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  #251  
Old 03-25-2020, 07:37 AM
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Mary Pat Campbell
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LOS ANGELES, CALIFORNIA

https://citywatchla.com/index.php/cw...-conversations
Quote:
The Truth About LACERS – Necessary Conversations
Spoiler:

CITYWATCH SPECIAL REPORT--In 2001, the Los Angeles City Employees’ Retirement System or LACERS* was 100.4% funded, it had a surplus of $557.7 million (no unfunded liability), and its annual contribution from the City was approximately $70 million.

In 2019 LACERS is 73.1% funded, its unfunded liability is $6.5 billion and its most recent annual contribution from the City was $676.7 million. (The Truth about LACERS is a series and will run weekly on Thursdays.)

It is easy to find articles about public pension plans written from predetermined political perspectives. On one extreme, some authors seem to believe all public pension funds are in near-term death spirals. On the other extreme, some authors suggest public pension plans are in great shape and the only issue with them is the investment fees they pay to Wall Street shysters.

The truth is that LACERS is not currently in a death spiral, but neither is it without issues. Some of those issues may be quite significant in the mid- to long-term if they are not addressed quickly and adequately. Unfortunately, the City has shown no inclination to engage in such discussions. Having passed pension “reforms” that will prove to be woefully inadequate in the long-run, the City’s elected officials now seem content to ignore information and warnings regarding these burgeoning pension problems and, in some cases, even interfere with the proper funding of LACERS.

As the General Manager of LACERS, I had a fiduciary (legal) duty to the LACERS members and their beneficiaries. That fiduciary duty is contained in both the State Constitution and City Charter. I carried the weight of responsibility for over 46,000 members and beneficiaries with me every day I worked for LACERS and I still feel that responsibility, even though I retired from the City in January 2018, after a very rewarding and successful 35-year career – having risen from a Messenger Clerk at the Library Department to General Manager of LACERS.

I believe that very honest and frank conversations are needed to allow LACERS to continue to provide meaningful retirement benefits to City employees over the long-term. The longer it takes the City to engage in these conversations, the more it risks its ability to provide adequate services to its residents or meaningful retirement benefits to its employees, as those benefits may well create more of a financial burden for the City than it cares to, or possibly, can afford. It is crucial that these conversations start right away. Delaying will only result in both the not well-funded LACERS and the structural deficit-prone City in worse financial condition and with fewer choices, especially when the inevitable recession hits.

Some articles, such as “The city of Los Angeles is not being realistic about its pensions” by former First Deputy Mayor Austin Beutner and “While LA Sleeps” by David Crane, former special advisor to the governor have attempted to draw attention to the growing pension challenges the City of Los Angeles faces. CityWatch columnist Jack Humphreville also has attempted on numerous occasions to draw attention to this issue. In its 2014 “A Time for Action” report Los Angeles 2020 Commission warned that the increasing retirement costs were creating a no-win situation pitting “honoring the bargain to pay for retirement costs versus paying for current City services.”

My hope is that my series of articles will add to these voices to help encourage the very urgent, honest, and frank conversations – that are necessary for the sake of the City’s residents who rely on the City to provide services and the City’s hardworking employees that are counting on their promised pensions in retirement.

I am receiving no compensation for writing this series of articles – I am doing it out of a sense of duty. If others attempt to attack my motives for writing the articles, I would simply ask that you ponder the motives they may have to continue to kick the can down the road on this very important issue.

As pension conversations can be very detailed and complex, I will try to avoid or explain industry-specific terms or, at least explain them. My goal is to bring attention to the issues that LACERS and the City, as LACERS plan sponsor, are facing and will continue to face for decades to come. It would be best if these issues were acknowledged and dealt with quickly, but as you will see, there are political reasons why they aren’t being dealt with adequately.

This series of articles is meant to be taken as a whole, with some references to prior articles and some recurring themes.

* LACERS is the City’s pension system for civilian employees other than those who work for the Department of Water and Power.

(Tom Moutes has served at LACERS for approximately sixteen years, the last seven of those years as the General Manager of the pension system. He retired in 2018. Tom can be reached at necessarypensionconversations@gmail.com.) THE TRUTH ABOUT LACERS is a series and will be posted weekly on Thursdays, in CityWatch.


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  #252  
Old 03-25-2020, 07:41 AM
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Mary Pat Campbell
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KENTUCKY

https://www.courier-journal.com/pict...ls/5040765002/
Quote:
A look at how Henderson is stuggling with Kentucky's rising pension bills

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15 PHOTOS
7:42 a.m. EDT Mar. 16, 2020


Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
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Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
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An overview of the historic district along Main Street in downtown Henderson, Ky. March 2, 2020
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An overview of the historic district along Main Street in downtown Henderson, Ky. March 2, 2020
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Paint chips off the dugouts at the PCMA baseball complex in Henderson, Ky. March 2, 2020
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Paint chips off the dugouts at the PCMA baseball complex in Henderson, Ky. March 2, 2020
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An overview of the historic district along First Street in downtown Henderson, Ky. March 2, 2020
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An overview of the historic district along First Street in downtown Henderson, Ky. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Water sits under stands at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
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Water sits under stands at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
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Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL

The ditches and roadways along Peggy Driver begin to flood in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadway flooding. March 2, 2020
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The ditches and roadways along Peggy Driver begin to flood in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadway flooding. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
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Water sits on the field and in many dugouts at the PCMA baseball complex in Henderson, Ky. after a light morning rain. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
The ditches and roadways along Peggy Driver begin to flood in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadway flooding. March 2, 2020
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The ditches and roadways along Peggy Driver begin to flood in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadway flooding. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Yards flood near Countryview General Baptist Church in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
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Yards flood near Countryview General Baptist Church in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL

Water pools up near Countryview General Baptist Church in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
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Water pools up near Countryview General Baptist Church in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
The ditches and roadways along Ilex Avenue begin to spill into the roadway in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
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The ditches and roadways along Ilex Avenue begin to spill into the roadway in Henderson, Ky. after a light rain. Heavy rainstorms have resulted in yards and the roadways flooding. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
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Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL
Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
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Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
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Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
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Henderson, Ky. Mayor Steve Austin is in his third term and is a former newspaper editor. Pension related budget issues have led Austin to have to cut back on some planned and needed city projects. March 2, 2020
ALTON STRUPP/THE COURIER JOURNAL

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  #253  
Old 03-25-2020, 09:28 AM
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Mary Pat Campbell
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CALIFORNIA

https://www.ai-cio.com/news/calstrs-...paign=CIOAlert
Quote:
CalSTRS CEO Jack Ehnes Postpones Retirement Because of Coronavirus
The decision came after a request from the board, which said it needs time to conduct an executive search.

