop by matching amounts.

But according to state Treasurer Denise L. Nappier, that cost shift still came at a price to the state — and the bill is just over $20 million.

While that cost might seem small, given that Connecticut will pay it off over the better part of two decades, Nappier warned any increase in the state’s massive retirement benefit debt sends a dangerous message as Connecticut tries to reverse decades of neglect in this area.

“It is a slippery slope,” Nappier wrote in a recent memo on changes to the teachers’ pension fund. “Any increase in the unfunded liability, however small, is a step in the wrong direction.”

Connecticut has more than $70 billion in long-term, unfunded liabilities, including about $50 billion related to retirement benefits.

The treasurer also questioned how Wall Street would view the $20 million increase in teacher pension fund liabilities.

Connecticut borrowed $2 billion to shore up the cash-starved pension fund in 2008. And it promised in its contractual covenant with bond investors not to reduce state contributions into the fund over the 25-year life of that $2 billion loan.

Is it OK to reduce state contributions by almost $60 million over two years and replace them with a matching amount from teachers, even if it increases the pension debt by $20 million?

“The changes may meet the letter of the law regarding the bond covenant,” Nappier wrote, “… but they certainly violate the spirit.”

Citing the American Academy of Actuaries — the 19,000-member professional association that sets qualification and practice standards for pension fund analysts across the United States — Nappier added that “the movement or trend of the funded ratio is as important as the absolute level.”

In other words, even a small step backward is significant.

How did state officials take that step in the new, two-year state budget adopted in late October?

Trying to avert huge potential deficits this fiscal year and next, legislators ratified a major concessions deal that Gov. Dannel P. Malloy negotiated with state employee unions. That package, among other things, reduced retirement benefits and increased pension contributions for current state employees.

The new budget also requires public school teachers to increase contributions toward their pensions — from 6 to 7 percent of their salaries — starting Jan. 1.

Teachers are expected collectively to contribute $56 million to $59.5 million more across this fiscal year and next combined. And the new budget allows the state to reduce its payments by a matching amount.

But even though this represents a wash as far as the fund is concerned, Nappier says it isn’t that simple.

Though teachers’ respective salaries and years of service are the chief factors used to calculate the values of their pensions, employee contributions toward that benefit are a factor as well.

So if teachers contribute more, the state owes larger pensions.

And according to the state’s actuarial consultants for this fund, Cavanaugh Macdonald of Kennesaw, Ga., that’s why the state ends up owing an extra $20.4 million.

The state’s two major teacher unions, the Connecticut chapter of the American Federation of Teachers and the Connecticut Education Association, criticized the increased employee contributions, calling it a “tax” on teachers.

“From the beginning, our members made clear that a targeted tax on teachers was an unjust approach to balancing Connecticut’s finances,” said AFT Connecticut Vice President Stephen McKeever. “… We appreciate the state treasurer once again demonstrating due diligence and calling attention to the shortcomings of the compromise state budget’s final provision. Exposing the threat to the stability of this vital public asset should move lawmakers to right their wrong in the next legislative session.”

Republican legislative leaders — who originally wanted teacher contributions raised over two years to 8 percent — objected to the “tax” claim. GOP lawmakers countered that teachers were being asked to contribute more — as state employees are — but also would get their contributions back upon retirement.
Nappier says change in state teachers’ pension a mistake
Making teachers pay more toward retirement will end up costing the state in the long run, according to the state treasurer.

In a memo written shortly after Connecticut finally passed a budget this fall that requires teachers to contribute 7 percent — up from 6 percent — toward their pensions as of Jan. 1, State Treasurer Denise L. Nappier said the change would add about $20 million to the state’s tab in the long run.

“The changes may meet the letter of the law regarding the bond covenant adopted in 2008 to shore up the fund, but they certainly violate the spirit,” Nappier wrote in a memo about the unfunded liability of The Teachers’ Retirement Fund.

“Nearly a decade ago, I worked with our teachers to establish a disciplined path toward full funding of the Teachers’ Retirement Fund,” Nappier said “This latest action by the Legislature tugs at the threads of our efforts.”

Nappier said the state’s contribution to the teachers’ pension is to be reduced by the same amount as the teachers’ increased payments — about $59.5 million over the two-year budget.

But the teachers’ contributions are also factored into determining the value of their pensions. Therefore, when teachers pay more, they will eventually collect more. According to Cavanaugh MacDonald Consulting, the state’s actuarial consultants, the state will end up owing an additional $20.4 million.

Not much compared to the state’s $2 billion debt, but still a step in the wrong direction, Nappier said, especially since the state vowed in 2008 not to reduce its contribution over the length of the loan.

Teachers, who view the increased contribution as a tax on their profession, agreed with Nappier.
“The memo from the state treasurer highlights the shortcomings of the so-called budget compromise,” Kristen Record, vice president of the Stratford Education Association. “The teacher pension issue is very complex and it seems like the state just took another step backwards in addressing it.”

Gov. Dannel P. Malloy, whose plan was to make municipalities share in the cost of teacher pensions, said he agreed with Nappier too.

“Any increase to Connecticut’s unfunded liabilities should be avoided,” Malloy said.

Malloy said his plan would have made the system more affordable and sustainable over time. The governor wanted municipalities to pay $400 million for local educator pensions. But the budget approved by the Legislature did not pass along those costs to municipalities.

“Connecticut simply cannot afford annual payments of $4 to $6 billion into this fund - we must make smart reforms now to fix the system, and we can do it without curtailing benefits for teachers,” Malloy said. “If we don’t act, there will be no way to meet these obligations without hollowing out major state programs such as Medicaid and municipal aid. It’s that simple.”

A recent study by found Connecticut taxpayers spend $14,374 per teacher per year toward teacher pension debt.

Malloy also proposed refinancing changes to the Teachers’ Retirement System similar to steps taken to the State Employees’ Retirement System.
Malloy: Time to stretch out spiking teacher pension costs
Gov. Dannel P. Malloy has called on state lawmakers to restructure Connecticut’s contributions into its cash-starved teacher pension fund, deferring some expenses for decades but mitigating huge, projected cost spikes in the coming 15 years.

Malloy challenged the General Assembly to tackle the teachers’ fund in the regular 2018 session, which begins Feb. 7.

“Connecticut simply cannot afford annual payments of $4 to $6 billion into this fund,” the governor said Tuesday, citing projections identified in the 2014 report from the nationally recognized Center for Retirement Research at Boston College. “We must make smart reforms now to fix the system, and we can do it without curtailing benefits for teachers. If we don’t act, there will be no way to meet these obligations without hollowing out major state programs such as Medicaid and municipal aid. It’s that simple.”

But taking action to avert the spike may not be simple, for legal reasons as well as financial ones.

Connecticut’s history of not saving for the retirement benefits it promised public-sector workers — a problem which dates back to 1939 — has gotten increasing attention since Malloy took office in 2011. That problem created the majority of the roughly $74 billion in unfunded liabilities beleaguering state finances.

The retirement center at Boston College warned that required contributions to the two pensions — which were between $1 billion and $1.6 billion last fiscal year — each could sail beyond $6 billion per year by the early 2030s.

To counter that, Malloy, unions and the legislature agreed last year to restructure payments into state employees’ pension, shifting billions of dollars of expenses into the future.

The governor said it’s time to craft another shift, or watch teacher pension costs strip funds from other priorities in the state budget.

Malloy had proposed this past year that legislators empower the state’s Teachers’ Retirement Board — working with his budget office — to craft a payment realignment plan.

Legislators directed the teachers’ board and others to study the issue, but stopped short of authorizing them to make the changes themselves, directing them instead to report back to lawmakers in 2018.

Any realignment of pension contributions is controversial on multiple grounds.

For one reason, by contributing less than originally projected into the state employee pension fund over the next 15 years, Connecticut’s treasurer would have fewer pension resources to invest over that period. The state must make up for those deferred contributions after 2032.

This “lost investment opportunity,” as it’s referred to by some accountants and actuaries, effectively is the interest charge imposed on the state for taking longer to pay its pension obligations.

The new payment plan for the state employees’ pension aims to cap annual costs at about $2.3 billion per year, but also shifts an estimated $14 billion to $21 billion in costs onto future taxpayers after 2032.

Senate Republican leader Len Fasano and other GOP lawmakers questioned whether the state employee pension changes were being rushed last January, arguing Connecticut needed more analysis of the costs of deferring pension contributions yet again.

When it comes to the teachers’ pension, there also is a second hurdle.

The state’s bond counsel has questioned whether any realignment would be legal — at least until Connecticut finishes paying off $2 billion it borrowed to bolster the teachers’ pension fund back in 2008.

The Hartford firm of Day Pitney wrote in 2016 that it believes the deferral of payments into the teachers’ pension would violate guarantees Connecticut built into the covenant with bond investors in 2008. And that guarantee was good for the 25-year life of the bonds.

The Malloy administration has questioned this legal opinion and whether it effectively binds the state from realigning pension contributions.
Malloy: Kick Teachers’ Pension Can Down the Road Like We Did for State Employees
The governor is going into the new year, his last in office, proposing that Connecticut kick its teachers' pension obligations down the road, just like he did last year with state employees' pensions.
With a new report from the state’s treasurer on unfunded liabilities in the state’s teachers’ pensions system, Gov. Dan Malloy (D-Conn.) is re-asking state legislators to approve his plan to kick that pensions can down the road before he leaves office.

In a statement released Tuesday, Malloy said:

“Changes my administration put forward last session would have made this system more affordable, more stable, and more able to absorb changes in the market. I will continue to advocate for these commonsense reforms in 2018 and look forward to working with the Treasurer and leaders in the General Assembly to lower all of Connecticut’s unfunded liabilities.”

Those changes, according to Malloy’s release? “[A]mortization and refinancing changes to the Teachers’ Retirement System in his FY18-FY19 budget proposal, which included extending the amortization period.”

This is what Malloy did with state employees in December 2016: “Extending the amortization period for the balance of the unfunded liability in a new 30-year period. By extending the date for a portion of the existing funding shortfall from 2032 to 2046, responsibility for repaying this debt (which was accumulated over decades) is not disproportionately borne by only the next 14 years of tax-payers.”

