Press Release: GASB issues Preliminary Views on changes to public
pension accounting standards
GASB Issues Preliminary Views on Potential Improvements to Pension Standards
Norwalk, CT, June 16, 2010—The Governmental Accounting Standards Board (GASB) has issued a Preliminary Views on Pension Accounting and
Financial Reporting By Employers. The document presents the Board’s current views on what it believes are the most
fundamental issues related to recognition and measurement of pension obligations by state and local government employers.
The purpose of the document is to obtain comments from constituents on those views before developing more detailed proposals
for changes to existing accounting and financial reporting standards. In addition to the issues addressed in the Preliminary
Views, the Board will begin deliberations in July on pension note disclosures and supporting information for government employers
and pension plan reporting issues.
“The project to improve postemployment
benefits accounting was launched by the GASB, in part, in response to feedback from users of state and local government financial
reports who feel that current standards do not provide them with the information they need to adequately understand the cost
and liability for benefits promised to active and retired employees,” states GASB Chairman Robert Attmore. “Following
considerable staff research and review of financial reports prepared under existing standards, the Board has tentatively determined
that changes are needed to improve the transparency, consistency, and comparability of reported pension information. We urge
constituents to review and provide comments on the Preliminary Views on ways to increase transparency in financial reporting;
enhance the decision usefulness of reported pension information; and better assist financial statement users in assessing
the impact of the policy decisions and the commitments governments have made to their employees related to pension benefits.”
The Preliminary Views is part of the Board’s overall project to consider improvements to the existing standards
of accounting and financial reporting for postemployment benefits. The GASB periodically reviews its standards to determine
whether they continue to effectively meet their objectives.
The approach presented in the Preliminary Views would
move governmental pension accounting and reporting away from the funding orientation that now exists, and instead introduce
recognition and measurement standards that would be based on the GASB’s conceptual framework, including information
that would help financial statement users better assess the degree to which interperiod equity has been achieved.
Most of the issues in the Preliminary Views benefited from constituent feedback received in response to the GASB’s
March 2009 Invitation to Comment, Pension Accounting and Financial Reporting. The Board received written comments
in response to the Invitation to Comment from nearly 120 individuals and organizations and held two days of public hearings.
The Board addressed the feedback it received in developing its Preliminary Views.
The Preliminary Views, including
instructions on how to submit written comments, is available for download at www.gasb.org. The deadline for submitting written comments is September 17, 2010.
In addition, the GASB has
released a plain-language supplement to assist users of financial statements in commenting on the Preliminary Views. The supplement
also is available for download at www.gasb.org.
The GASB will host public hearings on the Preliminary Views on October 13, 2010, 8:30 a.m. Central
Time at the Hyatt Regency Dallas-Fort Worth Airport in Dallas, Texas; October 14, 2010, 8:30 a.m. Pacific Time at the offices
of KPMG in San Francisco, California; and October 27, 8:30 a.m. Eastern Daylight Time at the Crowne Plaza LaGuardia in New
York City. More details, and instructions for registering to participate in the hearings, will be announced in the coming
weeks on the GASB website.
About the Governmental Accounting Standards Board
The GASB is the independent, not-for-profit
organization formed in 1984 that establishes and improves financial accounting and reporting standards for state and local
governments. Its seven members are drawn from the Board’s diverse constituency, including preparers and auditors of
government financial statements, users of those statements, and members of the academic community. More information about
the GASB can be found at its website www.gasb.org.
Leaders of four California employee unions agree to pension reforms
Leaders of 4 California employee unions
agree to pension rollback
The agreement with the state firefighters, Highway Patrol officers and other workers is seen as a victory for Gov.
Schwarzenegger. The tentative contracts now face votes by union members and the Legislature.
Los Angeles Times June 17, 2010
Gov. Arnold Schwarzenegger
won a major victory Wednesday in his push to rein in state worker retirement benefits when leaders of four unions, including
those representing state firefighters and California Highway Patrol officers, agreed to a substantial and rare pension rollback.
It has been years since any of the state's powerful public employee unions have consented to trimming their hard-fought
retirement packages. The tentative contracts now face votes by union members and the Legislature.