Spoiler:
Jack Ehnes, longtime chief executive officer at the California State Teachers’ Retirement System (CalSTRS), is postponing his retirement to steer the $246 billion pension plan through the coronavirus pandemic, the fund said Friday.

The leader of the largest educator-only fund in the world will continue at the helm through June 2021. His decision came after the CalSTRS board requested he postpone his retirement as trustees continue their search for a new chief executive while scrambling to respond to the economic impact of COVID-19.

“This decision will enable CalSTRS to maintain focus on appropriately responding to the coronavirus crisis and securing the financial future of California’s educators,” the fund’s statement read.

CalSTRS announced Ehnes’ retirement just three weeks ago. The leader, who planned to retire in September, has led the fund for about 18 years.

“I have reached that crossroads in life for some more adventures,” Ehnes said at a board meeting earlier this month. “After much thinking, reflection, talking with family, it just felt like this was the right time to do this.”

Other chief executives outside the pension board also have taken extraordinary steps in response to COVID-19. On Monday, the chief executive of General Electric said he would cut half his pay this year, following moves from other airline executives who have done the same.

In Singapore, the sovereign wealth fund Temasek earlier this month froze worker pay and reduced bonuses for senior management because of the outbreak.


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  #254  
Old 03-25-2020, 12:19 PM
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ASSETS

https://www.ai-cio.com/news/exclusiv...paign=CIOAlert

Quote:
Exclusive: San Francisco’s CIO Calls Allocators and Industry Leaders to Action during Pandemic
SFERS encourages business to be creative in supporting the COVID-19 relief effort and to ‘utilize the current crisis to lead the human experience to new heights.’


Spoiler:
The San Francisco Employees’ Retirement System (SFERS) issued a call to action for businesses to find creative ways to support the United States’ COVID-19 relief effort, suggesting companies may temporarily reorient their facilities to lend a hand to the crisis.

The pension tasked S&P 500 companies to report their own contributions to society’s efforts to stem the pandemic, and suggested several ways that a variety of different sectors can help, such as re-purposing hotels to accommodate patients and health care workers, and using existing supply chains to support the development of medical equipment such as ventilators and face masks.

“Everyone can do something, to help,” SFERS’s Chief Investment Officer Bill Coaker told CIO. “Amazon, Apple, Facebook, Ford, Microsoft, Roche, and many others have already undertaken wonderful ways to help. A small group of young musicians made a musical video on YouTube. Everyone can find their own way to help with their own time, talent, or treasure.”

The pension’s announcement came soon after Microsoft, Tesla, Apple, and Amazon announced their own respective efforts to help stem the pandemic. Apple stated it is actively sourcing scarce supplies necessitated by the medical emergency and pledged to supply 9 million masks. Tesla is engaging with ventilator manufacturers to learn how to produce them in its facilities, Amazon is reorganizing its logistics operations to support the cause, and Microsoft said it is engaging more heavily in telehealth and pandemic-related data projects in collaboration with other partners.

SFERS also tasked a similar objective to its peer institutional investors, including pensions, endowments, and family offices, to publicly voice their support for SFERS’s call to action and join the cause.

“As institutional investors we are invested in many, if not all, of the same companies,” SFERS said in a statement. “We ask that you publicly make the same request of companies listed in the S&P 500 index.”

“The goal is to defeat COVID-19 and save lives,” Coaker told CIO.

As a public pension fund, Coaker said his team’s mainstream avenues of assisting the pandemic relief efforts are shepherded by its fiduciary obligations and adhering to them as best it can in a market downturn.

“The most important thing we can do is preserve our pension plan for existing and future generations. We have held up well,” Coaker told CIO. “We were overweight technology, software, the digital economy, biotech, and other innovation-oriented new economy segments that have held up relatively better. And we were underweight public equity, hotels, and other assets that have been especially hard hit.”

“Another way we can help is by utilizing our platform as a city that is a gateway to the world and a leader in innovation to encourage others to think creatively as to how they can use their own time, talents, and treasure to help others,” Coaker said.

“A third way we can help is by leading by example, by practicing generosity, compassion, and hope. The current situation is very scary. This is the most worrisome health pandemic in a century. But hardship can yield perspectives and talents that under more comfortable circumstances would lay dormant. We can utilize the current crisis to lead the human experience to new heights,” Coaker said.

The relief is also gaining participation from individual investors such as Ray Dalio, who donated $500,000 to the Connecticut Food Bank in light of pandemic. Dalio’s flagship Bridgewater Fund reportedly lost 20% from pandemic-related drops, and Dalio himself predicted US corporations will lose $4 trillion because of the virus.

Companies at this time should “keep themselves, their own employees, and their loved ones safe and well,” Coaker said. “Then utilize their own creativity, reach, and network to help health care professionals and people impacted by the virus and job loss.”

https://www.ai-cio.com/news/new-york...paign=CIOAlert
Quote:
New York Does Not Expect to Meet 6.8% Fiscal Year Target
The state pension fund is one of the only plans that ends its fiscal year in March, closing as the coronavirus pummels markets.

Spoiler:
The New York State Common Retirement Fund (NYSCRF) does not expect to meet its 6.8% target for its 2019 fiscal year because of the coronavirus, according to a fund spokesperson.

The state fund was on track to meet its target just last month. The plan was up 7.3%, to an estimated $225.9 billion in December from an audited $210.5 billion in April, according to its third quarter report.

But the retirement system is ending its fiscal year in March, just as panic from the coronavirus has pummeled markets. The plan will present its results in the coming weeks.

“The market slide is hurting everyone’s value,” Anastasia Titarchuk, chief investment officer at NYSCRF, said in an emailed statement last week. “We don’t see a market recovery of the size needed in the next few days that would reverse the losses of the last weeks.”