Translation: Malloy left taxpayers in the years 2033 through 2046 – 15 to 28 years after he leaves office – stuck with the bill for state employees’ pensions, and he wants to do something similar with teachers’ pensions.

Of course, the state has to pay off its debts, and not all of these can be traced to Malloy. But the extended amortization is just one more indicator of how Malloy not only failed to effectively take on Connecticut’s pension liabilities during his two terms; he worked to the benefit of state employees’ and teachers’ unions.

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Stock market gains cannot catch up to Illinois’ massive pension deficit
Belleville Mayor Mark Eckert was clearly expecting an onslaught of criticism when word came down that the city wanted a 12 percent increase in the amount sought from property taxpayers, which will translate to somewhere between $30 and $80 more from the owner of a $100,000 home.

“They don’t understand how we’re funding things. The biggest part of the city’s levy that we do every year is pensions,” Eckert said.

About $8.2 million of the city’s $11.2 million from property taxes goes to pensions and Social Security. That’s 72 percent.

State law dictates how fully funded those municipal pensions must be, and as a result those pensions are in decent shape.
State law. That would be the laws made by state lawmakers. Those same state lawmakers who let the state pensions, including their own, go woefully underfunded.

So here comes that bull market that is driving up the nation’s stocks. It should be improving the returns on the state pension funds’ investments and dropping the deficit.

Well it has. The deficit dropped from $129.8 billion last year to $129.1 billion this year, according to the state Commission on Government Forecasting and Accountability.

So even at a time when the market’s power should greatly improve out state pensions’ financial outlook, we still can’t rein in the beast. Taxpayers will eventually pay the tab.

The five pensions together have about 40 percent of the money needed to fund the promises made to their retirees. The State University Retirement System is in the best shape, relatively speaking, with money for 44 percent of its obligations.

Guess who is in the worst shape with only 15 percent of the cash it needs? The General Assembly Retirement System, you know, the folks who told Belleville not to monkey around and short their employee pension systems.

So no complaining, Mayor Eckert. Do as they say, and not as they do.

Gubernatorial Challenger Wants State Pension Changes
The state representative challenging Governor Bruce Rauner in next year’s Republican primary is proposing several changes to Illinois’ pension systems.

Jeanne Ives of Wheaton is calling for three things. First, she want to amend the Illinois Constitution to eliminate protections for government pensions. Second, she wants to enroll all new state workers in a 401(k)-style plan. And finally, she wants to renegotiate pensions as part of an “honest conversation” with both current employees and retirees about the state pension system.

“Other states have solved their pension problem. We can, too," Ives said.

The American Federation of State County and Municipal Employees calls her ideas “extreme and reckless." And a spokesman for Gov. Bruce Rauner blamed the state’s pension problems on Democratic House Speaker Michael Madigan.
Ives Seeks to Make Changes to Illinois Pension Systems in 2018
Adjustments include state constitution amendments, renegotiate pensions.

When she runs against Gov. Bruce Rauner in the 2018 Illinois gubernatorial election, State Representative Jeanne Ives of Wheaton will be looking to make some changes to the state’s pension systems.

According to NPR Illinois, Ives first aims to amend the Illinois constitution to remove protections for government pensions. Her next move seeks to enroll each new state employee in a 401(k)-style hybrid plan. Lastly, Ives hopes to renegotiate pensions in what she is calling an “honest conversation” with current workers and pensioners about the Illinois pension system.

“Other states have solved their pension problem. We can, too,” Ives told NPR Illinois.

However, her plan has been met with harsh criticism from the American Federation of State, County and Municipal Employees, who reject Ives’ ideas as “extreme and reckless.”

In addition, the website reports that a Rauner spokesman blamed Illinois’ pension issues on Democratic House Speaker Michael Madigan.

The election will occur on March 20, 2018.

Belleville aldermen approved a 12 percent increase in the city’s property tax levy.

Property taxes in Belleville could be going up, thanks to the Belleville City Council’s decision to authorize a 12 percent increase in the city’s property tax levy. The city plans to use most of the additional revenue – $1.2 million – for rising police and fire pension costs, according to the Belleville News-Democrat.

The City Council reached the decision Dec. 18, with 10 aldermen voting in favor of the property tax levy increase, one voting against, two abstaining from the vote, and three aldermen absent from the vote.

Belleville Mayor Mark Eckert, who also serves as the president of the Illinois Municipal League, said, “The pension situation is a problem of immense proportions throughout the state of Illinois,” according to the Belleville News-Democrat.

Belleville’s property tax levy will rise to $11.3 million, up from the current $10.1 million. The levy increase is more than twice as high as the 4.67 percent increase passed in 2016.

However, if history is any indicator, this latest infusion of cash from homeowners to police and fire pension funds is not likely to solve the funds’ long-term fiscal problems.

From 2012 to 2016, taxpayer contributions to Belleville’s fire pension fund rose by more than 34 percent, according to the Illinois Department of Insurance’s 2017 Biennial Report. However, despite the large uptick in city dollars, the fund has less than 43 cents on hand for every dollar needed to pay out future benefits.

Despite the increase in taxpayer contributions, the pension’s funding ratio climbed less than two percentage points in four years, to 42.9 percent in 2016 from 41.4 percent in 2012.

Belleville’s police pension fund is not much better off, as it only has 53 cents on hand for every dollar needed to pay out future benefits.
The long-term solution to this crisis would be to give new police and fire employees 401(k)-style plans instead of costly pensions. That plan could be modeled on the State Universities Retirement System’s 401(k)-style retirement plan already in place for state university workers. The plan has been operating for nearly two decades, and more than 20,000 employees have opted out of the traditional defined-benefit pension plan in favor of the 401(k)-style plan.

However, Belleville could not implement this plan unilaterally. The state mandates that towns like Belleville maintain pension funds for police and professional fire departments, which severely limits local leaders’ ability to deal with mounting pension crises.

Belleville taxpayers shouldn’t be on the hook for continued pension failures. Belleville and other towns should have the tools necessary to embark on real pension reform efforts, and the freedom to determine how they should compensate city workers. The state’s pension mandate, coupled with the Illinois Constitution’s pension protection clause, makes property tax hikes virtually inevitable for many Illinois communities, such as Belleville.

This persistent problem demonstrates the need for state lawmakers to protect homeowners from skyrocketing property tax bills. Passing a property tax freeze on homeowners’ actual bills (not just the levies of local governments), and requiring voter approval for property tax hikes are two powerful reforms that would go a long way for families struggling to pay higher property taxes as their own incomes stagnate.

Lacking real change from state lawmakers, Belleville homeowners should get ready for higher property tax bills.

Aurora City Council approves 4 percent tax levy increase
The Aurora City Council has approved a 2017 tax levy almost 4 percent higher than in 2016.

The levy of $75.9 million, for taxes payable in 2018, is about $2.9 million, or 3.97 percent, higher than the 2016 levy.
Aldermen pointed out that the increase is going to pay for public safety pensions that the city is ordered to pay by the state. The part of the levy the city controls, $42.3 million in the general fund, is the same as in 2016.

"It's a continued balancing act," said Ald. Robert O'Connor, at large. "To provide the citizens with the service they demand, we make choices. The one element we can't control is that pension encumbrance. The citizens should portray that to the state of Illinois, that we need changes."

The amount of the pension increase is actually about $3.1 million for the coming year. Stacy Hamling, acting finance director, pointed out that the public safety payments the city makes yearly have increased from about $12 million in 2005 to a little more than $29 million this year. And it portends to get worse in time.

Ald. Richard Mervine, 8th Ward, pointed out that the general fund levy has stayed "flat" for about the past 10 years. During that time, inflation has driven the city's buying power with that levy down by about 23 percent, he said.

"The city is holding the line on its costs," Mervine said.

Ald. Edward Bugg, 9th Ward, said because the city accounts for only about 20 percent of the tax bill, "we have to look at what's happening with the other 80 percent."

"Everyone is up against it in the state of Illinois," Bugg said.

That reasoning held little solace for George Scowins and Ronald Jaffe, both residents of Stonegate Carillon, a 55-and-over development on Indian Trail on the city's East Side. Scowins said since he first paid taxes on his house in 2011, his tax bill has gone up from $6,406 a year to $9,418. Jaffee said his went up from a little less than $7,000 to $9,700. Both men said they are on fixed incomes.

Both said they would like to be able to stay in their homes, but that the tax bills are making it hard.

"I do like living here," Scowins said. "I don't want to move."

"It gets to a point where I won't be able to live here," Jaffe said. "So please be careful when spending everybody's money."

Scowins said he realizes that the bulk of the tax bill goes for schools, but he said the East Aurora School Board has been watching its budget.

"We need to quit pointing fingers at just the School District," he said.

Hamling said the city's levy increase would result in about a $50 total increase on a house with a value of $168,900, the approximate median home value in the city. Homeowners also will be paying slightly more in municipal taxes on their gas and electric bills next year, an increase aldermen passed to raise about $4 million to replace money the state kept instead of doling out to local governments.

Retired Illinois Educators Taking Home Millions in Pensions
Retirement can be lucrative for some former Illinois educators who are taking home pensions from the state’s Teachers Retirement System. The top pension earner this year is Lawrence A. Wyllie, an indicted former superintendent of Lincoln-Way High School District 210, who stands to make $321,443 this year.

In September, Wyllie pleaded not guilty to federal fraud charges. Prosecutors alleged that he steered taxpayer money to personal pet projects, misused millions in bond money and illegally cashed out $30,000 in unused sick days and a retirement bonus. If convicted, Wyllie lose all of his TRS pension.

Second on the list is former New Trier Superintendent Henry S. Bangser, who will pocket $312,460 from his pension. He retired at age 57 and has already collected nearly $3 million in retirement. Number three is Gary Catalani, former Wheaton Warrenville District 200 superintendent who later held a superintendent job in Arizona. He’ll pocket $310,070 this year.

Chicago Tonight submitted a records request for the top 200 pension earners in TRS. (Download the list.) Every annuitant is well into the six figures, with the last person on the list standing to make $190,675. Many of the top earners took advantage of loopholes used to boost their retirement, like calculating unused vacation and sick days, and big raises in their final years into the calculation of their pension.