Among the concessions:
The retirement age would rise by five years for new hires, and current workers must immediately begin contributing more —
at least 10% of their salary — to their retirement.
The compromises give Schwarzenegger momentum as he demands
that other unions cut similar deals. A pension overhaul has been the centerpiece of his final-year agenda.
"This
is [a] huge change," said Debbie Endsley, director of the governor's Department of Personnel Administration. "We're
obviously hopeful that other unions will see this as a reasonable pension reform."
The four unions represent
a combined 23,000 state workers. The contracts, if ratified, will save California an estimated $72 million in the coming fiscal
year. Savings would grow to $2.2 billion if the other 170,000 unionized state workers adopted similar contracts, said Ana
Matosantos, director of the governor's Department of Finance.
Schwarzenegger has long sought to reel in state
worker benefit packages; this summer he has threatened not to sign a budget without a pension overhaul. The governor argues
that the state's pension investments won't cover all the obligations that have been promised under existing contracts,
leaving taxpayers on the hook to pay the extra costs.
CalPERS, the state's biggest public pension fund, ordered
the state government Wednesday to boost its contribution to worker pensions by roughly $600 million per year. The move means
that the state will have less money for schools, healthcare and other programs.
Democrats who control the Legislature
have been cool to the governor's pension plans. Earlier this week, they stalled his main proposal in committee. They have
instead called for the governor to negotiate directly with unions.
Now that he has, Senate President Pro Tem Darrell
Steinberg (D- Sacramento) congratulated Schwarzenegger on the labor accords, saying they prove "that collective bargaining
works."
Terry McHale, policy director for the state firefighters union, said Wednesday's agreements mark
"significant" if controversial changes. The retirement age for new firefighters would rise from 50 to 55. The same
is true for future Highway Patrol officers.
"People in the union will be upset that we've taken a step
back," he said. "But this shows that we want to be part of the solution."
In exchange for the concessions,
the unions received a promised end to the three days per month of unpaid furloughs they have endured since last summer. With
California still grappling with an enormous $19.1-billion deficit, the specter of more furloughs — or Schwarzenegger
ordering state workers be paid minimum wage until a budget deal is struck — loomed large.
"The unions
basically are getting the security of the known," Endsley said.
The unions agreeing to the rollback are the
California Assn. of Highway Patrolmen, the California Department of Forestry Firefighters, the California Assn. of Psychiatric
Technicians and one of two units of the American Federation of State, County and Municipal Employees.
They also
each agreed that pension sizes would be determined by future workers' three highest years of pay — instead of one
— to discourage efforts to rig higher payouts. In addition to the retirement rollbacks, members of AFSCME and the psychiatric
technicians agreed to accept one day of unpaid personal leave per month in the coming fiscal year, which amounts to a nearly
5% pay cut.
CalPERS board requests that state and school districts pay full
contributions
CalPERS
orders California, schools to boost contributions
The increase, to help cover investment losses at the giant public pension fund, would begin
in July. Separately, the governor and four unions announce a deal to reduce future benefits.
Los Angeles Times June 17, 2010
California's
biggest public pension fund, which has suffered tens of billions of dollars in investment losses, is ordering the state government
and a thousand school districts to boost their contributions to employee retirement funds by $709 million a year, beginning
next month.
On Wednesday, the board of the California Public Employees' Retirement System voted unanimously
for the increase, about $601 million of which would come out of state coffers. Schools would pay the remaining $108 million
to cover retirements of non-teaching personnel.
The call for more money to pay for future pension costs came just
before the governor and four state worker union bargaining units announced that they had negotiated new contracts to modestly
reduce future pension benefits.
Those agreements cover a total of approximately 23,000 state employees —
about 10% of the workforce — including firefighters, highway patrol officers, health and social service personnel and
psychiatric technicians.
The pension overhaul in the new contracts echoes recent demands by Gov. Arnold Schwarzenegger
and Republican legislators to roll back generous pension benefits signed into law in 1999 by former Gov. Gray Davis.
The changes increase the retirement age for new hires. Firefighters and highway patrol members would be able to retire with
full pensions at age 55 instead of 50 currently. Future pensions would be calculated based on the average of a worker's
three highest-paid years and not his or her single highest year. Workers also would have to contribute more to their own retirement.
