Minnesota governor signs pension reform bill
Minnesota Governor Tim Pawlenty Saturday signed landmark pension reform legislation that affects all three statewide
plan—PERA, SRS, and TRA—by raising contribution rates for employees and employers, reducing automatic cost-of-living
adjustments, and making other changes. The bill also directs the executive directors of the three statewide systems to jointly
conduct a study of DB, DC and other retirement plans, due June 1, 2011; and merges the Minneapolis Employees’ Retirement
Fund into the Minnesota PERA.
Following is a synopsis of changes proposed by the three statewide
retirement systems. These changes along with others, such as the required study and the merger, were included in the approved
legislation.
The TRA Board is recommending a shared sacrifice approach, via the
following legislative package: 1) A phased increase in employer and employee contributions, from 5.5% each to proposed 7.5%,
phased in over 4 years, rising by 0.5% each year. After the phase-in, TRA is requesting authority for an auto contribution
stabilizer that provides the board with authority to set future contribution rates (within boundaries) should the system have
a contribution deficiency. 2) A 2-year suspension on annual benefit increases followed by a more permanent reduction in the
COLA from 2.5% to 2% until the funding ratio reaches 90%. 3) Reduction in the interest rate paid on refunds of contributions
from 6% to 4%. 4) Reduction in the annual increase for deferred benefits to 2%. Deferred benefits are paid to members who
terminate, leave their money on deposit with TRA, and later collect a benefit. The deferral interest rate is applied to the
member’s benefit beginning from the member’s termination date to collection of the benefit.
The PERA Board adopted a legislative position supporting: 1) a reduction in annual benefit increases from 2.5% to 1.0%
until the funding ratio reaches 90%; 2) an increase of 0.25% in both employee and employer contribution rates; 3) a reduction
in the interest rate paid on refunds of contributions from 6% to 4%; 4) reduction in the annual increase for deferred benefits
to 1%; and 5) increase in vesting period for new hires.
The SRS Board proposed
1) a reduction in annual benefit increases from 2.5% to 2.0% until the funding ratio reaches 90%; 2) a reduction in the interest
rate paid on refunds of contributions from 6% to 4%; 3) reduction in the annual increase for deferred benefits to 2%; and
4) increase in vesting period for new hires, from 3 years to 5.
Additional
information on the bill signed into law is provided below, taken from the statewide associations’ websites. kb
From the Teachers’ Retirement Association website:
May 17, 2010
On May 15, 2010, Governor Tim Pawlenty signed Senate File 2918 https://www.revisor.mn.gov/bin/bldbill.php?bill=S2918.4.html&session=ls86 ( Omnibus Pension Bill) into law. The bill contains plan provision changes affecting all TRA benefit recipients, active members and employer units.
The new law is known as: Laws of Minnesota (2010) Chapter 359.
The law, authored by Senator Don Betzold (DFL-Fridley) and Representative Mary Murphy (DFL-Hermantown) contain
changes designed to stabilize and improve TRA’s funding condition. Like most retirement plans, TRA’s funding condition
was weakened due to substantial investment losses incurred during 2008 and early 2009.
The bill contains the financial sustainability provisions of employee
and employer contribution rate increases and reduced annual retiree benefit increases recommended by the TRA Board of Trustees
(see the plan changes listed under the April 30 article below).
The bill also contains a provision requiring the executive directors of the three statewide retirement systems
(Minnesota State Retirement System, the Public Employees Retirement Association, and TRA) to jointly conduct a study of defined benefit, defined contribution and other alternative retirement plans for
Minnesota public employees. The study shall include analysis of the feasibility, sustainability, financial impacts,
and other design considerations of these retirement plans. The report is due to the Legislature by June 1, 2011.
More information about the
changes for TRA members and benefit recipients will be posted on the TRA web site within the next few weeks. In addition,
the Spring/Summer edition of the TRA newsletter will arrive at members’ homes later in June.
From the Public Employees’ Retirement Association
website:
The Legislation
While the Omnibus Pension Bill includes legislation affecting all three statewide pension
plans, the bill would improve the Association's future financial outlook by:
- Increasing
contributions to the Coordinated Plan by 0.25 percent of pay each for employees and employers; and to the Police and Fire
Plan by 0.2 percent for members and 0.3 percent for employers, effective January 1, 2011
- Lowering the annual increase paid to benefit recipients to 1 percent each year, beginning January 1, 2011.
Annual increases would return to 2.5 percent when the plans are again 90 percent funded. The increase would be 1 percent in 2011 and 2012, and up to 1.5 percent,
based on inflation, beginning in 2013 for the P&F Plan.
- Decreasing the interest the Association
pays on refunds from the current 6 percent per year to 4 percent
- Increasing the vesting requirements for newly enrolled members:
• 5 years of credited service
for Coordinated Plan members
• 50 percent vesting after 5 years for Police and Fire and Local Government
Correctional Plan members—increasing 10 percent each additional year of service until fully vested after 10 years - Reducing the growth rate of future deferred benefits to 1 percent per year as of January
1, 2012. Benefits for members deferring after 2010 would be frozen at the level earned when the member leaves public service. (The benefits accrued prior to 2012 would remain unchanged.)
- Eliminating the 6 percent interest earned on the escrow accounts of retirees who exceed PERA’s
earning limits beginning January 1, 2011
In addition to the financial stability provisions above, this year's legislation would also:
- Transfer the administration of the Minneapolis Employees Retirement
Fund to PERA. MERF members, Minneapolis and other MERF employers, and the State would remain responsible for all funding
of the plan (read more)
- Implement administrative changes to PERA statutes (housekeeping)
The benefit reductions included
in this year's pension legislation are expected to save the three statewide plans $500 million annually, or $2 billion
over the next five years. The additional member and employer contributions round out the measures necessary to ensure
financial stability for the three funds.
MERF to Become a Separate PERA “Division”
Part
of this year's Omnibus Pension Bill (House File 2918/Senate File 3281), legislation that will make the Minneapolis Employees
Retirement Fund (MERF) a separate "division" of PERA has been approved by the Minnesota Legislature and Governor
Tim Pawlenty.