Some annuitants, like Reginald L. Weaver, who will earn $289,745 this year, was able to base his pension off of his salary as head of the National Education Association, which paid him a substantially higher salary than he made as a teacher. That loophole allowed public sector workers to be paid a pension based upon their salary as a union official and has been closed.

The payouts come as The Teachers Retirement System teeters toward insolvency. It is currently 40 percent funded, and Illinois taxpayers will shell out $4.09 billion in 2018, with 80 percent of that going to pay down the unfunded liability and 20 percent to pay current benefits.

The TRS is the largest of the state pension systems, that collectively are at least $130 billion underfunded and the main driver of the state’s worst in the nation credit rating. At the same time, over 17,000 public sector retirees are making six-figure retirement salaries, according to an analysis by Taxpayers United of America, a group that has called for constitutional amendments drastically cutting back pensions.

But the Center for Tax and Budget Accountability says the main driver of Illinois’ pension crisis is the chronic underfunding of pension payments. Laurence Msall of the Civic Federation says both are factors, but the generous annual raises that retirees get compound the problem.

“The 3 percent compounded annual automatic increase is what puts Illinois apart from every other state,” Msall said. “No other state offers that and doesn’t fund it.”

Msall acknowledges that lawmakers have acted to close a lot of the loopholes that led to the high payouts, but that the system is irreparably broken.

“The most damaging part is ... [the] eroded public’s confidence that the pension was a reward for hardworking people,” Msall said. “It is an insider game. Even with the pension reforms. Providing anyone a six-figure defined benefit that goes up 3 percent every year is ridiculous. That is not a pension. That is basically a deferred compensation lottery.”

But teachers union representatives say they are unfairly being vilified for pension problems that teachers themselves did not create.

“The overwhelming majority of teachers and staff earn a modest pension in their retirement and do not collect Social Security,” said Aviva Bowen spokesperson for the Illinois Federation of Teachers. “Pension benefits did not cause Illinois’ funding problem and cutting them wouldn’t solve it. More importantly, the Supreme Court has ruled repeatedly that it’s unconstitutional.”

Another driver is the disconnect between school districts that set pensions and taxpayers that pay them. Administrators have chronically offered generous pension boosters to coax educators into retirement, but since the state of Illinois pays and administers the system, local districts are off the hook in terms of coming up with enough funding to meet their promises.


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Bevin can’t suspend raises for retired teachers in pension plan, Beshear says
Attorney General Andy Beshear said Wednesday that changes in Gov. Matt Bevin’s proposed public pension bill dealing with the cost-of-living adjustment formula violate state law.

In a four-page opinion requested by state Rep. James Kay, D-Versailles, Beshear said the changes violate the state law that establishes the so-called “inviolable contract” between the state and public school teachers.

The inviolable contract, say public employees and retirees, guarantees they will get the retirement benefits promised to them when they were hired.

Kay specifically asked Beshear if legislators could vote to approve the portion of Bevin’s plan that suspends the 1.5 percent cost-of-living allowance mandated by law for current retired teachers for the next five years beginning July 1, 2018, and suspends the rights of future retired teachers to that allowance for the first five five years of their retirement.
Bevin’s director of communications, Amanda Stamper, said in an email, “The opinion fails to analyze any case law, making it look like it was written by a first-year law student. Attorney General Andy Beshear is wrong yet again.

“COLA freezes are common in pension reform proposals and have been upheld in courts. The Bevin Administration and leaders in the General Assembly are working diligently to save the state’s failing pension systems, which became the worst funded systems in the country under Steve Beshear’s 8-year term as governor.”

Andy Beshear is the son of former Democratic Gov. Beshear.

Tim Abrams, executive director of the Kentucky Retired Teachers Association, said in a statement that Beshear’s opinion “confirms what the KRTA and others have argued for months.

“This opinion is further evidence that the Gov. Matt Bevin administration and members of the Kentucky General Assembly still don’t have a legal, workable, fair, and acceptable pension reform plan.

“As our members used to tell their students when they gave the wrong answer in class, it’s back to the drawing board.”

Abrams also said the KRTA thanks Kay “for having the courage and initiative to seek this important and far-reaching opinion.”

Bevin had planned to call a special legislative session this calendar year to address the state’s financially strapped public pension systems but it appears now lawmakers won’t tackle the issue until the 2018 General Assembly, which begins Jan. 2.
'Philosophical Differences' Keep Pension Recommendations Broad
The state Public Pension Oversight Board is offering few specifics in its year-end recommendations to the General Assembly ahead of the body's 60-day regular session. A leading member says divisions that helped derail an anticipated special session on pensions also prevented the board from endorsing more concrete reforms.

With disagreements over pension reform strategies yet to be ironed out and a still-brewing sexual harassment scandal in the House GOP caucus, the oversight board quietly passed the baton to the legislature Monday – reaffirming some previous guidance that failed to materialize during the 2017 session.

Addressing the lack of specifics, board co-chair Sen. Joe Bowen pointed to philosophical differences over how to properly fund state retirement systems and lock in a sustainable system moving forward.

"Those philosophical differences find representation among the members of the Public Pension Oversight Board, thus the difficulty of making detailed pension legislation recommendations on the cusp of what is anticipated to be a 2018 regular session which will consider major pension reform proposals," the Owensboro Republican said.

Outcry from public employee and teacher groups over proposals in Gov. Matt Bevin's initial reform package appears to have given some House Republicans pause as they consider changes for future state workers, most of whom would land in 401(k)-style plans under the governor's plan.

Among the recommendations okayed by the board Monday: reviving a teachers retirement system housekeeping bill, eliminating lawmakers’ ability to "spike" pensions using salaries earned from other public employment, and instructing the General Assembly to evaluate a pension system audit by consultants with the PFM Group.

That report featured a number of highly controversial recommendations, including rolling back retirees’ cost of living adjustments.

Board members also heard an update on the state's mounting pension debts. Estimates vary drastically depending on the investment return assumptions employed, but the latest numbers provided to the board suggest total unfunded liabilities have swollen from $26.5 billion in 2007 to $43.8 billion in 2017.
Kentucky pension reform: Beshear says law protects retired teachers' pay increases
In a setback to Kentucky Gov. Matt Bevin's pension reform push, Attorney General Andy Beshear ruled Wednesday that a Republican-backed proposal to suspend cost-of-living adjustments for current retired teachers violates state law.

Beshear's opinion, which is advisory, says the proposal to suspend retiree's annual 1.5 percent payments for five years starting this July would violate the inviolable contract between educators and the state.

The idea of suspending the COLAs, as they are called, has been promoted by Bevin as one step toward restoring the solvency of the state's ailing pension systems. But teacher groups insisted that suspending the adjustments would be illegal because retirees already contributed to their cost-of-living benefits while working.

Beshear's opinion states that the law specifically says the benefits under the inviolable contract shall "not be subject to reduction or impairment by alteration, amendment, or repeal."

A spokeswoman for Bevin dismissed the opinion.

It “fails to analyze any case law, making it look like it was written by a first-year law student,” Amanda Stamper said in an email.

“Attorney General Andy Beshear is wrong yet again. COLA freezes are common in pension reform proposals and have been upheld in courts.”

Kentucky Pension Crisis: Pension reform, taxes and the budget: Matt Bevin reaches his defining moment as governor

From September: Judge to medical marijuana users: Talk to lawmakers about legalization, not me

But Brent McKim, president of the Jefferson County Teacher’s Association, called the attorney general’s opinion “very significant” and likely correct. Representatives for teachers have insisted that any suspension of COLAs for retired teachers would violate the inviolable contract.

“It affirms what we have been communicating to policymakers in Frankfort," McKim said.

Rep. James Kay II, a Versailles Democrat, said he sought the attorney general’s opinion because he believes state law forbids suspending the adjustments. The opinion affirmed his belief, said Kay, a member of the legislative Public Pension Oversight Board.

“The attorney general definitively found" that it would break "the inviolable contract, which would be unlawful,” Kay said. “I’m no attorney general or a judge, but I’m an attorney and I believe the inviolable contract protects this.”

Kay said he believes several other provisions of Bevin’s bill, such as the elimination of state employee sick time credits, are unlawful and he may seek attorney general opinions on those as well.

Kay said that although Beshear's opinion is advisory, lawmakers would be ill-advised to proceed with provisions that could later be challenged in court. “You want to pass legislation that will have the force of law and won’t cost the state a lot of money in legal challenges,” Kay said, adding that the Beshear's opinion is a "red flag."

Bevin spokeswoman Stamper took a shot at Andy Beshear’s father, former Gov. Steve Beshear, saying in her email that the Bevin administration and legislative leaders are trying to “save the state’s failing pension systems, which became the worst-funded systems in the country under Steve Beshear’s 8-year term as governor.”

Related: Gov. Matt Bevin says he might not call special session on pension reform

Read this: Kentucky gave $15M to manufacturer. Now, one of its investors is raising money for Bevin

Bevin, a Republican, has been harshly critical of the Beshears, both Democrats, since he took office.

Tim Abrams, executive director of the Kentucky Retired Teachers Association, said in a statement that Beshear's ruling confirms what the group and others have argued for months.

"This opinion is further evidence that the Gov. Matt Bevin administration and members of the Kentucky General Assembly still don’t have a legal, workable, fair, and acceptable pension reform plan," Abrams said.

The governor’s proposed pension bill would suspend COLAs for all current retirees for five years and would freeze such payments for future retirees for the first five years after they retire. Teacher advocates assert that Bevin shouldn't stick them for the state's past-due obligations by depriving retirees of benefits they've already earned.

To give retirees a sense of how the compounded costs would affect their compensation, the Kentucky Education Association and other groups feature interactive COLA suspension calculators on their websites.

According to a calculation run on the KEA website, a 67-year-old retiree who receives a monthly annuity payment of $3,073 per month — the payment for the average retiree — would lose $54,643.
Pension repairs must be mindful of consequences

It is said “the journey of a thousand miles begins with one step.” Pension reform is a long journey and an important issue for the future of Kentucky. Our partner, the Kentucky Chamber of Commerce, has been advocating for pension reform for more than a decade.