Union officials said they didn't relish having to reduce pension benefits but agreed to do so because of the state's
financial crisis.
"We can read the tea leaves," said Terry McHale of the state Firefighters Local 2881.
The agreements could help to ease the state's projected $19.1-billion budget deficit, but it's unclear so
far how it may affect CalPERS' need for all of the newly authorized increase in contributions.
In the past
month, CalPERS actuaries had determined that the increase in the state's share amounted to $184 million, or 0.2%, of the
$86-billion general fund that pays for major programs such as education, health and welfare and public safety.
The
bulk of the increase would come out of dedicated special funds and would not translate into steep cuts in vital state programs,
they said. Board members agreed. "While any increase is difficult during these challenging economic times," said
Alan Milligan, CalPERS' chief actuary, "this amount is relatively small in comparison to total state spending."
Increases for cities, counties and other local governments that participate in the CalPERS retirement system won't
come until next summer. The new hikes would boost the state's share of retirement costs to $3.9 billion a year and the
schools' share to $1.2 billion.
The larger contributions are needed to "ensure the long-term financial
health of the pension fund," said Kurato Shimada, chairman of CalPERS' benefits committee.
Wall Street Journal: Retirees
file legal challenges to COLA reductions in Colorado and Minnesota
Pension Cuts Face Test
in Colorado, Minnesota
Wall Street Journal June 12, 2010
A showdown is looming over whether commitments made to retirees by government pension funds
can be scaled back in dire economic times.
Facing shortfalls, some public pension funds are responding
by paring back payouts pledged to retired workers. Earlier this year, pension funds in Colorado and Minnesota curtailed annual
cost-of-living increases.
"No matter how draconian you got on the new hires, you ran out of money" if you didn't
cut benefits to current retirees, said Meredith Williams, chief executive of the Colorado Public Employees' Retirement
Association, with $34.2 billion in assets.
In February,
Colorado lawmakers passed a bill that reduced the pension system's cost-of-living adjustment from a fixed 3.5% a year
to a maximum of 2%—but possibly less for current and future retirees. The new law also increased contributions from
employees and employers. For example, retirees who were expecting a 3.5% increase in cost-of-living adjustments this year
will receive no increase.
In response, Colorado and Minnesota
have been hit by lawsuits filed by retirees, who claim the changes violate state law. Those retirees have "lived up to
their end of the bargain, and the state is not living up to theirs," says Stephen Pincus, a Pittsburgh lawyer representing
plaintiffs in both states.
The legal fight could decide whether
financial commitments to retired public workers are sacrosanct, as many employees have long assumed.
While many retirees from the private sector have seen retirement benefits weakened in recent
years, retirees at public pension funds largely have avoided such cuts.
But investment losses, reduced contributions and benefit boosts are making it far more costly for public
pensions to live up to their obligations. To replenish assets, many pensions have reduced benefits to new hires and increased
contributions by employees and employers, says Ron Snell, director of the state-Services division for the National Conference
of State Legislatures.
Far fewer funds have taken the more-drastic
approach of curtailing benefits to retired public-sector employees. The outcome of the Colorado and Minnesota lawsuits could
embolden other pension funds to make their own cuts, though the legal landscape varies from state to state.
"The lessons of Minnesota and Colorado will be interesting, but they also won't be
considered absolute guidance," says Keith Brainard, research director for the National Association of State Retirement
Administrators.
The move to scale back cost-of-living
increases in Colorado gained momentum last year following a study that estimated the Colorado Public Employees' Retirement
Association would be out of money in around 30 years, assuming its investments generated a 7% annual return.
Colorado Gov. Bill Ritter, a Democrat, signed the bill into law without fanfare, says state
Senate President Brandon Shaffer, also a Democrat. "We didn't celebrate this because we know that there is real pain
associated with the changes we enacted through this legislation," Mr. Shaffer says.
According to a benefits booklet provided to Colorado retirees, the pension fund said it "will
increase your benefit each year by 3.5% compounded annually."
Kathy Ratz, a 63-year-old retired special-education teacher who lives in Golden, Colo., says she was "totally blindsided"
by the extent of the change. She gets a $54,000 annual pension and has $89,000 in savings with her husband, she said. He receives
less than $1,000 a month in Social Security.