The majority of public pension plans end their fiscal years in June or December, according to the Center for Retirement Research at Boston College. Only a small number end theirs in March, like the New York fund.

The retirement system, which had a 96% funded ratio as of March 2019, is one of the nation’s strongest plans. Titarchuk said the plan, which has increased its allocation to fixed income in the past year, is built to withstand the volatility of the markets.

“These are unprecedented and challenging times,” she wrote. “That said, we’re long-term investors and at some point markets will recover.”

The New York state pension plan is not the only one struggling with its portfolio. Last week, California Public Employees Retirement System (CalPERS) CIO Ben Meng warned his board that rates in the largest state pension in the US are falling short of their strategic allocation targets. The California pension ends its fiscal year in June.

It’s another example of the disruption that the coronavirus pandemic has inflicted on public retirement plans, as domestic markets have fallen 27% from their previous highs.

Workers and officials at state pensions are teleconferencing board meetings, canceling group counseling sessions, and working remotely. On Tuesday, the California State Teachers’ Retirement System (CalSTRS), the second largest fund in the nation, said it will not be mailing physical statements of direct deposits for benefits.


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  #255  
Old 03-26-2020, 12:01 PM
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Mary Pat Campbell
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PENSION OBLIGATION BONDS

https://www.pionline.com/industry-vo...ligation-bonds
Quote:
Commentary: The time is ripe for public pension obligation bonds

Spoiler:
It's finally now time for public pension funds and their sponsoring employers to make lemonade from lemons. The market value of public pension stock portfolios has shrunk dramatically in the shadows of the COVID-19 crisis, coupled with the recessionary impact of the Saudi-Russian oil price war. Stock indexes are down 35% or more from their peaks just earlier this year, in a dramatic sell-off.

As trustees and chief investment officers scramble to quell fears of stakeholders, and public finance officers watch their sales and income tax revenues plummet, liquidity and even solvency fears are resurfacing in some places. The potential inability of state and local governments to sustain their pension promises is once again making the news.

Before we start ringing the alarm about pension funding and pension deficits, it's now the time to revisit a worthwhile public finance strategy and instrument that may be able to come to the rescue of public employers. It works for both their underfunded pension funds as well as their often unfunded retiree medical benefits, known as other post-employment benefits, or OPEB. The pension obligation bond, and its more appropriate "benefits bond" cousin for OPEB plans, could never be more timely — and more vital to the future health of states and municipalities.

The basic pension obligation bond concept is relatively simple, and has been used for 45 years, albeit with sketchy results because of ill-advised timing. A state or municipality issues taxable POBs at low interest rates (now about 3% plus for a 30-year AA credit) and puts the money in trust to invest in capital markets at low, distressed levels. It's essentially an arbitrage strategy, to reduce the employer's cost of the pension fund by converting "soft debt" into "harder debt." In the long run, a stock index portfolio purchased at distressed low market levels can reasonably be expected to earn far more than the employer's POB interest rate. If done properly and timely, the net cost to taxpayers for funding the public pension plan will be dramatically lower. (Because it's sheerly capital markets arbitrage, Congress requires that the POB bonds be taxable, so that lower-cost tax-exempt bonds are used only for public purposes like infrastructure.)

In the last recession, both Milwaukee County and Contra Costa County issued POBs in a timely way, and showed us all how it is possible to underwrite a successful deal. Even with the latest market slump, they are both well "in the money" because even now stock indexes trade at three times what they did in late 2008.

The challenge, of course, is managing this clearly leveraged strategy. It's arguably like borrowing on a second mortgage to fund your IRA, which nobody in their right minds would do as individuals. But state and local governments are not individuals and they have the ability to be long-term, deep-pocket investors just like Warren Buffet of Berkshire Hathaway. They can buy straw hats in winter and hold them, if they act quickly.

I've done historical research on stock market and business cycles, economic recessions and expansions, for all bull and bear markets since World War II, and can attest that there is no business cycle in that history when the S&P index was off by more than 35% and it wasn't higher in two years, and returned high double digits over the following decade. The worst such period followed the 1973-74 bear market and ensuing stagflation period, but even then, equity investments acquired during what have been the "POB window" did admirably over a decade.


For years, the governmental finance community has seen poor judgment practiced by many of the previous issuers of POBs, who were typically finance officers lured by what they thought were attractively low interest rates without regard to the stage of the business cycle. Their professional association, the Government Finance Officers Association, has historically urged "extreme caution" in the use of this financial tool, and for good reason. POBs issued when the economy is going full steam invariably suffer huge market losses when the next recession hits. They bought too high. POBs only work well over market cycles if they are invested during the POB window.

I first urged issuance of POBs and benefits bonds back in 2008 during the global financial crisis, but then reported that the window had closed in the latter half of 2009. Since then, I have urged finance officers being pitched on this device by investment bankers to NOT issue POBs until the next recession. And that would be now.

POBs should not be invested like other employer contributions. It makes absolutely no sense to issue municipal bonds and invest 30% in other bonds, as most pension fund advisers would normally recommend. That completely misses the concept of pension obligation bonds' long-term capital markets arbitrage. So when sizing a deal, the borrowing should not exceed one-half or at most two-thirds of the pension system's unfunded liability on a current market value basis. Over time, the equity component should be reasonably expected to fill in the remaining gap without resulting in a later overfunding, which historically has invited bad actors to seek retroactive benefits increases and employer contribution holidays.

See more of P&I's coverage of the coronavirus
Last year, I proposed that Congress should authorize access to the U.S. Treasury's Federal Financing Bank borrowing window. Back then, my focus was on funding public infrastructure at the lowest possible cost to taxpayers. But in today's market and economic meltdown, it makes even more sense for the FFB window to be opened immediately to states to provide quick source of capital to make POBs and benefits bonds workable, at the very lowest interest costs.

A federal FFB window could easily cut the cost of borrowing for public employers by a full percentage point. The state and local government finance lobby — and the public pension community — should make themselves heard quickly in Congress, and at the White House and the Treasury, to open that window. Let's not let this crisis go to waste.

Girard Miller is a retired investment and public finance professional. He is the former CIO of the Orange County Employees Retirement System, Santa Ana, Calif., a former senior strategist for Public Financial Management and author of "Enlightened Public Finance." This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.