One year ago, PERA’s Board of Trustees took the position that it would oppose any merger
of the Minneapolis Employees Retirement Fund (MERF) with PERA if it had any negative impact on the funding of our retirement
plans. That position has not changed. However, The pension legislation contains provisions that will turn over
the administrative reins of MERF to PERA.
The Senate version of the legislation included a $27
million annual Sate contribution to the plan, while the House bill had a one-time $10 million contribution next year with
annual contributions of $15 million beginning in 2013. The Conference Committee compromise calls for State contributions of
$13.75 million in 2011 and 2012, and $15 million through 2031, or until the plan is fully funded, whichever occurs sooner.
Under the provisions of the legislation, MERF’s assets and liabilities will remain
separate from the rest of the Association. MERF benefits and the funding of the plan will remain the responsibility
of MERF members, their employers and the State of Minnesota. Beginning next year, MERF retirees will receive the same pension
increases as PERA members.
Only if the “MERF Division” achieves 80 percent funding would a merger be permitted,
noted Mary Vanek, PERA’s executive director. The State and MERF employers would continue to be responsible for the full
funding of the Minneapolis plan’s obligations. “That is the only way this would ever be acceptable to PERA,”
she said. “At a time when every member of PERA and our employers are looking at sacrifices to maintain the integrity
of the retirement system, we are not about to assume any additional liabilities.”
The
legislation calls for the transfer of MERF assets and administration to PERA on July 1.
Michigan governor signs bill
creating early retirement incentive and hybrid plan for new school employees
Governor Granholm Signs School Pension Reforms, Legislation Helps Address Structural Deficit in School
Aid Fund, New plan will save billions over 10 years.
www.thgovmonitor.com May 20, 2010
Governor Jennifer M. Granholm today signed into
law legislation that reforms the Michigan Public School Employees’ Retirement System (MPSERS) and takes a significant
step in reducing the long-term structural imbalance in the School Aid Fund.
School employees have until June 11 to indicate their intention to retire this summer under the provisions of this act.
“These critical reforms will save more than $3 billion for school districts over the next decade and
ensure that we are able to fund education at a level that will help prepare students for success in the 21st century,”
Granholm said. “In addition to helping resolve the structural deficit, it also will create thousands of job opportunities
for new college graduates eager to teach in Michigan. With this important reform behind us, I look forward to receiving
a budget from the Legislature by July 1.”
Under the legislation
the MPSERS reforms will save districts nearly $680 million in the 2010-2011 school year and more than $3.1 billion over the
next decade. Those figures are based on an estimated 28,000 of the 56,000 eligible school employees choosing to retire
between July 1 and September 1, 2010.
Specifically, the legislation:
·
Provides for a slightly enhanced pension
for up to 56,000 public school employees who choose to retire between July 1 and September 1, 2010.
·
Beginning July 1, 2010, all MPSERS
employees will contribute 3 percent of their salary to be deposited into an irrevocable health care trust in addition to what
they already contribute to the pension system. Funds will be used to offset employer contributions for health care costs
of current retirees.
· Employees hired on or after July 1, 2010, will be put in a new lower-cost
defined benefit/defined contribution hybrid plan.
Governor Granholm
first proposed a retirement plan for school employees in January as part of her comprehensive plan to transform state government.
It was formally presented to lawmakers on February 11 as part of the 2011 executive budget recommendation.
The legislative package includes Senate Bill 1227 (PA 75) sponsored by Senator Jud Gilbert (R-Algonac) and
HB 4073 (PA 77) sponsored by Rep. Richard Hammel (D-Mt. Morris Township).
Opinion: Analysis of state pension reforms approved this year
In some states, pension pain yields budget gains
Stephen C. Fehr,
Stateline May 20, 2010
This is turning out to be a pivotal year
in public pension policy, as states move to bring down escalating retirement costs that threaten their governments’
stability.
Since the Wall Street meltdown in 2008, nearly every state has taken some steps to curb rising pension costs. But
many of those steps have been minor ones. This year, however, a dozen states have enacted reforms more substantial than those
in the past: Illinois raised its retirement age to 67 from 62 for new hires, the highest retirement age in the country. Wyoming
started asking current state workers to contribute to their retirement; up to now, the state paid the
cost. Utah closed its defined benefit plan to new workers, one of a handful of states to move away from traditional
pension systems that have been in place for decades.
All this has happened against the backdrop
of the pension crisis in Europe, and of global fears that unsustainably generous pension commitments in American states could
cause the same disastrous consequences as they have already caused in Greece. The events in Europe brought into focus growing
worries about public pension costs as large numbers of baby boom workers near retirement. It also magnified a change in the
tone and visibility of the public pension issue that had already been gathering momentum.
Several governors have elevated pension
reform to the same level of urgency as Medicaid, corrections and education spending. New Jersey Governor Chris Christie said the public retirement system is “bankrupting our state” as he pushed through a package
of benefit limits. Unions representing New Jersey police, firefighters and teachers filed lawsuits challenging Christie’s
changes, which affect newly hired employees. Hundreds of current and retired Utah employees rallied at the state capitol in
a losing effort to persuade lawmakers to reject a proposal to institute a non-guaranteed retirement plan similar to a 401(k)
for new hires. New Hampshire’s local governments and schools mounted a court challenge to the state legislature’s
vote to effectively increase pension contributions from municipalities.
The tone is coarser this year because states are facing
a third year of cutting services and programs and are raising taxes to cover budget shortfalls that have topped $230 billion
since 2008. Elected officials are targeting state retirement plans because contributions and investment gains are not keeping
up with the cost of benefits. A report released in February by the Pew Center on the States (Stateline's parent organization)
said states are $1 trillion short of the money they need to pay their public pension and retiree health care benefits.
The long-term sustainability of Utah’s public pension plan was the issue that led state lawmakers to push through
a major overhaul. Current workers will remain in the defined (guaranteed) benefit plan, in which retirees receive a monthly
pension based on age and service for life. But new workers will chose between a non-guaranteed 401(k) style defined contribution
plan or a hybrid of the two. Neither option is as generous as the current plan, and both are riskier because employees choose
their investments, which can fall in value. But states are moving in this direction because of the savings; Utah would have
to pay $400 million a year to fully fund its current retirement system.