"I started
out thinking I wanted to do my share to help, but I think this is way beyond helping," she says. "What we're
going to do is sit down and put more into savings than we have."
Mr. Pincus's law firm has said in court documents that the new law could mean a loss of more than $165,000
in benefits over 20 years for a retiree who received an annual pension of $33,264 in 2009.
The retirees point to a 2004 opinion written by then-Attorney General Ken Salazar, now secretary
of the Interior in the Obama administration, that a retired public-sector worker's pension "becomes a vested contractual
obligation of the pension program that is not subject to unilateral change of any type" by the legislature.
Seeking to dismiss the case, the defendants, which include the Colorado pension fund, contend
that "to claim that a cost-of-living adjustment can never be adjusted defies law and logic."
The defendants also highlight the exigencies of financial stress: "There can be no dispute
that preserving the solvency of the Public Employees' Retirement Association is a legitimate governmental interest."
The Minnesota lawsuit came after the state legislature
passed a bill in May that reduced retirement benefits from a 2.5% annual increase to between 1% and 2%, depending on the pension
fund.
Mary Vanek, executive director of the Public Employees
Retirement Association in Minnesota, which reduced the cost of living adjustment from 2.5% to 1%, said potential lawsuits
were a concern considered amid the rollback. "We weren't letting that override our fiduciary concerns," she
says.
Some experts say that if judges decide in favor of the
retirees, public pension funds will have to find another potentially painful way to bridge the funding gap.
"If benefit promises can't be adjusted, then contributions are going to have to go
up a heck of a lot," says Olivia Mitchell, director of the Pension Research Council at the Wharton School of Business
in Philadelphia. "It's not likely anybody is going to win here."
South Dakota retirees file lawsuit
over COLA reduction
Change to state pension plan irks some retirees
Lawsuit says state breached contract
Argus
Leader Sioux Falls, SD June 16, 2010
A battle is brewing between potentially thousands
of retired South Dakota education and government workers and the state over pension benefits. Four retired South Dakotans
have filed a class-action lawsuit in Hughes County Circuit Court, alleging the state is unfairly cutting the rate of annual
increases to the South Dakota Retirement System as promised to retirees when they left their jobs. Those increases now are
tied to the system's financial health, a change brought about under Senate Bill 20, which Gov. Mike Rounds signed into
law March 12.
"They have all lived up to their end of the bargain, they've put in their time and their contributions
and the state is obligated to provide the benefits at the levels that were promised when they retired," said Stephen
Pincus, a Pittsburgh-based lawyer helping to represent the retirees.
"We contend
that this is a breach of the contract the retirees had with the state."
Attorney General
Marty Jackley said his office received the lawsuit late Monday. He was reviewing it and planned to have a response within
30 days. Jackley said his job is to defend the actions of the Legislature when it passed the measure during the last session,
and not to get involved with the policy. "My job as attorney general is to defend Senate Bill 20 in the confines of the
law," he said.
Faced with shortfalls, many public pension funds across the U.S. have
responded by cutting back cost-of-living and other payouts pledged to retired workers. Similar lawsuits have been filed
in Colorado and Minnesota.
Colorado lawmakers in February passed a bill that lowered that state's
cost-of-living adjustment from 3.5 percent to 2 percent for retirees and has provisions for less of an adjustment for current
and future employees, according to the website State Bill Colorado, www.statebillnews.com. Colorado tweaked its adjustment
after a study indicated that the Colorado Public Employees' Retirement Association would run out of money in 30 years.
The state is currently has a pension funding level of less than 80 percent.
"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,"
Colorado Gov. Bill Ritter said in a statement.
But lawyers for the South Dakota retirees - they
include Rapid City residents Merton Tice, Marshall Young, Boots Newstrom and Dean Bryson - contend the state's pension
system is one of the strongest in the Midwest.
In a recent Pew Charitable Trust report, the state's
pension system ranked seventh out of the 50 states with the highest percentage of accrued liabilities funded at 97 percent.
That same study found a $1 trillion gap in what states have promised its retirees and what they have set aside.