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  #256  
Old 03-30-2020, 12:14 PM
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Mary Pat Campbell
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TEXAS

https://www.reformaustin.org/educati...ents-are-safe/
Quote:
Texas Teacher Pension Payments Are Safe, Executive Director Says

Spoiler:
Retired teachers’ annuities are safe, there will be no changes to them, and they will be delivered on time. That was the reassuring message on Friday from Brian Guthrie, Executive Director of the Teacher Retirement System of Texas.

At a Facebook Live event held by the Texas Retired Teachers Association (TRTA) on Friday, Guthrie said the reason teachers’ pensions will not be affected despite concerns about the market fluctuations due to COVID-19 is that they have a diversified portfolio.

For the same reason, the TRS Pension Trust Fund did not lose as much as others in the market.

As of last night, the TRS Pension Trust Fund’s value is $150 billion. At the beginning of the calendar year, the fund was valued at $163 billion, and at the beginning of the fiscal year, the fund was valued at $157 billion.

The last recession Texas faced was in 2008. TRTA Executive Director Mike Lee asked Guthrie what is different between the two periods. He said while it’s too early to know how different the current recession is from 2008, what is known is the dynamics are entirely different.

Back then the markets were broken. Right now, Guthrie said, the downturn is a result of economic activity coming to a halt with most sheltered in place all the while still trying to conduct business.

“The U.S. is a service-based economy, and many services cannot be provided,” he said.

The drawdown for the Pension Trust Fund currently is not as significant as it was in 2008, when the fund was reduced to nearly half its size, from $104 billion to $50-60 billion. Still, Guthrie said, it’s too early to tell how it plays out. The impact will be significant if the current situation persists for a number of months, he warned.

The benefit for TRS in an economic downturn, Guthrie said, is “as a trust fund, we are large, long-term, and liquid.” They do not have to react to market fluctuations and can take advantage of investment opportunities as they arise.

As opposed to a 401(k), where payments change based on the value of the fund, the payments stay the same as long as there are enough assets in the fund.

Regarding the concern of whether TRS employees working from home will affect the schedule of payments, Guthrie said, that will not be an issue, and payments will come on schedule.

Guthrie also reassured teachers considering retirement to not worry about the market fluctuations and to make the decision based on whether they’re ready. TRS is still processing retirements at this time.

“Don’t put your life plans on hold because of what’s going on,” he said.

TRTA was successful in lobbying during the last legislative session to help shore up the TRS pensions. This clears the hurdle for a potential cost-of-living adjustment next session. However, Guthrie pointed out, it depends on whether at the point of assessment, if the pension fund remains actuarially sound.

He confirmed that the TRS pension fund was sound as of the last assessment in August 2019. The next assessment will occur this August, and another will occur in the middle of the next legislative session. The value of the fund can impact the actuarial soundness of the pension fund.


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Old 03-31-2020, 06:45 AM
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ASSETS

https://reason.org/commentary/opaque...m_medium=email
Quote:
Opaque Alternative Investments Add Uncertainty to Public Pension Fund Reporting
The reliance on assumptions and judgments for these alternative investments can result in large discrepancies between valuation estimates and true value.
Spoiler:
Public pension funds have been increasing their holdings of “alternative investments” in recent years. These assets fall outside the conventional investment categories of stocks, bonds and cash (and cash equivalents such as certificates of deposit and money market mutual funds). Alternative assets can include real estate and other tangible assets, as well as shares in private equity, venture capital and hedge funds.

The Georgia state legislature, for example, as of this writing, is considering a law that would allow the state’s pension funds to increase their allocations to alternative investments to as much as 10 percent. Some other state pension systems already invest a much greater portion of their assets in alternatives. For example, the Teacher Retirement System (TRS) of Texas recently reported that 14.5 percent of its assets were invested in private equity, 13.7 percent in real estate, 5.7 percent in “energy, natural resources and infrastructure investments,” 4.2 percent in “stable value” hedge funds, and 0.1 percent in commodities.

Most alternative assets are illiquid which means that they are more difficult to sell than conventional investments. While shares of stock can usually be sold immediately on an exchange or over the counter, alternative investments are not regularly traded. As a result, they are difficult to value. While it is normally possible to find a recent trade price for a stock or bond, no such market observations are available for alternative investments, so their values must be estimated.

Many alternative investments are shares in limited partnerships, such as private equity funds. Although these shares are securities, they are usually exempt from registration and disclosure rules set by the Securities and Exchange Commission (SEC).

The fund manager is not required to publicly disclose the contents of its investment portfolio, e.g., in the case of private equity funds, the list of companies the fund owns. However, the fund manager sends statements to investors that include performance information. These statements rely on estimates of fund assets, that are subject to substantial error given the lack of a liquid market for these assets.

For example, KKR & Company, a leading private equity fund manager, described its procedures for valuing private equity holdings as follows:

“… we generally employ two valuation methodologies when determining the fair value of an investment. The first methodology is typically a market comparables analysis that considers key financial inputs and recent public and private transactions and other available measures. The second methodology utilized is typically a discounted cash flow analysis, which incorporates significant assumptions and judgments.”

This reliance on assumptions and judgments can result in large discrepancies between valuation estimates and true value. Perhaps the most memorable example of a valuation error was the 2019 case of The We Company, originally named WeWork. Softbank, the fund that owned most of the company valued it at $47 billion in January 2019. When Softbank and its investment banks started preparing to sell shares of The We Company to the public, it became evident that the $47 billion valuation could not be achieved.

Before launching an initial public offering (IPO), a firm must issue a public disclosure with the SEC called Form S-1, which includes extensive details of the company’s operations and business plans. The We Company’s S-1 disclosure revealed that the firm was experiencing large losses and its CEO had major conflicts of interest. Investors were unwilling to buy shares based on a $47 billion valuation, or anywhere close to it. Ultimately, SoftBank had to cancel the IPO and infuse more cash into the struggling company. By November 2019, SoftBank valued the We Companies at only $7.8 billion and wrote down its own investment in the firm by $4.6 billion.

While this is a very extreme example, and no public pension fund invested in WeWork, this case illustrates the risk of private equity valuations not being realized when a sale is attempted. Other high-profile private firms including Uber and Lyft have been able to launch IPOs, but their market capitalization quickly fell below their private market valuations.