“The number one goal ... is to ensure
the state can meet 100 percent of the pension obligations it has made to current employees,” state Senator Dan Liljenquist,
who sponsored the Utah legislation, said after the Senate vote. “There is only one thing that could bankrupt this state, and that
is an unfunded liability that comes from our pension program.”
Michigan and Alaska are
the only states that have moved to a defined contribution plan for state workers; several others are offering hybrid plans
similar to Utah’s. A coalition of Alaska lawmakers, retirees and labor and education groups tried to repeal the revisions to
the pension plan this year, saying the savings were not clearly demonstrated while the retirement benefits were less generous.
Supporters said the 401(k) type plan is needed to address a projected shortfall nearing $10 billion in retirement
system funding.
Usually state lawmakers aim reforms at future employees because pension obligations made to current employees must
be honored under state law. But in this year of aggressive approaches, some states are going after current employees — keeping their promises to pay benefits but asking workers to contribute
more money. Colorado, Iowa, Minnesota, Mississippi, Vermont and Wyoming hiked contributions from some or all current
employees, according to a tally by the National Conference of State Legislatures. Governor Tim Pawlenty signed the Minnesota legislation on May 15. It lowered annual cost of living increases and raised vesting
requirements.
Colorado made large-scale changes in its public retirement system after years of failing to meet its required contributions.
The legislature, with Gov. Bill Ritter’s approval, enacted bipartisan legislation shoring up the pension fund for nearly 438,000 state and local
employees and retirees.
Instead of paying Social Security, most Colorado state and local employees and teachers contribute
to pension plans administered by the state Public Employee Retirement Association (PERA). Local police and firefighters and
county employees in 54 of 64 counties are covered by a separate statewide pension system.
The latter system is funded at a level
higher than 100 percent. The reform legislation this year was aimed at PERA, which had an unfunded liability of $30 billion
and was projected to be broke within 20 years if no action were taken. Investment losses experienced during the recession
contributed to the funding gap, but a 1999 decision by the Legislature and the PERA board to increase benefits and lower contributions
was the main cause. The board at that time was dominated by public employees who stood to gain as beneficiaries of the
benefit improvements.
The 2010 bill approved by Colorado lawmakers and signed by Ritter increased employer and employee contributions,
raised the minimum retirement age for new employees from 55 to 60, capped cost of living adjustments for current and future
retirees at 2 percent instead of 3.5 percent, and froze them for a year. A group of retirees has filed a lawsuit challenging
the cost-of-living reduction, saying it violates U.S. and state constitutional protections against reducing benefits to existing
pension plans.
When he signed the legislation, Ritter couched the rationale for the changes in purely fiscal terms. “We
are all confronting the harsh economic realities of the worst recession since the Great Depression,” he said. “This
is a fiscally responsible bill, and it represents another difficult but necessary decision that will require shared sacrifice
and shared solutions from public employers and employees alike without imposing an unfair or undue burden on either group.”
Neighboring Vermont and New Hampshire came up with novel approaches to addressing their pension gaps.
Vermont preserved its defined benefit plan for teachers, thus avoiding a fight with its largest public employee union.
But teachers will be required to work additional years and make higher contributions to their pension fund in exchange for
a larger pension check on retirement. The state will initially save $15 million per year, or about 10 percent of Vermont’s
current budget shortfall.
New Hampshire set an example for states struggling with how to pay the bill for retiree health care, which accounts
for more than half of the $1 trillion pension-related gap that states face. Under the New Hampshire plan, government workers
will have the chance to make tax-free contributions from their paychecks to pooled investment accounts managed by their unions.
Those accounts will cover retiree health care costs and will save state and local governments $60 million per year in health
care subsidies currently paid to retirees.
Despite the increasing mood of pension realism in state capitols, more than a few states
still face enormous challenges that they are struggling to deal with. Illinois is considering borrowing $4 billion to make
its public pension payment. Michigan’s legislature approved a plan last week to lure 30,000 school employees into retirement.
“This is a long-
term problem that will require a long- term solution,” says Susan Urahn, managing director of the Pew Center on the
States. “States won’t be able to invest their way out their shortfalls. They need to responsibly make the necessary
contributions, in good times and bad, and look for ways to better manage costs.”
Retired
public employees file lawsuit over Minnesota pension reform bill
Retired public employees sue over pension cuts
Minneapolis Star-Tribune May 17, 2010
Two retired public employees filed a class action suit Monday against Minnesota
officials, protesting pension cuts that the Legislature approved last week. The suit, filed in Ramsey County District
Court, contends that the changes violate the retirees' contractual rights to benefits that were promised when they retired.
The changes are part of a larger pension package that Gov. Tim Pawlenty signed into law. Legislators acknowledged
that workers and governments will pay higher contributions and that future increases in retiree benefits will be curtailed
under the pension overhaul, which is intended to avert a more expensive bailout later. The entire package affects 716,000
state and local government employees and retirees.
But the lawsuit only affects about 65,000 former public employees
who already have retired and are receiving pensions, said former employees. The suit alleges that millions of dollars in promised
benefits are at stake. Under the Public Employees' Retirement Association of Minnesota, a retired employee who receives
an annual $30,548 pension this year could lose about $28,000 in anticipated benefits over the next decade because of the changes.
Rhode Island public employee unions sue state over pension reductions
R.I.
unions sue state over pension changes
May 15, 2010 Providence Journal
PROVIDENCE
— Firing back at changes that lowered retirement benefits and raised the retirement age for teachers and state employees,
eight unions filed a lawsuit this week that charges that the state ignored the rights of vested employees when it approved
a cost-saving plan last year.
Calling the changes a “taking of property without justification,” the unions are asking that the changes
be declared unconstitutional, that lost benefits be restored and that the state pay for the unions’ legal costs.
“We are questioning the legality
of changing someone’s pension once they’ve been paying for it all these years,” said President J. Michael
Downey of Council 94, the American Federation of State, County and Municipal Employees. “Now, we’re going to have
a judge tell us whether it’s legal.”
The changes, affecting about 20,000 teachers and state employees who were not eligible
for retirement as of Sept. 30, 2009, raised the minimum retirement age from 59 to 62 and reduced the multiplier used to calculate
pension benefits, said state Retirement Director Frank Karpinski. The changes also replaced what for some had been a 3-percent
compounded cost-of-living adjustment with increases based on the Consumer Price Index and capped at 3 percent, he said.