"It's not so much the status of the strength or weakness of the system, we have a good retirement
system, one of the best in the country," said Rapid City lawyer Verne Goodsell, who is assisting in the lawsuit for the
plaintiffs. "It's a unilateral reneging on that promise, that's the core of this lawsuit."
In South Dakota, the system's assets have grown about 20 percent in the 11 months since the state fiscal
year began July 1, state investment officer Matt Clark told a legislative committee in Pierre last week. The Retirement System's
assets were $6.6 billion as of May 31, up roughly $1 billion from last July.
"This
year, so far it looks like we're having among our best years ever in adding value," Clark told the Executive Board,
which handles administrative issues for the Legislature.
The Retirement System peaked at about $8 billion
in assets in 2007, but fell to $7.3 billion in June 2008. In the midst of the recession, it then lost 20.4 percent of value
to end last June with assets of $5.6 billion.
"Without a doubt, South Dakota ranked among
the best in terms of its pension funding," said Pincus, citing the Pew Center study. "The state has an interest
in making sure its pension funds are solvent and healthy - and they have the ability to achieve that goal. But taking away
benefits to those who already are retired, who did everything they were supposed to and lived up to their end of the deal,
it is unconstitutional."
From 1988 to 1993, South Dakota's annual improvement rate was set
at 3 percent, Pincus said. Starting in 1993, the annual rate went to 3.1 percent. SB 20 includes language that lowers the
improvement increase to 2.1 percent for fiscal year 2011, which begins July 1.
After fiscal
year 2011, the law provides increases between 2.1 and 2.8 percent when the market value of the plan remains less than
100 percent funded. The increase would revert back to 3.1 percent if the fund's market value hit 100 percent. An audit
in June of last year put the system's health at 91.8 percent, Pincus said.
"We're
not sure what the health is precisely today, but we're pretty sure it's better than 92 percent," he said.
SB 20 was filed with the Committee on Retirement Laws at the request of the South Dakota Retirement System.
The Senate Committee on Retirement Laws passed the bill 5-0. It passed the Senate 32-1 and passed unanimously in the House.
"You're looking at, really, a very small number of people, and we only heard from three of them in committee that
stand to lose a little in the short term, and in the next 10 years it would even out for them," said state Sen. Sandy
Jerstad, D-Sioux Falls, a member of the Committee on Retirement Laws. "But if we did not do that, then we're taking
millions of dollars away from the reserve that everyone else is into, and that's just not right in my mind."
Defendants in the suit include the state, Rounds, the pension plan and its officers and directors.
The system has more than 72,000 members, including employees of state government, cities, counties and school
districts. Most are still working. The system pays more than $300 million a year in benefits.
Five MEA members have filed a class action lawsuit against the Michigan Public School Employees
Retirement System challenging the legality of a new law (Public Act 75) that requires all school employees to pay an additional
3 percent of their compensation into a fund for retiree health insurance with no guarantee that the benefits will be available
to them upon retirement.
“School employees have been and are continuing
to make sacrifices in these tough budget times,” said MEA President Iris K. Salters. “But taking an additional
3 percent out of their paychecks to pay for retirement benefits without any guarantee that those benefits will be there is
an unconscionable act by legislators – particularly since those same legislators are still guaranteed their own lifetime
health benefits after serving only six years in office.
“This clear
attempt to balance the budget on the backs of employees is not only unfair, it’s illegal.”
The three-count complaint alleges that PA 75 violates school employees’ federal and
state constitutional rights and asks the court to place new retirement contributions in an interest-bearing escrow fund until
the matter is decided by the court. Read details of the lawsuit McMillan v. MPSERS.
The complaint, filed in the Michigan Court of Claims, maintains that PA 75: violates
the contract formed when the Michigan Public School Employees Retirement System was set up in 1980; causes the Legislature
to impair an existing contract; and unlawfully abridges the pension system’s financial liabilities.
“This lawsuit will prevent the State of Michigan from making a costly mistake by seizing
money illegally from employees’ paychecks,” said MEA General Counsel Art Przybylowicz. “MEA is confident
that PA 75 will be ruled unconstitutional and when that happens, the state would have to re-pay millions of dollars to school
employees. Keeping the funds in escrow assures the state will be able to do that without worsening Michigan’s already
dire financial situation.”