The Hardin County Cham*ber of Commerce is encouraged that the governor and Gen*eral Assembly now recognize they need to take the first step.

Like many first steps on a long journey, the state’s current pension plan proposal is not perfect. Kentucky needs to get on the road to recovery and work together to solve the current pension issue. This is not an issue that occurred overnight and some hard decisions need to be made to dig ourselves out of this crisis.

The Hardin County Chamber of Commerce is one of the largest chambers in Kentucky, representing more than 700 members. The pension decisions that need to be made affect the community we represent.

Our mission is to support a prosperous business climate and that is hard to achieve if we do not have a strong well-functioning local government, education system and public safety system. First responders, educators plus local and state government employees are valued members of our community and vital to our regional economy.

According to the EMSI Analyst 2016 report, in the Eliza*bethtown/Fort Knox Metro**politan Statistical Area, education and local government account for approximately 7,000 jobs.

That spending power alone greatly impacts our regional economy and strong public institutions are critical to attracting new business.

Companies will not relocate here or build new facilities without strong schools and safe communities. Thus, pension reform must be a thoughtful process that begins to solve the problem, while still providing deserving benefits to these important members of our community.

Additionally, it is important to understand how we got here.

Multiple studies in the past have reached the same basic conclusion. The state, not local institutions, overpromised and underperformed on pensions. Therefore, a plan to reform pensions should not simply shift responsibility to the local institutions and individuals that already have done their part over the years to fully fund their respective pension plans. This could negatively impact their ability to provide services that not only our residents depend on, but our economy as well.

Many are asking, what is the solution? For starters, the state has to stop overpromising and underperforming. It also is important to recognize it was a long journey to get to the crisis we are in today and it will be a long journey on the road to recovery.

We encourage the governor and legislature to continue working closely with those impacted to solve this issue by strengthening the pension plans. This must be a collaborative approach to avoid both short- and long-term negative consequences.

Brad Richardson is president and CEO of the Hardin County Chamber of Commerce. He can be reached at
Legislators cite pension, budget as 2018 priority
Full of highs and lows, 2017 has been political whiplash for Kentucky Republicans.

At its start, the party celebrated life in the majority after sweeping 2016’s November election, a first for the state House of Representatives since 1921, followed shortly by passage of five Republican-endorsed bills, most notably right-to-work and prevailing wage.

However, what goes up must come down, and celebrations were soon wrought by months of debate over pension reform, sex scandals, resignation, and on Dec. 13, the apparent suicide of Rep. Dan. Johnson.

With the dawn of a new year, and a new session starting on Jan. 2, Kentucky Republicans are hoping to regain sure footing with a productive session focused on funding pensions and the upcoming budget.

Pensions will be addressed at the start of the session, according to Sen. Jared Carpenter, R-Berea, noting Kentucky legislators have worked hard over the past few months on the original bill presented by Gov. Matt Bevin, to craft a bill members could fully support and that will be “palatable” to public employees and teachers. Scores on those proposed amendments are currently awaited, according to Kentucky House Majority Leader Rep. Jonathan Shell, R-Lancaster.

“I want to treat current employees fairly,” said Carpenter, speaking on what a bill he could support might look like. “There will have to be some concession. But someone teaching 20 years (has) planned their later years based on what they were going to get. The original plan changed that. I still have a hard time saying that’s a fair thing to do to someone (already) in the system.”

While incoming employees will likely see pensions revised, Carpenter said he wants to make sure quality employees can still be attracted to work in state, city and county government jobs, and as teachers.

The senator added his desire for more dialogue with the community so they can see that their legislators have their best interest at heart.

Rep. Wesley Morgan, R-Richmond, said he hasn’t reviewed the newest amendments to the pension bill, but said he wouldn’t “do anything" on it until speaking with school officials to see how it would affect them.

“I represent my constituents and I want to know what my constituents have to say. That will determine how I vote on it,” Morgan said.

Next to the pension crisis, the budget will have top billing in the session. According to Shell, Bevin will make his budget proposal on the 10th legislative day. Important budget line items include pensions, education, the state corrections system and transportation, to name a few.

Transportation funding could closely affect Madison County. Carpenter cited Highway 627 and Interstate 75’s exit 95, where Boonesborough Elementary will be built in the already congested area.

The state’s six-year road plan calls for construction of a new, five-lane interchange at exit 95 by 2018, according to a previous Register report.

While pension and budgets will leave room in the session for little else, Shell hopes to see a bill making placement for adoption/foster care a faster and more streamlined process passed.

Another bill he hopes passes is an essential skills bill, which would give credit to schools that help students be work-ready, Shell further explained.

Both Carpenter and Shell acknowledged the state’s incarceration number, likely a symptom of the drug epidemic and a burden on tax dollars.

“We need to get people that need to be in the system arrested and punished, but at the same time, lighten the load and look at the root of the problem,” Shell elaborated.

After the pension bill and budget are settled, Kentucky legislators plan to tackle the next item on Bevin’s wish list — tax reform.

Morgan told The Register he would like to see Kentucky move toward a consumption tax, instead of an income tax.

• • •

In 2017, Kentucky saw nearly $9 billion in economic investment in the state and 16,500 jobs created, according to Shell, who said he hopes the momentum carries over to 2018, keeping the Commonwealth a more attractive place to do business.

The Register was unable to reach Rep. Donna Mayfield R-Winchester for comment before press time.


KRS pensioners sue hedge fund giants, financial advisers and former leadership for crippling Kentucky’s pension system

A major lawsuit was filed Wednesday against several private equity companies and the current and former advisers, trustees and officers of the Kentucky Retirement Systems, alleging that the pension plans’ assets were heavily depleted through a civil conspiracy of disastrous investments in risky “black box” hedge funds and breaches of fiduciary duties.

The 146-page complaint was filed in Franklin Circuit Court by eight current and retired government workers covered by a pension plan within KRS, on behalf of the taxpayers of Kentucky and derivatively on behalf of KRS. The plaintiffs would not be directly paid damages in the lawsuit, but they are seeking billions of dollars in damages that would be deposited back into KRS, along with a court-appointed special fiduciary who would supervise such funds to make sure they are not misused again.

The fate of KRS assets has been well-documented in recent years, as the public pension plans of 350,000 current and former government workers that had a surplus as late as 2001 are now among the worst-funded in the country. The second-largest plan within KRS — the Kentucky Employees Retirement System Non-Hazardous plan — is now the single worst-funded public pension plan in the country and near insolvency, with an asset-to-liability funding ratio of just 13.6 percent.

The complaint filed Wednesday largely focuses on the controversial $1.2 billion investment by KRS on a single day in August of 2011, when three international hedge fund sellers sold three different “black box” hedge fund vehicles — in which the investor knows little if anything about its content. The complaint states that these “risky, toxic” investments had poor returns that depleted the system’s assets, alleging how the private equity firm behind the worst performing hedge fund vehicle — the “Daniel Boone Fund” — used its influence to convince KRS to invest $300 million more into it in 2016.

The giant hedge fund sellers listed as defendants in the complaint are KKR & Co., Prisma Capital Partners, Blackstone and Pacific Alternative Asset Management Company (PAAMCO), in addition to six top executives at these firms. The complaint accuses the companies of targeting the underfunded KRS with risky hedge fund vehicles while charging massive fees, which eventually reaped poor returns that hastened the collapse of KRS assets.

Also listed as defendants in the complaint are several financial advisers to KRS, who are accused of breaching their fiduciary duties to the pension plan. KRS investment adviser R.V. Kuhns LLC is alleged to have used outdated, inaccurate and false actuarial assumptions on investment returns for many years — with actual returns falling well short each year — with two of its top executives also named as defendants.

Actuarial adviser Cavanaugh Macdonald Consulting and three of its top executives were also named as defendants, as well as fiduciary counsel Ice Miller LLP. Government Finance Officers Association, which certified the annual reports of KRS, is also listed as a defendant.

Four former trustees of the KRS board, three current trustees and four former KRS administrators were also named as defendants for breach of fiduciary duties, with the complaint alleging that they conspired with the financial advisers and hedge fund sellers “to cover up the true extent of the KRS financial/actuarial shortfalls and take longshot imprudent risks with KRS Funds to try to catch up for the Funds’ prior losses and deceptions.”

The four former trustees listed as defendants are Randy Overstreet, Bobbie Henson, Jennifer Elliott and Timothy Longmeyer — the latter being the former Beshear administration official who is currently serving in federal prison after his conviction for a bribery and kickback scheme. The current trustees named are Investment Committee members William Cook and Vince Lang, as well as former board chairman Tommy Elliot, who was removed by Gov. Matt Bevin in 2016 but restored as a non-voting member by a court ruling.

Cook, who was appointed to the KRS board by Bevin in 2016, was previously the executive director of Prisma when the firm created and sold the “Daniel Boone Fund” to KRS — retaining a multimillion-dollar interest in that company, according to the complaint.

The complaint also alleges that Cook “arranged for a KKR/Prisma executive to work inside KRS, while still being paid by KKR/Prisma,” and that his “presence on the KRS Board and the presence of KKR/Prisma executives inside KRS, and certain other transactions in which he participated, violated and continue to violate the conflict of interest provisions of the Kentucky Pension Law.”

The complaints also lists former KRS chief investment officer T.J. Carlson and David Peden as defendants, as well as former alternative investments manager Brent Aldridge. The lawsuit also names as a defendant former KRS executive director Bill Thielen, who Bevin recently said “should be in jail” for his actions in that position.

The complaint states that Peden formerly worked with Cook at Prisma, adding that “while Cook and Peden and the KKR/Prisma executive were working inside KRS, KKR/Prisma sold $300 million more in Black Box vehicles to KRS despite that KRS was then selling off over $800 million in other hedge funds because of poor performance, losses, and excessive fees and the KKR/Prisma Black Box was the worst performing of the three. This very large sale to KRS was a significant benefit to KKR/Prisma, which was then suffering outflows due to customer dissatisfaction over poor results and excessive fees.”