Additionally, academic research has shown that private equity fund managers exaggerate the reported net asset value of their funds when they are trying to raise additional capital.

Private equity and other alternative investments are attractive to public pension funds, because of the unusual large gap between risk free interest rates and investment return targets for pension assets. Recently, the 10-year Treasury bond was yielding around 1 percent while most large pension systems are assuming long-term rates of return between 7 percent and 7.5 percent.

Although the stock market performed extremely well in the 2010s, many investment managers believe that they cannot continue to rely on publicly traded equities to consistently achieve the outsize returns they require. These fears were confirmed in March 2020, when the coronavirus pandemic and bear market dropped the S&P 500 30 percent below its all-time high, which was achieved just a month earlier.

Consequently, they have turned to the alternative investment category, exposing public pension systems not only to the valuation issues discussed here, but also to high management overheads charged by many fund operators. For example, the California State Teachers’ Retirement System, CalSTRS, which has been a leader in providing the public with investment cost data, recently reported that the investments costs on its $19 billion private equity portfolio were 3.84 percent of assets in 2018. This was down from 5.21 percent in 2017, primarily due to a reduction in “carried interest,” which represents the general partner’s share of realized profits when funds sell their holdings.

A better alternative is for public pension systems is to accelerate the recent trend towards lowering their assumed rates of return, so that it becomes much less necessary to stretch for yield. Although this does require short-term pain in the form of greater employer and/or employee contributions, over the long-term this approach yields a much more stable pension system that retirees can rely on.


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Old 03-31-2020, 06:46 AM
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CALIFORNIA

https://reason.org/commentary/covid-...m_medium=email
Quote:
COVID-19 and the Economic Impacts on California’s Pension Systems and School Districts
Despite more than a decade-long period of sustained economic growth and increased tax revenues, many California cities have still been having difficulties balancing their budgets due to rising pension costs.
Spoiler:
With U.S. stocks recently suffering their worst day since the 1987 crash, followed immediately by one of their best single days, some economists are saying buckle-up and worrying that the coronavirus may help send the economy into a recession. The turbulent economic conditions mean many state and local governments may face a reckoning on public pension payments and debts.

Despite more than a decade-long period of sustained economic growth and increased tax revenues, many California cities have still been having difficulties balancing their budgets, in part due to rising pension costs.

Most city employees in California are enrolled in the California Public Employees’ Retirement System, CalPERS. Unfortunately, CalPERS is only around 71 percent funded, meaning it only has 71 cents of each dollar worth of retirement benefits that have already been promised to employees.

In recent years, CalPERS has been forced to lower its assumed rate of return for investments, which has raised the amount of money local governments need to pay into the system each year. More money is being diverted into pension payments, which eats into local budgets and crowds out other spending.

CalSTRS, the California State Teachers’ Retirement System, has $107 billion in unfunded liabilities. This has led to additional stress on school district budgets. A new Jan. 2020 report from the Legislative Analyst’s Office (LAO) found: “Since 2013-14, districts’ pension costs have increased by $4.7 billion—more than doubling. For 2020-21, we expect total school district pension costs to increase by at least another $800 million.”

An independent research center —Policy Analysis for California Education (PACE)—examined this question in a report on the Sacramento City Unified School District, also finding that “unaffordable teacher benefits, however well-intentioned, will impact district budgets if not addressed.”

The PACE report on Sacramento was part of a series examining how unfunded pension liabilities threaten education equity and school district budgets. In another report, PACE found wealthy taxpayers in Marin nixed a proposed tax increase because they didn’t think the money would make its way into local classrooms. “Due to growing concern that dollars are not reaching schools, but instead being used to fund pensions, parcel taxes have faced increasing opposition in Marin County,” PACE wrote.

As pension costs rise, school districts are finding it difficult to find money to raise salaries enough to attract high-quality teachers and must make spending cuts elsewhere, which often leads to increasing class sizes, cutting counselors and eliminating afterschool programs and electives.

Unfortunately, California is stuck with these issues to some degree because of what’s commonly known as the “California Rule.” The 2013 Public Employees’ Pension Reform Act (PEPRA) signed into law by then-Gov. Jerry Brown reduced the pension costs for new and future hires. But because of a 1955 State Supreme Court ruling, California employee pension promises are considered a private property right, rather than a discretionary benefit. And once offered, the retirement benefits can never be changed unless they are offset by a new benefit of comparable value. Thus, no matter how financially stressed local governments or school districts are, they cannot change the benefit amounts that were promised to current retirees.

While courts are currently reviewing some new cases that may alter the current legal interpretation, as of today, California’s local governments cannot entertain making some prudent changes. Meanwhile, in contrast, a bipartisan pension reform bill in New Mexico just made cost-of-living adjustments and other changes to make that state’s public pension system more sustainable.

In the short-term, there are two things California can do to lessen the impact of retirement debt. First, as the LAO report suggests, the state should dedicate a proportion of its budget surplus—preferably as much as possible, as frequently as possible—to pay down unfunded pension liabilities. This would shift some costs from municipal governments back to Sacramento.

Second, other retirement benefits, such as retiree health care benefits, can be restructured. Options for trimming these costs include reducing the taxpayer-subsidized portion of health care coverage for the dependents of retirees and phasing out premium support for higher-income retirees.

Californians — taxpayers, public employees and retirees alike — would like to see their tax dollars go towards high-quality and affordable public services. Unfortunately, today’s taxpayers are stuck paying for the pensions that previous generations promised, but didn’t pay for.

A version of this column first appeared in The Orange County Register.


https://californiaglobe.com/section-...ension-reform/
Quote:
Time for California’s Unions to Get Serious About Pension Reform
The idea that CalPERS and other pension funds were ever helping California’s economy is a blatant falsehood

An independent contractor in California has 12.4 percent withheld by the Social Security Trust Fund, and for that, they may expect a maximum of $45,480 if they retire at age 70, after nearly 50 years of work.