The five members who filed the suit are:
Deborah McMillan, a Lansing teacher; Thomas Brenner, a Novi teacher; Theresa Dudley, a Grand Rapids head secretary; Katherine
Daniels, a Tuscola Intermediate School District school psychologist; and, Corey Cramb, a Huron teacher.
Opinion:
Pension reforms are a sign that states’ breaking point has arrived
States Become Fiscal Hawks
Forbes Magazine Stephane Fitch and Christopher Steiner 06.07.10
As
a new day dawned over the Illinois State Legislature one morning in March, a 39-page bill hit the floor like none seen in
decades.
Public Act 96-0889 proposed slashing $71 billion from future state budgets. It did so by requiring
newly hired state employees to work up to a dozen years longer than employees had to in the past, until age 67, to draw full
pensions. It sought to forbid them from retiring with more than one government pension, to base pension payments on a salary
of no more than $107,000 a year and to pare cost-of-living adjustments to a fraction of their former levels.
In other words, the bill proposed to detach a gilt-edged safety net that public employees'
unions had spent generations lifting into place. So controversial was it that Jack D. Franks, a 12-year veteran lawmaker,
figured it would take months of working its way through the legislative sausage mill before anything emerged from the other
end.
Instead, by dinnertime that very day virtually every member of Springfield's bluest of
blue-state legislatures had voted in favor of making the bill law. "The idea, obviously, was to keep the unions from
mounting opposition and getting to the members," says Franks, a Democrat. "I've never seen anything like it."
In the shadow of financial Armageddon an outraged populace is beginning to stir. Yes, Washington
is still gorging on the public plastic by issuing trillions of dollars in new debt. States and cities, however, do not have
their own printing presses and cannot count on the Chinese to fund their profligacy. Instead, they are collectively yet to
breach $20 billion in remaining deficits in the current fiscal year and also need to find another $55 billion for next year
fast. That's on top of $1 trillion to $3 trillion in unfunded pension promises, depending on how they are calculated.
"That's not a fuzzy, theoretical number like it would be in Washington," says
Christopher Lehane, who worked as a special assistant counsel to President Bill Clinton and press secretary in Al Gore's
presidential campaign. "When a city can't find money to pick up garbage, the garbage doesn't get picked up or
the city raises taxes."
After decades of ever bigger public payrolls and cushier
benefits, the breaking point has arrived. It is giving rise to a potentially profound political realignment. Democrats who
built careers with backing from organized labor are turning into fiscal hawks. Small-government Republicans are pressing for
income tax hikes.
"You'll see people in state and local governments
taking measures that any sensible business would have taken a long time ago. They've simply run out of alternatives,"
says Mitchell Daniels, Indiana's Republican governor, whose unorthodox mix of spending cuts and tax hikes has turned his
state's fiscal deficit into a surplus. "When I can't sleep at night, I don't count sheep. I count states
where I'm glad I'm not governor."
In New Jersey, where the state and
local tax take per household is the highest in the nation, voters tossed out free-spending Democratic Governor Jon Corzine
last November and installed Chris Christie, a fiscally hawkish Republican. In May they committed another act of what formerly
would have been political heresy and rejected 59% of their own school budgets in a state where academics have traditionally
been a key draw for affluent Manhattan refugees.
In California, the land of public
IOUs, the two biggest cities have been force-feeding labor a mix of pay cuts and furloughs under the direction of two once
staunchly pro-union mayors--Antonio Villaraigosa of Los Angeles and Gavin Newsom of San Francisco. (Newsom has already succeeded,
with 20 local unions accepting a $100-million-a-year cut in a $2.5 billion payroll.)
Farther south, the city of San Diego is suing its own pension system to force employees to contribute more to their
retirement benefits. Back east, residents of Stowe, Vt. eliminated funding for the local high school's ski team. It was
the alpine equivalent of a Texas town canceling football.
David Wilhelm, manager of Bill Clinton's
first presidential campaign, likens the current political maneuvering to his former boss' "Sister Souljah moment,"
when, in a rare 1992 episode, the then presidential candidate risked alienating a core constituency and criticized a black
female rapper for inflammatory comments about whites. "We've got a problem of such magnitude that the standard alliances
have to be thrown aside," Wilhelm says.