Lawmakers said those changes were needed
to lower the costs at a time when the state is projecting budget deficits in the hundreds of millions of dollars in the coming
years. But the lawsuit argues the changes “substantially altered the standards for retirement” for vested employees
with at least 10 years of service, resulting in “their substantial injury.”
The lawsuit names Governor Carcieri, General Treasurer Frank T. Caprio and the State Retirement Board
as defendants. Amy Kempe, spokeswoman for Carcieri — long a supporter of pension changes — said the governor is
“confident that the reforms enacted last year will withstand this kind of legal challenge.”
“While it is not unexpected that
the unions filed suit, it was our hope that they would have understood the financial pressures on state government and the
need to reform the pension system for the sake of taxpayers and future retirees,” she said.
The lawsuit, filed Wednesday in Superior Court, Providence,
comes as lawmakers are considering what would be a third round of reductions of benefits for future retirees, following those
adopted last year and others adopted in 2005.
It also comes as the Senate Labor Committee is about to consider a bill, sponsored by Senate Majority
Whip Dominick Ruggerio, that would prohibit pension changes that “diminish, impair or deprive” vested state employees
of “presently existing rights or benefits.”
Even with the recent pension changes, studies suggest the state system’s costs are
growing at a rate that is unsustainable. A report this year from the Rhode Island Public Expenditure Council found that that
the state taxpayer contribution to those pensions nearly tripled over the last decade, jumping from $79.9 million in 2001
to a projected $218 million in the coming year. By 2029, the costs are projected to be $788.8 million, the report from the
business-backed organization concluded.
Other unions named as plaintiffs are the National Education Association of Rhode Island, the Rhode
Island Federation of Teachers and Health Professionals, the Rhode Island Brotherhood of Correctional Officers, Local 400 of
the International Federation of Professional and Technical Engineers, Local 79 of the National Association of Government Employees,
Local 401 of the Rhode Island Employment Security Alliance and Local 580 of the Rhode Island Alliance of Social Service Employees.
Downey, stressing
that he could speak only for his union, said any future reductions to benefits for vested workers would also face a court
challenge. “We are committed to making sure that whatever changes are made, certainly, are legal,” he said.
New Jersey police and firefighter
unions challenge constitutionality of changes made to pension and health care benefits
NJ Police, firefighter unions make court plea to block pension, health benefits changes
Northjersey.com May 20, 2010
TRENTON — Police
and firefighter unions are in court today as they seek to block cuts to pension and health benefits one day before the changes
are scheduled to go into effect.
Oral arguments are scheduled to begin at 10:30 a.m. in state Superior Court in Trenton.
The unions, in a lawsuit filed last month, claim three laws signed by Gov. Chris Christie violate the collective bargaining
process used when negotiating contracts, making them unconstitutional.
The laws, passed with
bipartisan support, will decrease pensions for future hires, eliminating a 9 percent increase granted in 2001. And all public
workers will be required to contribute 1.5 percent of their salary toward health benefits, expected to save local governments
at least $314 million a year.
The state said changes to public employee benefits are in the public interest, overruling
the unions' concerns.
Mort Zuckerman: The crippling price of public employee
unions
Mort Zuckerman: The Crippling Price of Public Employee
Unions
US News & World Report Mortimer B. Zuckerman May
14, 2010
The American
public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state
and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are
being taken for an expensive ride by public sector unions. The extraordinary benefits the unions have secured for their members
are going to be harder and harder to pay.
The political backlash has energized the Tea Party activists, put incumbents at risk in both parties,
and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year,
the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities,
a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some
states the budget gap is more than 30 percent. The result is a crowding out of the state role as the supporter of adequate
infrastructure, education, and healthcare.
How did we get into such a mess? States have always had to cope with volatility in the size and composition
of their populations. Now we have shrinking tax bases caused by recession and extra costs imposed on states to pay for Medicaid
in the federal healthcare program. The straw (well, more like an iron beam) that breaks the camel's back is the unfunded
portions of state pension plans, healthcare, and other retirement benefits promised to public sector employees at a time when
federal government assistance to states is falling—down by roughly half in the next fiscal year beginning Oct. 1.
It is galling for private sector workers
to see so many public sector workers thriving because of the power their unions exercise. Take California. Investigative journalist
Steve Malanga point out in the City Journal that California's schoolteachers are the nation's highest paid; its prison
guards can make six-figure salaries; many state workers retire at 55 with pensions that are higher than the base pay they
got most of their working lives. All this when California endures an unemployment rate steeper than the nation's. It will
get worse. There's an exodus of firms that want to escape California's high taxes, stifling regulations, and recurring
budget crises. When Cisco's CEO, John Chambers, says he will not build any more facilities in California, you know the
state is in trouble.
The
business community and a growing portion of the public now understand the dynamics that discriminate against the private sector.
The public sector unions organize voting campaigns for politicians who, on election, repay their benefactors by approving
salaries and benefits for the public sector, irrespective of whether they are sustainable. And what is happening with California
is happening in slower motion in the rest of the country. It must be one of the reasons the Pew Research Center this year
reported that support for labor unions generally has plummeted "amid growing public skepticism about unions' power
and purpose."
There
has been a transformation in the nature of our employment. Labor is no longer dominated by private sector industrial workers
who were in large part culturally conservative and economically pro-growth. Over recent decades public sector employment has
exploded and public workers have come to dominate the labor movement. These public sector employees have a unique and powerful
advantage in contract negotiations. Quite simply it is their capacity to deliver political endorsements and votes for the
very people who are theoretically on the other side of the negotiating table. Candidates who want to appear tough on crime
will look to cops, sheriffs' deputies, prison guards, and highway patrol officers for their endorsement.
These unions will naturally back a
candidate willing to support better pay and benefits for their members, and this means as much as, or more than, the candidate's
views on law enforcement. The result has been soaring pay and the ability of state police and other safety officers to retire
with pensions that place an increasingly unbearable financial burden on the states. In California, such retirees at age 50
often receive pensions at 90 percent of their pay; comparable retirees in most other states get about half their final working
salary.