The complaint seeks damages for the losses incurred by KRS due to the alleged breaches of fiduciary duty and poor investments, the refund of fees given to financial advisers and hedge fund sellers, and the “greatly increased costs to the taxpayers” of restoring the public pension plans to a properly funded status “after years of concealment of the true financial condition of KRS and the waste of its funds.”

A chart from the KRS lawsuit shows how the KERS-NH plan’s funding ratio dramatically declined as the stock market rose since 2001.
The complaint highlights a 2015 study from the Roosevelt Institute, which reported that hedge funds had aggressively pursued public pension dollars across the country, at great cost to the assets of those plans that would have been better off with normal investments. Examining 11 pension plans that invested in hedge funds, the report found that this cost those funds an estimated $8 billion in lost investment revenue, while hedge fund managers collected an estimated $7.1 billion in fees from those funds in that same time period.

Former KRS trustee Chris Tobe — a whistleblower who drew attention to many issues detailed in the complaint in his 2012 book “Kentucky Fried Pensions” — told IL that he was not involved in the lawsuit but is very supportive of it, “as it reinforces one of the top recommendations in my book to enforce state fiduciary law based on CFA codes and standards, through litigation if necessary. It also goes after directly the Wall Street firms that have taken Kentucky taxpayer money via excessive fees in secret no-bid contracts.”

The plaintiffs are represented by Louisville attorneys Ann Oldfather and Vanessa Cantley, as well as Michelle Ciccarelli Lerach of La Jolla, Calif., and Washington, D.C., attorney Jon Cuneo. Pensions Forensics LLC was hired by the plaintiffs as a consultant for the litigation.

In a press release from Oldfather announcing the litigation, plaintiff Jeff Mayberry — a retired captain with the Kentucky State Police — stated that the defendants should be forced to pay as the state struggles with budget shortfalls resulting from the pension crisis.

“I’m not one for litigation, but this suit needed to be brought,” said Mayberry. “Even if we don’t get a dime for the funds to help replenish what was lost – though I certainly hope we will — we might get some reform at the [KRS] board in how our money is managed. Most of (us) can’t afford to start over.”

The lawsuit filed in Franklin Circuit Court on Wednesday only presents the plaintiffs’ side of the legal argument.

The spokespersons for Gov. Bevin did not immediately return an email seeking the administration’s reaction to the lawsuit. Bevin had promised to call a special session of the Kentucky General Assembly before the end of this year to take up his public pension bill — which shifted most government workers from defined benefit plans to 401(k)-style defined contribution plans — but there was a lack of consensus among Republican legislators. Legislators are expected to devote the early weeks of the regular session that begins next to pension legislation.

Terry Sebastian, the spokesman for Kentucky Attorney General Andy Beshear, told IL in a statement that “because of our current action in Franklin Circuit Court involving the Kentucky Retirement Systems Board of Trustees, we are unable to consider the claims in this (Mayberry) lawsuit at this time.” In the case in question, Tommy Elliott sued the governor for illegally removing him from the KRS board, with Beshear intervening to also challenge this as an illegal reorganization of an independent board.

In a 2014 lawsuit filed by a Louisville teacher against the Kentucky Teachers’ Retirement System, KKR was represented by Stites & Harbison, where Beshear worked at the time before taking office as the attorney general in December of 2015.

KRS interim executive director David Eager told IL that “by policy, we have no comment on pending litigation.”

A spokesman for Blackstone told IL in an emailed statement that the claims in the lawsuit are “baseless,” as “the Blackstone fund referenced in the complaint delivered to the Kentucky Employees Retirement System positive returns outperforming relevant benchmarks.”

Likewise, a spokeswoman for KKR stated in an email to IL that “We take our fiduciary duty very seriously and believe that the allegations about our firm are meritless, misplaced and misleading.”

A PAAMCO representative told IL that the firm has not yet seen the complaint. Prisma did not immediately return a request for comment.

The full complaint can be read below:

Mayberry v. KKR (KRS lawsuit) by insiderlouisville on Scribd
Kentucky Workers Suing Hedge Funds to Recover Pension Losses
A group of former and current public workers is suing three hedge funds for selling risky investments and overstating returns to the agency that manages Kentucky's struggling pension fund.
FRANKFORT, Ky. (AP) — A group of former and current public workers has sued three hedge funds for selling risky investments and overstating returns to the agency that manages Kentucky's struggling pension fund.

The lawsuit filed Wednesday seeks damages from hedge funds KKR Prisma, Blackstone and PAAMCO. The workers allege the funds sold "unsuitable 'black box' investments" in 2011 with massive fees to the Kentucky Retirement Systems, according to a summary of the 124-page lawsuit filed Wednesday in Franklin County Circuit Court.

Last year, the pension debt was a combined $21.7 billion across the five systems in the Kentucky Employee Retirement System.

A spokesman for Blackstone called the lawsuit's claims "baseless." ''The Blackstone fund referenced in the complaint delivered to the Kentucky Employees Retirement System positive returns outperforming relevant benchmarks," Matthew Anderson told the Courier Journal.

KKR/ Prisma did not return a request for comment to the newspaper, and a spokeswoman from Pacific Alternative Asset Management said the firm was reviewing the complaint.
The KRS was fully funded in 2001 but after years of bad losses, the pension board trustees and their consultants decided to "take longshot gambles (in 2011) to try to catch up," the lawsuit said.

The summary said KRS made a massive $1.2 billion investment in one day in August 2011, which amounted to 10 percent of the fund's assets. The plaintiffs argue the Kentucky Retirement Systems advisors "allowed the trustees to plunge into an over-concentrated hedge fund-of-funds gamble into vehicles that had no prior record of investment performance ..." according to the summary.

The suit says any monetary damages awarded would go to help recover pension fund losses. The group of eight plaintiffs has county and state former and current employees, including Brandy O. Brown, a district court judge for Clark and Madison counties.
Kentucky State Workers Sue Investment Firms Over Pension Shortfall
(Reuters) - A group of Kentucky state workers filed a lawsuit against state retirement system officials and three asset management firms on Wednesday, saying they breached fiduciary duties by embracing high-risk, high-fee investments that yielded lackluster returns.

Kentucky has one of the nation's most underfunded public pension funds, with nearly $16 billion in assets and a shortfall the suit estimates to be at least $27 billion.

The retirement and health benefits of 360,000 state workers, from police officers to janitors, depend on Kentucky's pension fund.

The lawsuit in Franklin Circuit Court seeks damages from KKR Prisma, Blackstone Group and PAAMCO for losses on investments they recommended. It also names several former or current Kentucky Retirement Systems officials as defendants.
Blackstone and KKR on Wednesday said the claims were baseless.

"The Blackstone fund referenced in the complaint delivered to the Kentucky Employees Retirement System positive returns outperforming relevant benchmarks," the group said in a statement.

"We take our fiduciary duty very seriously and believe that the allegations about our firm are meritless, misplaced and misleading," said a separate statement issued by KKR.

PAAMCO did not immediately comment on the lawsuit and Kentucky Retirement System officials could not be reached for comment.

Ann Oldfather, one of the attorneys representing the workers, said in an interview that the system suffered major losses in the 2000s. Desperate to bridge shortfalls, she said retirement officials were drawn into investing $1.2 billion in 2011 in high-risk hedge funds that carried high fees and were complex and difficult to monitor.

Lower-risk, simpler index fund investments would have been more suited for a pension fund, she said.

Retirement officials also used faulty assumptions for returns and did not sufficiently communicate the extent of the shortfalls, Oldfather said. That contributed to insufficient funding from the state legislature, the lawsuit seen by Reuters argues, citing comments from state lawmakers.

Kentucky's pension fund in 2001 was fully funded with a $2 billion surplus, the suit says, but is now in danger of failing with the largest of the plans having 13.6 percent of the money it needs.

Republican Governor Matt Bevin is pushing state lawmakers to overhaul the retirement system when they convene next month.


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Christie move will force a big boost in pension price tag for Phil Murphy
A small tweak to New Jersey's pension system made by Gov. Chris Christie's administration could create a huge headache for incoming Gov.-elect Phil Murphy, who will find state and local governments' bills for public worker pensions jacked up by hundreds of millions of dollars.

The state treasurer cut how much the state should assume it will make on its pension investments -- which it uses to calculate how much money current and future retirees are owed -- from 7.65 percent to 7 percent.

The move increases the pension tab for state and local governments by more than $800 million for the fiscal year that begins in July, according to an NJ Advance Media analysis of state actuary reports released Tuesday.

The change was praised by the pension fund actuaries, who say a 7 percent assumed rate of return is in line with other large funds and is a more conservative estimate of what pension investments can achieve over the long term.

In contrast, assuming the investments will earn a high rate makes the pension fund look healthier than it really is and doesn't reflect the reality of the state's investment outcomes, actuaries say.
The fund returned 13 percent in the fiscal year that ended in June, but lost nearly 1 percent the year before. It returned 4.16 percent and 16.9 percent in the years prior.

A seemingly small change, Treasurer Ford Scudder's decision sends ripples throughout the pension system for 800,000 active and retired state and local government workers.
Local governments, which by law have to pay the full contribution recommended by actuaries, will have to come up with an additional $422.5 million for the fiscal year that begins in July, data show.

Jon Moran, legislative analyst with the New Jersey League of Municipalities, said local officials hadn't yet been alerted to the change.

"It's too early to say what the impact will be in various towns. As always, it depends on your workforce, how many employees they have and their ages and things like that," Moran said. "But it is something we weren't anticipating. And it's sure to be felt."

The state has more flexibility, as contributions are set by the governor and lawmakers and are subject to appropriation.

The state contributes less than what's recommended by actuaries. This year, it's expected to kick in about $2.5 billion, or half of what's recommended, and it is on track to contribute 60 percent next year.

The full hike driven by the cut in assumption rate is $390.3 million. If the state pays in 60 percent of the pension contribution as expected, it will have to come up with an extra $234 million for a total pension contribution of $3.4 billion next year.

Christie leaves office in January, and Murphy, who was elected in November, will deliver next year's budget to the Legislature.
A spokesman for Murphy did not respond to a request for comment.