The sickliest states are among the
first to be acting, and Illinois certainly qualifies. The Land of Lincoln came in at the very bottom of a recent FORBES financial
ranking that factored in state liabilities, tax revenues and employment prospects. The Illinois pension fund is $80 billion
short of what it has promised to pay in benefits. That represents an unfunded liability of $17,230 per resident, the highest
in the nation after Rhode Island's. Illinois' 2011 budget is $13 billion, or 50%, short of funding. Moody's counts
only California's bonds as posing higher default risk.
This morass
prompted 15,000 mostly union members to board buses or otherwise make their way to the state capitol in Springfield in April
to protest. Unsurprisingly, a call for higher taxes to preserve their benefits ranked high on the agenda. In a recognition
that business as usual is no longer an option, however, many protesters declared a willingness to pay more to fund their own
pensions and to trim benefits, if that's what it'll take to ensure the system's long-term viability.
Marcelino Gutierrez, a 46-year-old union electrician employed by the City of Chicago, is outraged
by plans to lay off 20,000 teachers. He says he'd gladly contribute an additional 2% or 3% of his salary to defray the
cost of his pension--if it makes an income tax hike more palatable, saves education jobs and keeps his daughter's school
open. "How about throwing my kid a few crumbs?" he says.
Two
other protesters, Roger Eddy and James Watson, are state representatives who favor raising Illinois' income tax. At a
flat 3% it's among the lowest third in the nation. "There isn't a way to get out of this [the state's budget
mess] without raising revenues," Eddy explains. Get a load of this: Watson and Eddy are Republicans.
Franks, the Illinois Democrat, wants to see big budget cuts before he'll consider a tax increase. He'd
like to begin by slaying a sacred cow with union members and trim retirement benefits for current state workers. "We
have to start over with a zero budget and build from there," Franks says.
With
politicians on both sides of the aisle in the mood to trim, there's certainly plenty of fat to reduce. One example involves
jobs awarded to influential legislators that they often hold only briefly but use to double their lifetime pensions. Kurt
Granberg, a former state representative, received a $40,000-a-year bump in his pension after serving as head of the Illinois
Department of Natural Resources for all of 19 days. Granberg is just 56, and his pension will rise 3% per year, giving that
$40,000 annual increase a net present value in excess of $1 million.
Who's
carrying all these state employees on their backs? A dwindling private sector. Illinois has 4.7 million private sector jobs,
down from 5.1 million two years ago. High taxes are sure to make that problem worse.
Illinois'
prison system employs 22 state barbers who earn an average of $65,000 a year--nearly twice what full-time beauticians make
in the private sector--and are entitled to retire early on inflation-protected pensions. "We're $6 billion behind
on our bills. Has it occurred to anybody to just have the prisoners cut each other's hair with safety shears?" asks
John Tillman, head of the libertarian Illinois Policy Institute. That, in fact, is the practice in federal prisons.
In New Jersey taxes are the hot-button issue, but pushing through change is still an uphill
battle. In West Orange, a town of 16,000 residents 14 miles from Manhattan, where Thomas Edison invented the lightbulb, property
taxes have risen 7.3% annually over the past decade to an average of $12,000 per home. That's 70% above the state's
$7,000 average, itself the highest rate in the nation.
West Orange's town council is pushing to lift the rate another
6% this year to fill a $4 million budget shortfall. Joseph Krakoviak, a former USA Today reporter turned town blogger,
ran for a council seat last month on a spending-cut platform. He was soundly defeated along with two other antitax candidates.
That verdict came just one month after West Orange voters also rejected their own school board's budget, including pay
hikes for teachers. Such inconsistencies are symbolic of the treadmill that towns like West Orange find themselves on.
"An assistant principal I know who earns more than $100,000 a year admitted he's having
trouble making his house payment because his taxes are so high," says an exasperated Krakoviak.
On the state level, Stephen Sweeney, the Democratic senate president and leader of Iron Workers Union Local
483, is an unlikely fiscal reformer. Yet Sweeney fears that, with $46 billion in unfunded liabilities and a history of stiffing
its pension fund, New Jersey might one day be unable to meet its benefits promises or will spark a financial disaster in trying
to do so. Sweeney has been waging a campaign to scale back pensions and increase employees' contributions, including a
hike from 5.5% to 9% in the amount deducted from teachers' paychecks to cover a portion of their generous benefits.