In New
York, public service employees have received gold-plated perks for much of the 20th century, especially generous health insurance
benefits. Indeed, where once salaries were lower in the public sector, the salary gaps in the public and private sectors have
disappeared in the last two decades, or even reversed for most job categories. A Citizens Budget Commission report in 2005
showed that for most job categories in the greater New York City region, public sector workers received higher hourly wages
than private sector workers. And according to a 2009 survey by the same group, this doesn't even count the money that
New York City pays in full premiums for comprehensive health insurance policies for workers and their families. Only 8 percent
of workers in private firms enjoy that subsidy. Moreover, in virtually all cases, the city also pays the full healthcare premium
costs for retirees and their spouses. And the city pensions are "defined benefit" plans, which are more expensive
since they guarantee specific benefits on retirement.
On the other hand, private sector workers in the survey were mostly in "defined contribution"
plans, which means that, unlike their cushioned brethren in the public sector, they do not have a pre-determined benefit at
retirement. If New York City were to require its current workers to pay contributions toward health insurance equal to the
amounts paid by the employees of local private sector firms, the taxpayer savings would approximate $628 million a year. In
New Jersey, Christie says government employee health benefits are 41 percent more expensive than those of the average Fortune
500 company.
What
we suffer is a ruinously expensive collaboration between elected officials and unionized state and local workers, purchased
with taxpayer money. "Scratch my back and I'll scratch yours." No wonder the Service Employees International
Union has become the nation's fastest-growing union: It represents government and healthcare workers. Half of its 700,000
California members are government employees. More and more, it wins not on the picket line but at the negotiating table, where
it backs up traditional strong-arming with political power. It spends vast amounts of money on initiatives that keep the government
growing—and the gravy flowing. Similarly, for the teachers unions—with the result that California and its various
municipalities, especially Los Angeles, face budget shortfalls in the hundred of millions of dollars. California can no longer
rely on a strong economy to support this munificence. Its unemployment rate runs about several points higher than the national
rate and its high-tech companies are choosing to expand elsewhere. Why stay in a state with such higher taxes and a cumbersome
regulatory environment?
California is a horrible warning for the nation of how dreams can turn to dust. In most states, politicians face a
contracting local economy and shortfalls in tax receipts. Naturally, they look to cut expenses but run into obstruction from
politically powerful unions that represent state and local government employees, teachers, and healthcare workers who have
themselves caused pension and healthcare insurance costs to soar. It is not an accident that in framing the national stimulus
program, Congress directed a stunning percentage of the $787 billion to support public service employees.
The lopsided subsidies for pension
and health costs are a large part of the fiscal crises at the state and local levels. The subsequent squeeze on education
and infrastructure investment is undermining the very programs that have made it possible for our economy to grow—thousands
upon thousands of teachers let go, schools closed, mass transit slashed.
Between New York and California, the projected deficits run about $40
billion—and that doesn't account for projected billions of dollars in the operating deficits in the states'
mass transit systems or the multibillion-dollar unfunded liability in many of the state pension plans. New York is badly hit
because it is being deprived of tax revenues by the government's indiscriminate attack on the securities industry, which
has been so critical to the economy of New York State and to the United States.
City government was developed to serve its citizens. Today
the citizenry is working in large part to serve the government. It is always hard to shrink government spending. It is particularly
difficult when public sector unions have such a unique lever of pressure.
We have to escape this cycle or it will crush us. One way is to take
labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. They would have
a better shot at achieving a fair balance between appropriate salary increases and the revenues and services of local municipalities.
The electorate won't swallow any more red ink.
Out of concern for state budget, CalPERS postpones
decision to increase state contributions
CalPERS postpones $600 million rate hike
Sacramento Bee May 20, 2010
Wary of putting more
pressure on the state budget, CalPERS stepped back from the brink of billing the state for an additional $600 million Wednesday
– and signaled that it might postpone the rate hike for an entire year.
One day after a key committee urged passage of the rate
hike, the pension fund's governing board voted to put off the matter until next month. State Treasurer Bill Lockyer, a
CalPERS board member, proposed the delay and suggested the pension fund might wait until mid-2011 to impose higher rates on
the state.
"An additional $600 million burden on the state budget … seems to me to be imprudent on our part,"
Lockyer said. "It's something we ought to think about more carefully."
The delay also affects $100 million in higher
rates CalPERS would pass on to the hundreds of school districts that participate in the California Public Employees' Retirement
System. Cities and counties are facing a CalPERS rate hike, too, but that wasn't scheduled to take effect until July 2011
anyway.
CalPERS has unilateral authority to impose rate hikes on the state and its participating local government agencies.
But the sour economy, the state's $19.1 billion budget deficit and pension politics have complicated the fund's decision
making. The prospect of increasing the state's annual CalPERS contribution by $600 million, to a total of $3.9 billion,
has added heat to the political fight over the cost of public employee pensions in California.
Gov. Arnold Schwarzenegger has seized
on CalPERS' problems to call for large-scale reforms of the pension system. He has accused the pension fund of trying
to ignore its problems and criticized the board for Wednesday's postponement. One of his representatives on the CalPERS
board, Greg Beatty of the Department of Personnel Administration, was the only vote against Lockyer's postponement proposal.
"While the additional
$600 million would have put more pressure on this year's state budget, today's decision will only compound that pressure
on future state budgets," Schwarzenegger special adviser David Crane said in a prepared statement.
Crane said the more money
CalPERS has now, the more profit it can generate through investments for future years.
Schwarzenegger is backing SB 919, by
Sen. Dennis Hollingsworth, R-Murrieta, which would scale back pension benefits for newly hired workers in a move calculated
to eventually save billions of dollars.
Democrats, who control the Legislature, are resisting the bill. "Clearly that's
not going to get enacted this year," Lockyer, a Democrat, told reporters.
CalPERS' staff has argued that the pension
fund needs the additional $600 million a year to cope with a wave of early retirements, lengthening life expectancies and
the devastating investment losses it suffered in 2008. The rate hike is supposed to take effect July 1, with the start of
the new fiscal year.
Board members asked Alan Milligan, the fund's interim chief actuary, about the wisdom of waiting a year.
"That needs to be
thought out very carefully," he said.
Brad Barber, a finance professor and pension expert at the University of California, Davis,
said a one-year postponement probably won't affect CalPERS' overall health.