Spoiler:
There was a time, long ago, when California’s pension systems were responsibly managed. They made conservative investments, they paid modest but fair benefits to retirees, and they didn’t place an unreasonable financial burden on taxpayers. But a series of decisions and circumstances over the past thirty years put these pension systems on a collision course with financial disaster. And like hybrid war, or creeping fascism, or a progressive, initially asymptomatic disease, it is impossible to say exactly when these pension systems crossed the line from health to sickness.

An excellent history of how California’s public employee pension systems moved inexorably towards the predicament they’re now in can be found in a City Journal article entitled “The Pension Fund That Ate California.” Written in 2013, when California’s pension systems were still coping with the impact of the Great Recession, author Steven Malanga identifies key milestones: The power of public sector unions that began to make itself felt starting in the late 1960s. The pension benefit enhancements that began in the 1970s. The growing power of the union representatives on the pension fund boards. Prop. 21, passed in 1984, which allowed the pension systems to invest in riskier asset classes.

The biggest milestone on the road to sickness, however, began in 1999, as Malanga writes, “when union-backed Gray Davis became governor and union-backed Phil Angelides became state treasurer, and the CalPERS board was wearing a union label.” The state legislation that followed, mimicked by local measures across California, dramatically increased pension benefit formulas. Not only were benefits increased, but they were increased retroactively, meaning that even state and local employees nearing retirement would receive the increased pension as if these higher benefit formulas had been in effect for their entire career. And as the internet bubble blew deliriously bigger, the experts said the cost for all these enhancements would be negligible.

In the aftermath of the internet bubble’s inevitable pop in 2000, pension systems engaged in accounting gimmicks and deceptive proposals to assist the unions to roll out these benefit increases to nearly every city and county in California.

This would be an early example of how government unions and financial special interests saw an alignment of their political agendas, but it wouldn’t be the last. As payments to the pension plans inexorably increased, year after year, unions found common cause with the financial sector to market tax increases and bond measures. Every election, in lockstep, they would fight to convince the taxpayer to pay more and borrow more – and it was always for the children, for the elderly, but in reality, it was usually for the pensions.

The Burden of Public Sector Pensions on California’s Taxpayers
The complexity of pension finance makes it relatively easy to obfuscate the problem with creative accounting and emotional arguments. But certain facts can help to put the issue in perspective. Before the current financial crisis began, California’s state and local public sector pensions were estimated to rise from approximately $30 billion per year to $60 billion per year by 2025. Currently, California’s total state and local government general revenues are around $500 billion per year, meaning that pension payments are already set to consume over 10 percent of ALL state and local government revenue.

This ten percent doesn’t include the cost of retirement health insurance benefits, nor the cost for Social Security which many of California’s public employees also enjoy. It also doesn’t include the tens of billions spent every year by taxpayers to pay overtime, based on the fact that paying overtime is actually less expensive than paying for another government employee who will require another pension benefit package.

The pension burden, however, is about to get much bigger.

With most pension reform stopped in its tracks by relentless litigation, perhaps the only way pensions would ever be reformed would be through economic necessity. If so, now would be a good time. A perfect storm has struck. Here are highlights:

1 – The stock market has crashed. Interest rates are at zero, meaning it is unlikely investments in bonds will see continued appreciation. Real estate may also be at a peak, and in any case, real estate investment appreciation cannot make up for losses in stocks and bonds.

2 – Government revenues are going down for various reasons. California’s state government relies heavily on receipts from high income individuals, and those individuals rely on stock appreciation. These revenues always fall in a downturn, and this effect will ripple into every California city and county. Also, sales tax revenues, which local governments rely on, will dramatically fall over the coming few months.

3 – Californians for the first time in several election cycles have rejected local measures to fund taxes and bonds. Normally, at least two out of three new local tax or bond are measures are approved by California voters. This time, in March 2020, those proportions were surprisingly reversed, with about two out of three failing to get voter approval. This means new revenues these localities were counting on will not materialize.

A closer look at CalPERS will reveal just how dramatic the problem has finally become:

In their 6/30/2019 financial statements, CalPERS, the largest pension system in the U.S., reported themselves to be only 70.2 percent funded. To cope, the system was requiring its participating agencies to nearly double their annual payments by 2025. Needless to say, these increases were going to create havoc on civic budgets that already can barely afford to pay for their pensions.

That was then.

As of March 20th, the market value of all investments managed by CalPERS had fallen to $333.8 billion, after topping a record $400 billion just one month earlier. The most recent officially reported estimate of the total liability carried by the CalPERS system is $505 billion as of 6/30/208 (ref. most recent CalPERS CAFR, page 122). If you review the trends over the past decade, this figure has never gone down. This means, best case, as of today, CalPERS is 66.9 percent funded. The real number is almost certainly lower.

As of March 20, for example, the Dow Jones Index closed at 19,161. At close on 3/23, the Dow is down to 18,591, down another 3.1 percent. At this time, there is no end in sight.



In 2015, the average pension for a California public employee after 30 years of work (60 percent as long working) was $68,673, not including any benefits. It is surely higher now.


Pension Solvency Will Require Union Cooperation
If there’s one thing that history has shown, it’s that nothing gets done in California without the blessing of the public sector unions. One may argue on principle that unionized government is an abomination, having little or nothing in common with private sector unions which – properly regulated – have a vital role to play in American life.

But so what? California’s state and local governments have been taken over by these unions, who operate as senior partners to leftist billionaires, trial lawyers, race-baiting rent seekers, and environmentalist fanatics. For the most part, financial and corporate special interests are complete sell-outs to these all powerful unions, or survive via precarious detente.

Fixing pensions in California, with union cooperation, would be relatively easy. With union cooperation, politicians would have a chance to enact reforms that would not get mired in endless litigation. With union cooperation, government workers – and the public – would be able to learn about the extent of the problem instead of getting dosed with emotional propaganda. Possible solutions could be far reaching and inspiring. Here are some ideas:

1 – Reduce all pension benefit accruals to pre-1999 levels for all future work. Leave intact benefits earned to-date.

2 – Lower the long-term rate of return projection for pension assets to 6 percent.

3 – Lower the inflation stop-loss for retirees from the current 70-80 percent to 50-60 percent – provide for COLA reductions if economy encounters deflation.

4 – Raise the age of eligibility to 62 for all employees, with full benefits only available to miscellaneous employees at age 67 (same as Social Security).