Christie's administration has been gradually reducing the assumed rate of returns. Just last year Scudder dropped it from 7.9 percent to 7.65 percent, the first revision since it was dropped from 8.25 to 7.9 percent six years ago.

"It is the unmistakable trend in public pension plans across the country," said Willem Rijksen, spokesman for the Treasury Department.

Fund actuaries predict the pension investments were likely to beat the 7.65 percent assumed rate only a third of the time but could beat the new 7 percent rate 45 percent of the time.

Tom Byrne, chairman of the State Investment Council, which oversees pension investments, said he was consulted on the change, which represents a more responsible assumption.

"There's always a range of opinions about returns, but most people think that stocks will have returns in the high single-digits going forward, maybe if we're lucky, and bonds are returning 3 or 4 percent," he said. "So 7 percent seems a reasonable assumption for longer-term returns."

Rijksen argued a more conservative rate is especially warranted given Murphy's promise to divest from private equity and hedge funds, "as they have been and are expected to be a major source of added return."
Lowering the discount rate to 7 percent has the effect of hurting the fund's outlook on paper, increasing its unfunded liabilities by $14.4 billion.

An NJ Advance Media analysis shows the state's portion of the pension debt rose from $36.5 billion to $45.4 billion, and the local portion rose from $17.1 billion to $22.6 billion.

As of July 1, the total fund had assets to cover just 59.3 percent of its $167 billion in liabilities, under state rules for assessing its health. The pension debt is much higher when measured under national accounting standards.

These higher liabilities demand higher contributions from employers.

"The change in discount rate does not ultimately change the cost of the system. It's just how is the cost allocated to each year in the future," said Aaron Shapiro, an actuary with Conduent HR Consulting told the Public Employees' Retirement System Board of Trustees on Tuesday. "... It just says we expect to earn less, and therefore we need to start thinking about making higher contributions."

Without the assumption change, the pension fund would have shown big improvement, thanks to Christie's plan to shift proceeds from lottery ticket sales into the fund that immediately shaved about $13 billion off the debt. But moving to 7 percent added back billions in new liabilities.
The numbers "give the impression that we're headed toward economic calamity here, when in fact, we're not. We're improving," said Tom Bruno, chairman of the PERS Board of Trustees.

In addition to lottery revenues flowing into the fund, the state has begun making contributions into the system quarterly, protecting the payment from last-minute budget cuts.

New Jersey's pension system is considered among the worst funded in the country, and Christie has called for sweeping reforms to reduce the burden of pension and health benefits on the $35 billion state budget.
Phil Murphy cries foul over Christie pension move
Gov.-elect Phil Murphy on Thursday accused Gov. Chris Christie of "playing politics" in making a small accounting change to the public pensions system that will hike pension bills for the state and local governments by $800 million next year.

Christie's administration cut the pension fund's assumed rate of return on its investments from 7.65 percent, a figure considered too high, to 7 percent, which actuaries say is in line with other large public pension funds and better reflects the state's long-term investment returns.

The assumption rate is used to calculate how much money public employers will need to pay out benefits. A rate that's too high makes the pension fund look healthier than it really is and allows employers to contribute less than they should.

The move added billions of dollars to the state's dizzying pension debt and more than $800 million to the contributions actuaries recommend employers make in the fiscal year beginning July 1, according to an NJ Advance Media analysis of actuary reports released Tuesday.

Local governments that by law have to make the full payment recommended by actuaries will have to kick in an extra $422.5 million as a result of the change, according to actuary reports.
"Governor Christie is playing politics with the pension fund by rushing this decision at the 11th hour," a spokesman for Murphy, Dan Bryan, said in a statement. "At a time when our taxpayers are already taking a hit, our focus should be on lessening the burden of property taxes, not increasing it."
The reduced rate will increase the state's pension bill by $390.3 million. As the state is scheduled to pay 60 percent of the contribution recommended by actuaries, it would be expected to pay $234 million of that, or $3.4 billion next year.

The state is contributing 50 percent this year, or $2.5 billion.

Christie leaves office in January, and Murphy will deliver next year's budget to the Legislature in February.

In a statement, Murphy's spokesman suggested the treasurer should have phased in the lower rate. The California Public Employees' Retirement System, the largest public pension fund in the U.S., is in the process of gradually moving from 7.375 percent to 7 percent over three years.

It's left to New Jersey's state treasurer to set the assumption rate, which he also revised last spring from 7.9 percent to 7.65 percent.

Fund actuaries predict the pension investments were likely to beat the 7.65 percent assumed rate only a third of the time but could beat the new 7 percent rate 45 percent of the time.
A spokesman for the Treasury Department said the rate has been trending downward under Christie, and the decision to cut it further was made in consultation with the heads of the divisions of Investment and Pensions and Benefits and with the chairman of the State Investment Council and

"This administration remains focused on reality and not playing games with assumptions to cast our liabilities in a more favorable light, as has been the past practice in New Jersey," spokesman Willem Rijksen said.

"The Christie administration has methodically lowered the assumed rate of return from 8.25 percent when Governor Christie took office in 2010."

He's argued the lower rate is necessary given current elevated asset valuations and Murphy's vow to divest from hedge funds and private equity, "as they have been and are expected to be a major source of added return."

The pension board chairman, Tom Byrne, told NJ Advance Media 7 percent represents a more reasonable assumption.

"If there's criticism, it'll be about the timing and is that political and so forth," he predicted Tuesday. "Should we have gotten here a little bit quicker or a little bit slower. I'd rather just focus on are we in the right place. I think most people agree that we are."
Murphy miffed at Christie over pension change that could cost state and local governments
A last-minute change by Gov. Chris Christie to New Jersey's pension funding formula could drive up property taxes for many residents, Gov.-elect Phil Murphy charged in the latest flare-up between incoming and outgoing administrations.

Murphy's office objected to a decision by Christie's treasurer to lower the state's forecast for pension investment returns, which would force state and local governments to contribute hundreds of millions of dollars more to the retirement system to make up the difference.

Under Treasurer Ford Scudder's decision, the New Jersey Public Employees' Retirement System is counting on its investments to return 7 percent a year on average, down from 7.65 percent. Assuming a lower return from investments widens the $90 billion gap between the pension fund's expected assets and its obligations to retirees, which will compel state and local governments to increase their contributions to curb the shortfall.
“Governor Christie is playing politics with the pension fund by rushing this decision at the eleventh hour," Murphy spokesman Dan Bryan said in an email message. "At a time when our taxpayers are already taking a hit, our focus should be on lessening the burden of property taxes, not increasing it.”

Scudder's office responded that the change simply reflects the reality of investment markets and that many other states are taking similar steps. The treasurer also took a jab at Murphy, saying his vow to wean the pension fund from more lucrative — but risky — investments like hedge funds would depress its earnings.

"This need to lower the assumed rate of return is especially true in light of the promises of the governor-elect to eliminate alternative investments from the pension fund, as they have been and are expected to be a major source of added return," Treasury spokesman Willem Rijksen said in an email message.

He added that if Murphy's true concern were lowering property taxes, he would support extending the Christie administration's 2 percent ceiling on raises for police and firefighters who go to arbitration.

The quarrel over pensions is the latest flashpoint in what has become a contentious transition between the two-term Republican and his Democratic successor, who took aim at Christie during the campaign against Lt. Gov. Kim Guadagno this year.
After an initial post-election meeting that Christie and Murphy described as cordial, the two have tangled over Christie's nominations of dozens of judges in his last weeks in office, Murphy's claim that Christie — like Murphy himself — required members of his transition team to sign non-disclosure agreements, and Murphy's contention that he was inheriting hundreds of millions of dollars in budgetary shortfalls from Christie. The outgoing governor has blamed inexperienced aides to Murphy for leaks from the transition.
On the pension funding change, Murphy's transition team did not say that Christie's administration erred in lowering the investment forecast, only that the change should have been phased in and that Christie aides did not provide written justification for the change. Rijksen declined to share any reports from pension fund actuaries documenting the reasons for lowering the forecast.

New Jersey's more pessimistic outlook is in line with many other large state pension funds in the country, according to the National Association of State Retirement Administrators. While New Jersey pension fund investments returned 13.07 percent in the year ended June 30 — reflecting the broader stock market rally — the overall return over the last three years has been 5.25 percent.

Most public pension funds in the U.S. are counting on their investments to return between 7 percent and 7.5 percent, while New Jersey's former rate of 7.65 percent put it among the one-fifth of pension funds expecting between 7.5 percent and 8 percent, according to the pension trade group. A February 2017 report from the association noted that about three-quarters of U.S. pension funds had lowered their investment forecasts since 2010.

Pension-padding lawmakers join hands in lame duck | Editorial
In case anyone has missed the news from the last two decades, New Jersey's pension system is teetering on collapse, and it is so dire that Gov. Christie now believes state workers should move into a 401(k) retirement plan.

But if you have close friends in Trenton, don't sweat it: There's always room for one more pensioner profiteer, and they might even fast-track a bill just for your personal benefit.

Dana Redd, the outgoing Camden mayor who is political ally to Christie and Senate President Steve Sweeney, is the lottery winner in this scenario. The Senate expedited a bill that would allow a handful of elected officials the opportunity to jump back into the state pension system rather than remain in the state's less generous retirement plan.

What's the urgency? The lame duck session ends Jan. 9, and Christie leaves a week later.

So the bill was introduced Tuesday, Sweeney waived a review by the state Pension and Health Benefits Review Commission Wednesday, it flew through the Senate Budget committee without debate on Thursday, and then the full Senate and Assembly Appropriations Committee Monday.

Seriously, aren't you impressed by how fast these guys move sometimes?

Yes, an argument can be made that Redd - and a handful of others - deserves to be re-enrolled in the Public Employees Retirement System (PERS) because of her 15 years of continuous public service.

But this politically-greased maneuver is designed to benefit no more than five people, and if you have a rule, you don't change it for a few political cronies without debate.

"And you damage the credibility of that argument when you try to do it during lame duck," added Assemblyman Declan O'Scanlon, R-Monmouth, who will vote against the bill even though he might be one of the few who benefits from it.

True, it's not what they did. It's how they're doing it.