"As long as the current (pension) obligations
can be met, I don't think waiting a year is going to cause any dramatic change in the situation," he said in an interview.
"It's politically a very difficult time to … request the (extra) funding."
But he said CalPERS probably can't
put off the higher rates forever. "To some degree this is a pay-me-now, pay-me-later situation," he said.
As it was, the $600 million
proposed rate hike was less than originally expected. Cal-PERS in December agreed to a plan to "smooth" the effects
of the stock market crash, spreading them out over several years and effectively deferring much of the pain until later.
Northwestern
U. professor says “federal government could be on the hook” for public pensions
US state pensions
becoming federal issue
Financial Times May 19, 2010
Illinois used to have a plan to pay off the gaping shortfall in the pension funds that pay retired teachers,
university employees, state workers, judges and politicians, Dan Long recalls.
Mr Long, director of the Commission on Government Forecasting and Accountability, the non-partisan auditing arm of the
Illinois state legislature, remembers that, back in 1994, the state laid out a proposal that would have paid off most of what
was then a $17bn gap by 2011.
But Illinois could not stick to the plan.
With financial year 2011 less than six weeks away, the pension arrears of the 1990s look quaint. Instead
of a balanced system, the state faces unfunded liabilities of about $78bn, the biggest pension hole in the US, and contributions
of more than $4bn for 2011, the largest single element of its $13bn budget deficit.
Illinois is the poster child of unfunded pensions in the US. But state retirement systems could become a national concern, new research shows.
Joshua Rauh, associate
professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state
pensions might run out within the decade. By 2030, as many as 31 states may not have the money to pay pensions. And, if these
funds exhaust their assets, the size of payments for the benefits they have promised will be too large to cover through taxes,
putting pressure on the federal government for a bail-out that could potentially cost more than $1,000bn, he says.
“It is more than a local problem,” Mr Rauh said. “The federal government could be on the
hook.”
Estimates put the unfunded liabilities at between $1,000bn and $3,000bn after years of states promising benefits but not contributing enough in both good times and bad to cover them.
Many states base their calculations on an 8 per cent annual return and use an accounting method called smoothing,
which staggers gains and losses over several years, two factors that some observers warn could mask the size of the shortfalls.
The problem has come to the fore with the financial crisis and recession. Pension funds, like most money managers, suffered
losses. The tax revenues that fund annual contributions to pensions, along with essential services such as healthcare and
education, have plummeted, leaving little room to reimburse the losses.
States have begun reforms, with some lowering return expectations and raising employee contributions and retirement
ages.
Mr Rauh said such measures were cosmetic and states needed comprehensive,
federally sponsored reform that would require closing the systems to new members, shifting state workers to Social Security
and individual plans similar to those that are used by the private sector in order to obtain incentives to borrow to bridge
the gaps.
Mr Rauh said subsidising pension borrowing would cost a net $75bn with
new contributions to the national Social Security programme offsetting some of the subsidies.
By his calculations, which assume the 8 per cent return, Illinois would run out by 2018 followed by Connecticut,
New Jersey and Indiana in 2019. Some 20 states will have run out by 2025.
Five states would never run out, including New York and Florida, and 17 other states have a horizon of 2030 or beyond.
Robert Megna, New York’s budget director, said his state had had to make “tough choices”
to keep funding its pensions despite budget shortfalls over the past few years. On March 31, the state made a nearly $1bn
payment for the last fiscal year. “We had to make cuts: education, healthcare, local government support and not-for-profit
providers,” Mr Megna said of the last year’s budget process.
New York’s governor has proposed borrowing from the pension system, which is about 94 per cent funded, as the
state did after the September 11 attacks, and repaying it with interest if low tax collections persist, Mr Megna said.
For fiscal 2010, Illinois sold $3.5bn of bonds to pay for its annual contribution.
But in an election year, there is no political support in Springfield, the capital of Illinois, for another
bond issue, particularly since it requires a two-thirds majority in the state legislature. The most likely outcome is that
the state will defer the issue to next year. “That’ll have an impact in terms of lost investment opportunities,
and they’ll have to sell some of the portfolio to pay the pensions,” said Mr Long.
Press Release:
West Virginia governor announces appointment of new retirement system director
Erica M. Mani
Appointed As CPRB Executive Director To Oversee Various State Retirement Systems
Charleston, WV.
- Gov. Joe Manchin on April 28, 2010 announced the selection of Erica M. Mani as executive director of the West Virginia Consolidated
Public Retirement Board (CPRB), effective May 1, 2010.
An experienced attorney, Mani has recently
served as the deputy cabinet secretary and general counsel of the West Virginia Department of Revenue, providing valuable
contributions to this agency during her tenure. Prior to this position, she worked as general counsel under Governor
Bob Wise and as a general defense litigation attorney in the private sector.
Mani's responsibilities will include overseeing
the nine different retirement plans under the Board's jurisdiction, consisting of the Public Employees Retirement System;
Judges' Retirement System; Teachers' Retirement System; Teachers' Defined Contribution Retirement Plan; WV State
Police Death, Disability and Retirement Fund (Plan A); West Virginia State Police Retirement System (Plan B); Deputy
Sheriffs' Retirement System; Emergency Medical Services Retirement System; and the new Municipal Police and Firefighters
Retirement System. The agency is organizationally structured under the Department of Administration.
The
Consolidated Public Retirement Board consists of 16 trustees, four of whom are set by statute: Governor, State Treasurer,
State Auditor and Cabinet Secretary of the Department of Administration. The remaining trustees are appointed by the Governor
and serve 5-year terms.
"The state of West Virginia is extremely fortunate to have Erica Mani
lead such a vital role in our government operations in terms of compensation benefits," said Gov. Manchin. "She
brings to this agency a wealth of knowledge from her legal background as well as her vast understanding of state government.
Her compilation of knowledge, skills and experiences will greatly benefit the continued progress of all our retirement systems."
A West Virginia native, Mani earned a bachelor's degree in journalism and attained her Doctor of Jurisprudence,
both from West Virginia University.
She is a member of the West Virginia State Bar and has served
on various boards and commissions, including the Charleston Area Alliance, the Ronald McDonald House, and the Streamlined
Sales Tax Governing Board. Mani and her husband, Jon, live in Charleston, with their two children.