5 – Implement additional “triggers” that take effect if funding falls below 80 percent, including suspension of COLA, prospective further lowering of the annual multiplier for active workers, retroactive lowering of the annual multiplier for active workers, reduction of the retiree pension payment, increase the required payment to the pension plan by active workers via withholding.

The pension systems themselves could assist this process greatly if they simply provided analysis of what measures 1 and 2 would accomplish. Lowering the rate of pension benefit accruals for future work will permit lowering the long term rate of return projection without increasing the total liability. If the pension system analysts could provide a table expressing that curve, it would greatly assist policymakers and reformers, including the union leadership.

Unfortunately, pension actuaries and fund managers do not have an illustrious track record in these exercises, so, again, it would be useful if the union leadership itself would insist on a quick turnaround and an honest, depoliticized assessment.

And what if, from now on, public employees earned lower pension benefits? First of all, it would take an awful lot before those benefits descended to the level of what the rest of California’s workforce can expect from Social Security.

An independent contractor in California has 12.4 percent withheld by the Social Security Trust Fund, and for that, they may expect a maximum of $45,480 if they retire at age 70, after nearly 50 years of work. In 2015, the average pension for a California public employee after 30 years of work (60 percent as long working) was $68,673, not including any benefits. It is surely higher now.

What public sector union leadership might contemplate is how can the prospects for all workers in California improve. Now, with the economy grinding nearly to a halt, it is an especially good time for this sort of contemplation. Why not require CalPERS to invest 50 percent of their assets in “California based companies and projects” instead of the current 9.1 percent (ref. CalPERS CAFR, intro page 4)?

The idea that CalPERS and other pension funds were ever helping California’s economy is a blatant falsehood. The numbers are irrefutable. In 2018 CalPERS collected $28.7 billion, but only paid out 26.9 billion (CalPERS CAFR, pages 42 and 43). Since $3.5 billion of those payments were made to retirees living out of state, only $23.4 billion stayed in California. This means that Californians gave CalPERS $5.3 billion more than retirees living in California received in pension benefits. Meanwhile, over 90 percent of CalPERS investments are made outside of California.

What if public sector union leadership decided to fight for all California workers, by supporting reform of the California Environmental Quality Act, which would permit cities and suburbs to expand their borders onto open land again, greatly lowering housing costs?

What if these unions supported pension fund investments in revenue bonds and equity positions to build new freeways, water storage projects, and cheap energy infrastructure?

Imagine how much could be built if literally hundreds of billions of pension fund assets were invested right here in California!

There is a new consensus that could form in California, excluding the libertarian fanatics who think the only criteria for a pension fund investment is the return, even if it requires investing in Chinese slave shops. This new consensus could also exclude the identity-politics demagogues whose only criteria for a proper investment is the “diversity” of the workforce, the directorships, and the communities affected.

Who knows, maybe a new consensus could even knock the environmentalist fanatics – along with their trial lawyer and crony “capitalist” allies – down to size, allowing “green” investment criteria to resume its appropriate place within a kaleidoscope of worthy considerations.

If all these things were done, California’s cost-of-living would go down, meaning public sector retirees could enjoy the same standard of living as before, even if they retired with somewhat lower pensions. Moreover, the economy would be sizzling again, pouring record tax revenues into a solvent public sector.

The win-win envisioned here is no more preposterous than the notion of 7.25 percent pension fund returns for the next thirty years, and far more beneficial for everyone living in California instead of just beneficial for public servants.

This could be a time for a consensus that wipes away extremes, which might make CalPERS and the other pension systems a benefit to California’s economy instead of a terrifying drain. Public sector unions; the ball is in your court.
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Old 03-31-2020, 06:46 AM
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KANSAS

https://reason.org/commentary/kansas...m_medium=email
Quote:
Kansas Shouldn’t Push Pension Debt Into Future So It Can Spend More Today
Gov. Kelly’s calls for adding another $4 billion in long-term debt so that the state government can spend more money right now would be fiscally irresponsible and unfairly stick future generations with the bills.
Spoiler:
To help finance her $7.8 billion budget proposal, Gov. Laura Kelly asked the legislature to reduce the amount of money the state contributes to the Kansas Public Employees Retirement System (KPERS) over the next few years and delay making debt payments. While the House seems set on rejecting the plan, it did advance it out of committee and to the full chamber.

Kansas’ pension system for public employees has just 64 cents for every $1 worth of retirement benefits that have already been promised to workers and retirees. In personal budgeting terms, Gov. Laura Kelly’s plan would be like asking a credit card company to lower your minimum monthly payment while also significantly raising your credit limit — it would cost taxpayers and KPERS members billions in extra payments over the long-term.

Re-amortization, which is basically a refinancing of debt when the borrower is having trouble making payments, of KPERS would allow the state to make smaller pension payments in the near-term so that it can spend the money it doesn’t have to devote to pensions on other things. Unfortunately, the smaller the pension contributions that Kansas makes today, the higher the debt grows and the bigger the contributions must be tomorrow.

KPERS Executive Director Alan Conroy estimated the governor’s proposal would cost an extra $4 billion in additional contributions just to pay off current debt. To make matters worse, any outside events, like an economic downturn that lowers investment returns or requires contributions to exceed current limits, would compound the debt and push KPERS’ current funded ratio — it has 64 percent of the money needed to pay benefits — down even further.

Kelly’s proposal also jeopardizes the progress made by the 2013 reforms to KPERS. Those reforms closed off the risk-laden defined-benefit plan and opened a more sustainable cash balance plan for new and future hires. It also tied pension benefits to the pension fund’s investment performance and is designed to minimize the risk of future underfunding.

However, while the 2013 reforms importantly closed off the legacy plan off to new members, they did not lower the risk built into the legacy pension system that caused the debt in the first place, nor did they pay off that debt. Thus, to slow the growing funding gap, Kansas should consider switching from a fixed, statutorily-based contribution rate to one set by plan actuaries. Such statutorily-based funding policies intend to promote year-to-year contribution stability — the government needs to contribute a set amount each year — but when pension plan’s costs exceed the fixed rate on contributions set in a statute, the pension system’s unfunded liabilities grow — requiring increased payments in the future.