It is also suspicious that the lawmakers will not specify which public officials cash in on the bigger pension plan, at a time when workers without government angels have had their benefits slashed and COLA increases frozen since 2011.

Sweeney is right when he rationalizes that a few more enrollees won't make a big monetary difference to a pension system that is already short-funded by $90 billion. But this is not how you make a law. This is how you try to keep taxpayers oblivious to the usual Trenton subterfuge.
Stile: Lame duck pension bill underscores Trenton hypocrisy and reckless tradition
New Jersey's troubled pension system is one of the largest expenses in state government.

And one of the largest sources of hypocrisy.

It was just this month that Chris Christie, New Jersey's outgoing governor and self-styled pension reformer, warned that the only way to prevent the system from crashing into bankruptcy is to cut pension and health benefits for every clerk, firefighter, police officer and teacher.

But now, the Democratic-controlled Legislature is ramming through lame-duck legislation that pads the pensions of several lawmakers, including at least one and possibly two trusted lieutenants in the political machine of South Jersey power broker George Norcross III.

And there is every expectation that Christie -- who collaborated with Norcross for much of his eight years -- will sign the bill into law after the Assembly gives its final approval.

This is how it has often worked for much of the Christie era: He drives the narrative with a booming voice on a public stage, but then agrees to do something quite different in private. But this pension sweetener reflects a more deep-rooted attitude shared by Christie's predecessors over the past three decades.
For decades, legislators and governors have misused the pension fund by forgoing payments to aid short-term budget needs or by increasing benefits to reward political cronies. It's a kick-the-can-down-the-road impulse that still stands, even as the fund itself needs $90 billion to cover all its promised obligations to workers and retirees.

That impulse threads through the litany of reckless pension maneuvers from the past decades.

It lies at the heart of the $2.7 billion bond borrowing scheme in 1997, which the state is still repaying. It was at the heart of a 9 percent boost in 2001 retirement payouts despite growing economic warnings that the state could not afford it.

Two years later, the Legislature teed-up a bill that allowed officers of public employee unions to obtain taxpayer-financed state health benefits, another program swimming in debt.

"There's no state money, no taxpayer exposure here," one official from the Communications Workers of America argued at the time.

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And, of course, that is the same rationale that allowed governors and lawmakers to justify short or entirely skip the annual payment to the pension system.

Senate President Stephen Sweeney, D-Gloucester, is the latest to offer the calming dulcet tones of reassurance, which is surprising given that he was one of the first to raise the alarm bell of runaway pension costs and clashed with union leaders as far back as 2006 over curbing benefits. He was hounded at protests by a massive inflated rat that year, and vilified as a traitor in 2011 when he cut the deal with Christie that led to historic public worker givebacks.

Sweeney said the latest pension sweetener being rushed through the Legislature with negligible scrutiny will have "no impact' on the pension system. He cited an Office of Legislative Services analysis that concluded that the small number of potential beneficiaries should not add to the fund's debt.

"If you have 50 people you add, you’re not really having an impact when you have 800,000 people" in the pension system, he said Monday. "And we’re actually doing pretty well with the pension today. We’ll see what it’s like tomorrow."

Sweeney's shift from championing cost-cutting to pushing a pension sweetener may have something to do with the potential beneficiaries.

The bill provides redress to a small subset of officials who were negatively affected by a 2007 reform that banned newly elected officials from enrolling in the Public Employee Retirement System. After the law passed, newly elected officials were allowed to enroll in a less-generous 401(k)-style system.

One of those affected was Camden's Dana Redd, a former state senator, and one of the more prominent stars in the Norcross-Sweeney constellation of power. Redd was bumped from PERS in 2010 when she was elected Camden City mayor and her account was frozen. She began building credits in 1990.

Under the bill, Redd will be able to resume her standing in PERS. It allows her to buy back eight years of PERS service and retire based on her current salary of $102,000, which is higher than the $92,600 of income when she bumped from the system in 2010, according to several press reports.

Sweeney, a close ally of Norcross, said the intent of the 2007 law was to apply it to newly elected officials, not to those veterans who had spent their careers climbing through PERS. The new law is mere "housekeeping,'' he said. Another potential beneficiary is Sen. James Beach, D-Camden, another member of the South Jersey bloc.

But it's hard to believe Redd was not aware of the consequences to her pension benefit when she made the decision to run for mayor in 2010. After all, the reform was already on the books for three years. Redd declined to comment Tuesday.

And if the bills are mere "housekeeping,'' then why the lame-duck sprint? Why was the normal protocol of having the bill screened by a Pension Review Commission suspended? Maybe it's because a bill that tacks on more time and costs is indefensible after all the attention paid to the sad-sack state of the pension system -- even if its projected costs are pennies in an ocean of red ink. Or it's simply being rushed now because Redd is leaving office next month after 17 years of continuous service as an elected official.

Or maybe Sweeney and other supporters understand that even low-cost hypocrisy is not the kind of thing you want as the subject of an extended debate. Christie, who thundered ominous warnings about the looming pension apocalypse two weeks ago, took cover behind his boiler plate response about pending bills.

"I don’t comment on pieces of legislation before they reach my desk and I have my attorneys be able to evaluate it and give me their opinion,'' he said in Newark.

He wasn't the only one who pleaded ignorance. Gov.-elect Phil Murphy, who led a 2006 commission that decried these kinds of legislative tack-ons to the pension system, said he didn't "know about the bill per se" and fell back on his vague campaign rhetoric about the state owning up to its obligations to pensioners.

It was a pretty disappointing response from the scolding tone of 12 years ago: "Abuses by the politically well-connected are more than simply inappropriate; they erode the integrity of the system," the Murphy report said.

But that was another bygone era when the threat of insolvency was further off the horizon. Soon it will be Murphy who will have the chance to abolish what he once condemned, or keep the system wobbling along in its current state with some routine "housekeeping."
Senate Passes Bill to Let Some Re-Enroll in Pension
The New Jersey Senate approved a bill to allow a handful of public officials to re-enroll in the pension system after being kicked off when elected to a new office.
TRENTON, N.J. (AP) — The New Jersey Senate on Monday approved a bill to allow a handful of public officials to re-enroll in the pension system after being kicked off when elected to a new office.

Senate President Stephen Sweeney said the bill that passed, 24-8, corrects an oversight in the 2007 law that established a 401(k)-style retirement plan for newly elected officials. The aim of the 2007 law was to prevent newly qualified public workers from enrolling in the pension, not to bar elected officials moving from one post to another from stopping the accrual of time toward their pensions, Sweeney said.

He says the law was not intended to target officials who moved to another office.

"It has really no impact on the budget," Sweeney said.

Questioned about whether it could truly have zero impact if it meant certain officials could see a boost in their pension, Sweeney pointed out the pension has 800,000 enrollees and adding a few wouldn't significantly affect it.
"In my mind it's no impact," he said. "If you have 50 people you're not really having an impact when you have 800,000 people."

Republican Sen. Kristin Corrado opposed the bill in committee, saying laws shouldn't be made to benefit a select few.

New Jersey has one of the worst-funded pensions in the country, with a liability estimated at about $80 billion to $90 billion.

Outgoing Democratic Camden Mayor Dana Redd is among the officials who would benefit. Sweeney also confirmed that Democratic lawmakers James Beach, a Camden County state senator, and Ralph Caputo, an Essex County assemblyman, could also benefit from the legislation.

The Assembly has not yet voted on the measure.
Veto Sweeney's Pension Bill
It sends the worst possible message to the great mass of teachers, first responders and office workers who depend on public pensions for their retirement. It tells them that while they will be asked to make sacrifices, the right people will be ushered into the lifeboats by their friends.
This page has repeatedly editorialized about the insolvency of New Jersey’s public pension system, reported last year by Bloomberg to be the worst funded in the country. The Pension and Benefit Study Commission appointed by the outgoing governor has recommended finding the money to fill the gap by cutting back employee health coverage while freezing the current defined benefit system and shifting employees to a 401(k)-type cash balance plan that puts the risk of investment performance on them instead of the state. Pension reform is going to be a heavy political lift for the incoming governor. In a state where turnout in a gubernatorial election is just about 2 million votes, the U.S. Census says that there are more than 400,000 state and local government employees, many of whom have spouses. On top of that are retirees. That’s an immense, well-organized interest group, found in every legislative district, all deeply concerned to hold on to what they have. Getting their cooperation isn’t going to be easy.

The current pension shenanigans in the lame duck session of the Legislature won’t make it any easier. Back in 2007, a small measure of pension reform was enacted. Under it, elected officials who changed jobs left the Public Employee Retirement System for a less certain, less lucrative 401(k) type plan. Now a bill to allow some of those elected officials to rejoin PERS is rocketing through the Legislature. Introduced last week by Senator Sweeney, the bill has already cleared one house and is passing through the other without debate. Both the outgoing and incoming governors have been conspicuously silent about it when questioned.

As far as can be determined by the Office of Legislative Services, S-3620/A-5322 will benefit only a small number of well-connected elected office holders. Compared to the iceberg that the pension system is eventually going to hit, its financial impact is negligible—hardly more than the frost on a champagne glass. But it sends the worst possible message to the great mass of teachers, first responders and office workers who depend on public pensions for their retirement. It tells them that while they will be asked to make sacrifices, the right people will be ushered into the lifeboats by their friends. We think a veto would send the right message, and we see no good reason why our lame duck governor shouldn’t provide one.


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Old 12-28-2017, 10:17 PM
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Cuomo: NY pension fund should end fossil fuel investments
New York Gov. Andrew Cuomo says the state's pension fund should pull its investments in fossil fuels.

The Democrat announced the idea Tuesday. It's long been a goal of many environmental advocates, who say the state shouldn't invest in fossil fuel companies when it's working to reduce its carbon emissions.

Cuomo says he wants to work with state Comptroller Thomas DiNapoli to study the more than $200 billion fund and divest from any "significant" fossil fuel investments. The governor says the move would send a strong message to financial markets that New York is committed to renewable energy and sustainable economy.