Mani replaces Anne Werum Lambright, who has recently resigned from this position.
North Dakota investment board
hires Leroy Gilbertson as interim director
State Investment Board hires new interim director
Bismarck Tribune May 12, 2010
The State Investment Board has hired a new interim
director for the Retirement and Investment Office.
LeRoy Gilbertson will take over for Steve Cochrane,
who died in early April.
Gilbertson, a North Dakota native, is the former head of the Arizona
State Retirement System and worked earlier as the deputy director for the North Dakota Public Employees Retirement System.
The Retirement and Investment Office oversees more than $4 billion in funds and directs the retirement program for
teachers and the state investment board.
Current interim Director Fay Kopp said the search
for a new director may take up to six months. Gilbertson’s first day in the office is May 17.
Editorial: North Carolina public
deserves to know details public employees’ salary history and state pension benefits
State Pensions
Winston-Salem Journal May 19, 2010
The state treasurer's
office says that there are 260 state retirees who receive a pension of $100,000 or more. But state personnel law prohibits
Treasurer Janet Cowell from telling the public what these 260 retirees did to deserve such generous retirement benefits.
During this spring's short session, the General Assembly must
loosen the privacy restrictions that keep the retirees' information, and similar information about current state employees,
from the public.
North Carolina has what is probably
the most restrictive state personnel law in the country when it comes to information about employees and retirees. The public
can see what job a state worker holds and what salary it pays, but that is about it.
The law forbids the state from revealing the employee's job and salary history, even though
the very same information was public when it was current. The law extends to retirees because of an amendment added three
years ago.
The inadequacy with regard to
current employees is obvious. If the public cannot see the individual employment histories of state workers, then the public
cannot know if some employees have been given special treatment, either negative or positive.
Given state government's history of problems with cronyism and favoritism in hiring, promotions
and remuneration, this is a serious blind spot. The public has no way of knowing, for example, whether an employee has suddenly
received a major raise or promotion.
When
it comes to pensioners, a similar inadequacy applies. The public has no access to a retiree's employment history. But
the public should be able to search for evidence of favoritism and cronyism in the past.
There is another reason, beyond those associated with current employees, for making the retirees'
information public.
There are several different
pension systems within the state's overall retirement program, and the individual systems compensate retirees at different
rates. Judges, for example, are provided a much higher percentage of their final years' average salary than are teachers
and highway workers.
With this information sealed,
academic researchers, public advocates and journalists cannot search the records for any evidence of manipulation of the different
systems to boost the pensions of retirees.
A
great deal of personnel information is private and deserves to be. This law became so restrictive because legislators were
trying to protect state employees in the same way that private employers protect their workers.
But when it comes to public employees and retirees, information as basic as employment and salary
histories must be open. The public is paying those salaries and has the right to know all about them.
California bill
to ban placement agents stalls in committee
Calif lawmakers stall pension regulation
bill
Forbes 05.20.10
SACRAMENTO, Calif. -- A bill that seeks to limit the
influence of so-called placement agents at California's public pension funds stalled Wednesday in a key committee of the
state Legislature.
The use of so-called placement agents,
the middle men who help drive business to private investment firms, has come under scrutiny in California and New York where
former pension officials have been accused of accepting gifts in exchange for business.
The bill, AB 1743, failed to pass out of the Assembly Appropriations Committee on Wednesday. It would require placement agents to register as lobbyists and report gifts, and would ban outside investment
managers from paying them contingency fees.
State Treasurer Bill Lockyer, who sits on the board of the California Public Employees Retirement System, said he would propose an outright ban on placement agents in September if the Legislature failed to pass the bill.
"If we can't reform the practices with these firms, we should ban them, the same as New York pension
funds and others have done," Lockyer said. "That's the next step for me if we can't get sensible reform
in the Legislature."
State Controller John Chiang agreed in a statement.
"Along with the Treasurer and CalPERS, I sponsored AB 1743 to institute much-needed reforms to protect
our public pension funds, state retirees and California taxpayers," Chiang wrote. "In the absence of meaningful
legislative action, I will support prohibiting placement agents from doing business with CalPERS and CalSTRS."
Lockyer told reporters the stall was a surprise because the bill had previously passed out of two legislative
committees. "Obviously there's been a Wall Street sneak attack to try to stall reform of their business practices,"
Lockyer said. "We're trying to root out corrupt practices and the economic incentives that produce bad behavior."
In the legislative committee, the bill received one vote, said Walter Hughes, chief of staff for Assemblyman
Ed Hernandez, D-Baldwin Park, who introduced the bill. Hughes said Assemblyman Felipe Fuentes, D-Los Angeles, chairman of
the committee, suggested adding a five-year sunset to the bill. "This proposal by the chairman was completely out of
left field," Hughes said in an interview. "If there are abuses now, there would be abuses in five years."
Fuentes said the bill would be heard for a second time in the Appropriations Committee next week.
Two former CalPERS officials were sued by state Attorney General Jerry Brown earlier this month for allegedly setting up a system of kickbacks, including a Lake Tahoe condominium, to guarantee outside
firms won a piece of the fund's investment portfolio.
CalPERS transactions
are also under investigation by the U.S. Securities and Exchange Commission.
Montana Board of Investments votes to stay out of hedge
funds
Montana Board of Investments
votes to avoid hedge funds
The
Missoulian May 19, 2010
HELENA - The Montana Board of Investments voted unanimously Tuesday to continue to steer clear of investing any
state pension fund money in hedge funds for now.
The board supported the recommendation of its top two officers not to allocate some investments in
what's known as "hedge fund-of-funds," or a fund made up of a series of hedge funds.
The same motion called for removing hedge funds from
the list of available assets to be evaluated in an upcoming "asset/liability" study to advise the board on where
to invest pension funds in the future - to fund the pension benefits it must pay off over time.
A consulting firm's 2006 asset/liability study
suggested that the board consider investing 5 percent of its assets in hedge funds, but the board has never done so.
Hedge funds are lightly regulated investment
vehicles aimed at wealthy investors and institutional investors and "promise high investment returns and tend to use
complex trading strategies that can involve large amounts of leverage or borrowed money," the Washington Post has said.