A Reason Foundation analysis found that $4 billion in KPERS’ unfunded liabilities grew from 2001-2017 due to the state’s cap on contributions. Similarly, a 2019 National Association of State Retirement Administrators study on state and local contributions showed that out of 113 government retirement plans surveyed, only 12 paid a lower percentage of their actuarially required contribution—what it takes to fund the retirement benefits that have been promised— than KPERS, which paid just 73.2 percent of what was needed.

Kansas also needs to lower its expected rate of investment returns, which is 7.75 percent. KPERS wisely dropped the rate from 8 percent in 2017, but it is one of only eight pension plans in the Public Plans Data directory that still assumes its investments will earn 7.75 percent or more a year. Since 2001, KPERS’ average market return was 7.41 percent and the return rate has been just 6.93 percent over the past decade. Each year of missed investment expectations increases debt. As a result, failing to meet Kansas’ overly optimistic investment return expectations has added over $1 billion in pension debt since 2001.

Gov. Kelly’s calls for adding another $4 billion in long-term debt so that the state government can spend more money right now would be fiscally irresponsible and unfairly stick future generations with the bills.


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MASSACHUSETTS

https://reason.org/commentary/legisl...m_medium=email
Quote:
Massachusetts’ Legislature Should Help Gov. Baker Make Good on Pension Promises
Gov. Baker is right to push for public pension contribution increases in his budget, but elected officials in Massachusetts need to understand that this should be just the start of pension reforms.
Spoiler:
Recently, Massachusetts’ retirees and policy leaders alike have expressed increasing apprehension regarding the state pension system’s long-term ability to provide promised benefits to public workers. In response to the growing concern, Gov. Charlie Baker’s office released a three-year funding plan that seeks to improve the solvency of the system.

The Massachusetts’ Public Employee Retirement Administration Commission (PERAC) oversees both the State Retirement System, which serves general state employees, and the Teachers Retirement System which provides retirement benefits to K-12 teachers. Together, these systems manage the retirement promises for over 300,000 active and retired members. Combined, they have a funded ratio of 56.3 percent, well below the 100 percent funded ratio target recommended by the American Academy of Actuaries’ Pension Practice Council and the Government Finance Officers Association. PERAC has amassed nearly $44 billion in pension debt.

In 2019, PERAC made roughly 75 percent of the actuarially-required employer contribution to the system, meaning the state’s payments did not meet the suggested levels set by their own actuaries. However, under Gov. Baker’s proposed plan, employer contributions would rise by more than 30 percent over the next three-years. This amounts to a jump from $2.84 billion in 2020 to $3.11 billion in 2021.

If implemented, Gov. Baker’s plan would wisely correct a dangerous trend of chronic underfunding and help ensure the state’s ability to provide promised benefits.

Massachusetts’ system, like most public pension plans, uses a combination of member and employer contributions and investment returns to finance workers’ retirement benefits. Pension plan managers depend heavily on investment returns to help grow the system’s fund to adequate levels. If the actual rate of investment returns fall short of what the plan managers assumed, a funding shortfall is created. This shortfall increases exponentially over time and erodes the plan’s ability to meet the promises made to retirees.

Fortunately, PERAC’s plan managers have noted the trend towards lower investment returns. PERAC has consistently adopted more conservative investment return assumptions. Over the last decade, plan managers lowered the rate of expected investment returns from 8.25 percent in 2012 to 7.25 percent in 2019. These adjustments have helped align the system’s assumptions with the reality that fund managers will likely not be able to depend on market returns at the levels they did in previous years.

Given today’s diminishing stock market forecasts, PERAC may need to reduce these expectations even further, as their current investment return assumptions still may not be conservative enough. Over the past 19 years (2000-2018), for example, PERAC’s average rate of annual return was approximately 6.2 percent. This falls short of the plan’s current assumed rate of return of 7.25 percent.

Overall the pension plan’s current rate is unaligned with the emerging “new normal” of a lower-yield investment environment that is the consensus among major investment managers. Additionally, the J.P. Morgan Asset Management Company expects an aggressive 60 percent equity/40 percent bond portfolio to earn somewhere between 5.4 percent and 6.0 percent in the next 10 to 15 years. This view is further supported by similar analyses by industry peers such as McKinsey, Vanguard and Charles Schwab.

Thus Gov. Baker is right to push for public pension contribution increases in his budget. Elected officials in Massachusetts, however, need to also understand that this move should be just the start of pension reforms.

The governor’s proposal would simply require the state to pay 100 percent of what it already should have been paying into the pension plans. Baker’s proposal does not address structural issues within the pension system’s design that has contributed to billions of dollars in underfunding. Absent additional reforms to solve these issues, there’s a real risk that higher contributions would not solve the underlying solvency challenges. Higher contributions should be coupled with targeted reforms that comprehensively address sources of the government’s pension struggles.

With the near-term investment forecast looking increasingly bleak (even before recent events related to the coronavirus pandemic), Massachusetts should be contributing much more than is needed to only pay the current bill if there’s going to be any hope of eliminating unfunded liabilities in the long run. If it doesn’t, pension debt will likely continue to grow.

Legislators should certainly embrace the governor’s current policy agenda as a starting point for pension reform and commit to working with Gov. Baker on additional steps needed to ensure Massachusetts’ taxpayers and pensioners are protected for decades to come.


MBTA

https://commonwealthmagazine.org/tra...-35m-in-march/
Quote:
Virus notes: MBTA fare revenue off $35m in March

Spoiler:
MBTA OFFICIALS SAID on Wednesday that they expect fare revenue to fall as much as $35 million short of budget targets in March, but the transit authority is also being squeezed financially on a number of other fronts.

T ridership has fallen dramatically, and officials said daily fare revenue, which accounts for a third of the transit authority’s revenue, is down 80 percent as of March 20.

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But that’s not the only financial problem the agency is facing. The T’s pension fund, which the transit authority is required to fund if investment income falls short of targets, could take a major hit. Moody’s Investor Service reported on Tuesday that the market crash and the coronavirus epidemic will likely cause pension funds to lose 21 percent of their value on average in the year ending June 30. That’s a $1 trillion loss across the country, according to Moody’s.

“As we monitor system revenues and ridership, the T is reviewing projected expenses and developing financial projections for discussion with the Fiscal and Management Control Board and the administration,” the MBTA said.


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