Under his proposal the state would also look for ways to boosts investments in clean energy. The plan will be detailed in Cuomo's state of the state address next month.
Cuomo ignites pension fund debate with divestment push
ALBANY -- As Gov. Andrew Cuomo tells it, the state pension fund -- the third largest retirement nest egg for public employees in the nation -- should sell off its investment in fossil fuel companies that have polluted the environment with products that worsen global climate change.

"That is the energy of yesterday," he told reporters this week after previewing a proposal that he plans to stitch into his Jan. 3 State of the State speech. "It is literally polluting the planet."

The $201.3 billion New York State and Local Retirement System fund, as it is officially called, is managed by state Comptroller Thomas DiNapoli.

As the fund's sole trustee, DiNapoli has resisted earlier calls from green activists for divestment in oil and natural gas companies. He has contended that as a shareholder with a seat at the table he is in a better position to influence corporate behavior than he would be if he sold off the pension fund's stake in those companies.

Cuomo, who has no oversight role over the fund, cast his interest in an avuncular way, suggesting that he wants to "protect the retirement savings of New Yorkers." But with the governor poised to seek a third term in Albany in 2018 and leaving the door open for a run for the White House in 2020, the pension fund divestment issue has already triggered speculation that political considerations were a factor in the proposal.

But the governor's move has spawned concerns that a green energy litmus test over investment decisions could end up limiting the fund's growth should Cuomo's prognostications regarding energy sector stocks prove to be flawed.

"The comptroller needs to stick to his guns and understand that his fiduciary responsibility is to the beneficiaries" of the fund, said Christopher Burnham, the former Connecticut state treasurer who served as the sole trustee of the Nutmeg State's pension fund from 1995 to 1997.

"You have to invest these monies cautiously, carefully and wisely, and without allowing a personal agenda to play a role in how you execute your duties," said Burnham, a Republican and native New Yorker who is chairman of Cambridge Global Advisors in Virginia.

DiNapoli and Cuomo are downstate Democrats, though at times the relationship between the two has been chilly. Since Cuomo advanced his pension proposal, the comptroller has avoided arguing with the governor over the issue, instead signaling that he welcomes the "opportunity to partner" with Cuomo via an advisory council aimed at "achieving investment returns."

DiNapoli further stated that while he has "no immediate plans to divest our energy holdings," the New York pension fund has been a leader in advancing climate change goals and is increasing its current stake of more than $5 billion in "sustainable" investments.

"We believe in engagement with companies," DiNapoli said in responding in June to a CNHI inquiry about a push for divestment by a coalition calling itself Elected Officials to Protect New York."

Republicans lost no time in accusing Cuomo of meddling in an arena where they say he has no business.

“The public pension fund does not exist so Andrew Cuomo can use it to build a campaign platform for a presidential run," said Assembly GOP Leader Brian Kolb, R- Canandaigua, who has announced he is a candidate for governor.

By taking on the fight for divestment, though, Cuomo may be choosing a pathway that could put octane into any future run for the presidency, said Harvey Schantz, the chairman of the political science department at the State University at Plattsburgh.

"Running for governor in New York state and running for the Democratic nomination for the presidency present overlapping opportunities," Schantz said. "You have to show liberal bona fides and you have to show executive ability. First, he has to get re-elected as governor. But by staking out liberal positions, he could be helping himself in New York and also helping himself win the Democratic nomination."

In advancing his proposal, Cuomo pointed out that the World Bank plans to stop financing gas and oil exploration projects, and the Norwegian sovereign wealth fund is already shedding its fossil fuel investments.

While it is DiNapoli who calls the shots at the pension fund, Cuomo is not out of line in suggesting that its portfolio mix be shuffled in ways that promote greater reliance on renewable energy, said Larry Levy, a longtime observer of New York politics and director of the National Center for Suburban Studies at Hofstra University,

Levy suggested that Cuomo has been steadily building his record as an advocate for expanded use of solar and wind energy and is the architect of the state's policy to have the state's energy diet include no less than 50 percent renewable energy by 2030. The Cuomo administration, he added, has also kept the gas drilling technique known as hydraulic fracturing from being introduced in New York.

"He can't be accused of posturing on this issue because he has gone all-in on reducing the reliance of fossil fuels in a big way," he said. "It's not as if he has suddenly discovered an issue and is coming out to please a certain constituency."

As to the speculation that Cuomo is preparing a White House run, Levy said, "2018 is 2020. If a U.S. senator or governor doesn't knock it out of the park in his home state in 2018, then he or she is going to drop precipitously on any list for any national election."

For the state fiscal year that ended March 31, the pension fund netted a return on its investments of 11.4 percent, according to DiNapoli's office. The gains were paced by 17 percent increases in the fund's domestic and non-U.S. equities holdings.

DiNapoli's spokeswoman, Jennifer Freeman, said the comptroller has been "consistent" in acting in the best interests of those covered by the fund.

"Our investment decisions are not influenced by day to day market changes or issues, but on sound investment strategy to grow the fund long-term," Freeman said.
Harlem Senator Wants NY Pension to Sever Ties With Private Prisons
A Harlem state senator is looking to get the $200 billion New York State Common Retirement Fund—the third largest public pension plan in the nation—to stop investing in private prison companies.

The legislation would ban state Comptroller Thomas DiNapoli from investing in stocks, securities or other obligations of companies or subsidiaries connected to private prisons, according to the New York Daily News. DiNapoli is responsible for the Common Fund’s performance, oversight and management.

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The senator, Brian Benjamin, who is the ranking member on the Senate Civil Service and Pensions Committee, told Observer there is a “systematic approach” that enables mass incarceration. He also said he would examine a way to ensure disinvesting does not cause financial harm to pension holders.

“I think we systemically facilitate mass incarceration in our country and I believe that there are a range of things that are included in that,” he explained. “For me, when I think of for-profit prisons, I think of institutions whose bottom line is driven by the need for people to be imprisoned… and I just don’t believe—I don’t like that motivation. And on top of that, I definitely don’t like the fact that our pension money is sort of actually enabling that.”

Benjamin noted Gov. Andrew Cuomo announced a plan last week to divest the Common Fund from fossil fuel investments and formulate a “de-carbonization” plan.

“As I’ve seen these things happen and then the governor introduced his piece around the pension fund divesting … I just wanted this also in the conversation,” Benjamin continued. “I feel like when it comes to incarcerating primarily young kids of color, that the priority is not the same as for other things. So that’s where my energy came from to push this now.”

The senator has had conversations with DiNapoli’s office and plans to discuss implementation and timing with other stakeholders, including Cuomo, advocates and other elected officials. In the mean time, he described the first step as getting the language right and ensuring the goal of ending investment in private prison companies is not compromised.
“I wanted to plant the flag on the issue,” Benjamin added. “It’s not this language or nothing. It’s, ‘No, we need to move in this direction.’ Now how we get there, let’s talk about that.”

In June, newly elected Benjamin introduced a bill that proposes a three-year timeline for closing the Rikers Island jail complex. Mayor Bill de Blasio has proposed a 10-year timeline for shutting down Rikers. And at the end of November, Benjamin urged the state to investigate violence at Rikers.

On Thursday, Benjamin will hold a rally with pastors and community leaders to call for the closing of Rikers and for the Common Fund to disinvest from private prison companies. He added he will support other colleagues’ criminal justice reform legislation on issues such as bail reform, speedy trials and discovery law.

In October 2015, DiNapoli announced that the Common Fund was taking steps to reduce and restrict its investment in private prisons following a review, according to Tania Lopez, deputy press secretary for DiNapoli. She said the holdings are “minimal.”

“The office has been in communication with the senator regarding the legislation, but hasn’t taken a position,” Lopez said in a statement.

Spokespeople for Cuomo did not immediately respond to a request for comment on Tuesday.


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Pennsylvania's 2017 legislative achievements? Pension fix tops the list
HARRISBURG — If it seems like state lawmakers didn't accomplish much in 2017, there's a reason for that.

They didn't.

After struggling four months past the June deadline to balance the budget, the Legislature ended the year having passed 82 bills signed into law by Gov. Tom Wolf.

That's the fewest laws passed by the General Assembly since 2009. In six of the seven years since then, the Legislature passed more than 100 bills. In 2012, the Legislature passed 211 bills into law.

It may be no coincidence then that when asked to name legislative accomplishments, Republican state Rep. Brad Roae of Crawford County pointed to the legislation that conservative lawmakers thwarted.

“The most important accomplishment was not passing the various tax increases that were proposed,” Roae said. “Many of us opposed the hotel tax, commercial storage warehouse tax and natural gas severance tax and none of them were enacted.”

Gov. Tom Wolf's re-election campaign committee waded into similar waters in their recap of the governor's fall legislative accomplishments. In addition to working with the Legislature to pass a state reauthorization of the Children's Health Insurance Program and providing funding for the state's unemployment compensation call centers, the campaign pointed out that Wolf had wielded his veto pen to stop legislation that would have barred abortions after 20 weeks.

It was his third veto of the year. Wolf also vetoed a bill that would have barred local governments from banning plastic shopping bags. And, he vetoed a bill that would have created work requirements for abled-bodied adults who get health care coverage through Medicaid.

It wasn't all for naught, though.

Asked to name legislative accomplishments, Jennifer Kocher, a spokeswoman for Senate Majority Leader Jake Corman, pointed to pension reform legislation that Wolf signed into law in June.

At the time the reforms were passed, Wolf said the legislation “is fair to workers and it's fair to the taxpayers of Pennsylvania.”

Under the plan, state government and public school employees hired beginning in 2019 will be offered three options, including two hybrid plans that offer some defined benefits while having the employee put a portion of his or her retirement savings into 401(k)-style accounts. The third option would offer no defined benefits, with all of the employee's retirement savings being invested in 401(k)-style accounts.

Before lawmakers passed the measure, the Pew Charitable Trust had thrown its support behind the bill.

Pew called Pennsylvania's pension reforms “the most comprehensive and impactful reform any state has implemented.”

Stephen Miskin, a spokesman for House Majority Leader Dave Reed, also pointed to the pension fix as an important achievement. He also pointed to what supporters call “protecting excellent teachers” legislation, which will allow schools to lay off teachers based on job performance instead of solely on seniority. That change was included in a November update to the school code.


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