"It is a valid investment class,
no question about it, but it brings with it a lot of problems - transparency, high fees," said board member Teresa Cohea,
a Helena stockbroker who made the motion to take hedge funds off the table. "We don't need this asset class. I think
using the other tools we have we can achieve the same objective."
She added, "You don't invest in what you don't understand."
Karl Englund, a Missoula lawyer, agreed.
"To me, the bottom line is the transparency. The public is the beneficiary," he said.
Maureen Fleming, a retired University of Montana business
professor from Missoula, also favored taking potential hedge fund investments off the table. She quoted a late board member,
Lee Robinson, saying it would be the equivalent of going to Las Vegas with bags full of money and having a good time throwing
it away.
***
Carroll South, the board's executive director, and Cliff Sheets, its chief investment officer, voiced their
concerns over hedge fund investments, citing their lack of transparency, lack of liquidity in some instances and their complexity.
"Hedge fund investments could
pose a potential ‘headline' risk that may damage the board's reputation and invite legislative intervention
in the board's investment mission," their memo said. "Immediately after the (Bernie) Madoff scheme was revealed,
staff received media, public and legislative inquiries asking if the board had invested in the scheme."
However, Jim Voytko, president of R.V.
Kuhns & Associates, a Portland, Ore., consulting firm that advises the board, argued that the board shouldn't take
hedge funds off the table. "Everything you've heard about hedge funds is true, and it's not," he said.
He said a hedge fund index had fewer
quarters with losses since 1995 than Standard & Poor's 500 Index, a bond index and other indices.
After a previous asset/liability study,
the board explored investing in hedge funds-of-funds and sought proposals to evaluate. Twenty-four replied in September 2008.
"After the responses were received,
there was a constant flow of bad hedge fund news, including major losses, liquidations, significant redemptions, freezing
of redemptions, prohibitions on shorting, forced selling of assets at depressed prices and significant counterparty risk,"
South and Sheet said in their memo. "While it is true that other financial assets were under severe stress during the
same period, hedge funds were thought to be a less volatile asset.
"Perhaps the most troubling discovery was that three of the 24 RFP (requests for proposal)
respondents had exposure to the Madoff Ponzi scheme."
As a result, the staff never recommended investing in hedge funds.
***
In other news, the nine state and local government pension funds managed by the board continued to show improvement and totaled $6.9
billion as of March 31. They had plunged by more than $2 billion during the 2008 financial meltdown after hitting an $8.5
billion peak in October 2007.
As of March 31, the largest pension fund, Public Employees Retirement System, saw a gain of 3.38 percent for the
quarter to bring its fiscal year gain to date to 18.72 percent. The fiscal year ends June 30. These performance totals were
after investment fees were paid.
Over the past four quarters, PERS has seen a 28.52 percent gain, but over three years, it has registered a 2.06
percent loss. Similar totals were registered for the other pension funds.
US education secretary says 300,000 teachers could
lose jobs without Congressional aid
Education chief says 300,000 teachers could lose jobs
Duncan urges Congress to act
Boston Globe Staff May 20, 2010
US Education Secretary Arne Duncan warned yesterday that as many as 300,000 teachers nationwide,
including 4,000 teachers in Massachusetts, could lose their jobs this year if Congress does not provide additional money to
aid struggling states and municipalities.
Duncan, the keynote speaker at Lesley University’s commencement ceremony at the Boston Convention
and Exhibition Center, said he and President Obama are deeply concerned about teacher cutbacks and cited the recent pink slips
delivered to 480 teachers in Brockton, more than one-third of the district’s teaching staff, as an example of what could
happen elsewhere in the country.
“If Congress does not take swift action now, millions of children will experience cutbacks through increased
class size, reductions in class time, cuts to early childhood programs, and reduced course offerings, extracurricular activities,
and summer school,’’ he said.
He urged Congress to pass a pending $23 billion education and jobs bill that he said would save or
create more than 256,000 teaching positions, including an estimated 4,300 in the Bay State.
His remarks came after Lesley awarded honorary degrees
to Victoria Reggie Kennedy and her late husband, Edward M. Kennedy; Chinua Achebe, the Nigerian author of the classic 1958
novel “Things Fall Apart;’’ and Roz Chast, an illustrator and cartoonist for The New Yorker since 1978.
Officials at the Massachusetts Teachers
Association, a union that represents more than 100,000 of the state’s teachers and other educators, said they expect
thousands of teacher layoffs if Congress does not act.
“We are extremely concerned about layoffs in the coming year, which would be hugely
disruptive for both our students and our members,’’ said Anne Wass, the association’s president.
She said all of Massachusetts’s
congressional representatives have already voted for the House version of the jobs and education bill. Senator John F. Kerry
is a cosponsor of the bill in the Senate, but Senator Scott Brown has yet to sign on.
“All eyes are on Scott Brown, because his vote is
needed to keep teachers in the classroom,’’ Wass said.
In a statement, Felix Browne, a spokesman for Scott Brown, said the senator would not support
the bill until the Senate finds a different way to pay for it.
“Senator Brown feels we should be fiscally responsible and employ an alternate way
to pay for this proposal, such as using some of the $60 billion in unobligated stimulus funds,’’ Browne said.
Duncan’s speech at Lesley’s
commencement was one of several stops he made in the Boston area yesterday.
After the ceremony, he toured Beachmont Elementary School in Revere,
where he visited classes and discussed the issue of layoffs with Massachusetts Education Secretary Paul Reville, union leaders,
Revere Superintendent Paul Dakin, and local teachers.
Afterward, Duncan visited the Josiah Quincy Elementary School in Boston, where he met Mayor
Thomas M. Menino, Superintendent Carol R. Johnson, and several teachers named Boston Educators of the Year.
During his commencement speech, Duncan
called teachers the nation’s “unsung heroes’’ and described their low wages as a “national embarrassment.’’
While he noted that the near-term employment
prospects for many of the university’s 2,700 graduates — two-thirds of whom studied education — may look
dismal, he said he expects the nation will hire more than a million new teachers over the next four years, as increasing numbers
of baby boomers retire from the profession.
He also urged the students “to remember that poverty is not destiny.’’ “Education,
above all, must be the great equalizer in America,’’ he said. “If you care about promoting opportunity and
reducing inequality, the classroom is a great place to start. Great teaching is about so much more than education; it is literally
the daily price for social justice.’’