State unions countered with TV ads attacking the senator and hiring a plane to haul a banner
reading "Stop Sweeney" up and down the Jersey shore. Protesters gathered outside his office donning hot dog costumes
and carrying signs saying "Sweeney the Weenie."
In March Sweeney and his colleagues
in the New Jersey legislature passed bills that boost the amounts government employees contribute to health care, limit pay
for new hires and ban part-timers from drawing pensions. Governor Christie quickly signed the legislation into law. "The
government is good at telling the private sector what to do, but they [sic] don't like the rules applied to themselves,"
Sweeney says.
If only Washington were listening.
Hawaii ERS director David Shimabukuro announces
retirement
Via email from Glenda Chambers:
After more than 22 years service to the retirement industry, David Shimabukuro,
Administrator of the State of Hawaii Employees' Retirement System, will retire effective June 30, 2010. Wesley Machida,
Deputy Administrator, has been appointed as the new Administrator effective July 1.
One-sixth
of British pensions are funded with BP dividends
Obama bullies BP into £13.5bn fund for oil spill victims... but
British pensioners will pick up the bill
Daily Mail (London) 17th June 2010
The crisis engulfing BP has plumbed new depths as President Obama bullied the company into
depositing £13.5billion into a fund to settle compensation claims for the calamitous Gulf of Mexico oil spill.
After a face-to-face showdown with the President at the
White House, BP chairman Carl-Henric Svanberg revealed the payment meant the oil giant would be forced to suspend dividends
to its shareholders until at least next year.
BP shares rallied more than 8 per cent today as the news helped remove some of the uncertainty hanging over the stock
following the oil rig disaster in the Gulf of Mexico.
Shares rose 27.8p to 364.8p as analysts said the moves should cool the political heat on BP and provide a
degree of comfort to markets.
However
yesterday BP shares plunged to a 14-year low of £3.37.
And the news was a major blow for Britain's pension funds, which rely on BP's dividend income to
provide £1 in every £6 they receive each year.
Since the fatal explosion in April, the value of the company - formerly Britain's biggest - has halved
to £63billion.
BP's backdown came as David Cameron finally broke his controversial silence over Mr Obama's attacks
on the company. The Prime Minister revealed he told President Obama not to 'go after' BP 'for the sake of it'.
But BP boss Tony Hayward faces a
mauling in Washington today, in testimony to be given to the Committee on Energy and Commerce.
'I expect him to be sliced and diced,' said Rep. Bart Stupak, chairman of the House
Energy and Commerce subcommittee on oversight and investigations.
<snip
…> Read the full story here:
http://www.dailymail.co.uk/news/article-1287222/BP-oil-spill-British-pensioners-pick-BP-compensation-fund.html#
France announces
gradual increase in retirement age, from 60 to 62
France looks to lift retirement age to 62 from 60
PARIS, June 16 (Reuters) - France's government announced on Wednesday it would raise the retirement age and increase
taxes for top earners in a long-awaited reform aimed at balancing the heavily indebted pensions system by 2018.
Under the plan, which is likely to meet trade union
resistance, the minimum retirement age will be lifted gradually to 62 in 2018 from 60, and levies on capital gains, stock
options and other investment income will all shift higher.
"There is no magic trick when it comes to pensions," Labour Minister Eric Woerth told reporters, unveiling
proposals drawn up after three months of consultations with sceptical unions. "We cannot ignore the fact that the French
population is ageing. We have to confront this fact. Our European partners have done this by working longer. We cannot avoid
joining this movement," he said.
President Nicolas Sarkozy hopes the reform will convince investors he is serious about cleaning up state finances,
which are set to register record deficit and debt levels in 2010, and enable France to cling to its prized AAA sovereign debt
rating.
Even with the proposed
change, France will still have one of the earliest legal retirement ages in the developed world. Germany plans to raise its retirement age to 67, while
Britain and Italy are standardising at 65.
However, breaking through the psychological barrier was always going to be tough in France, where previous government
attempts to implement meaningful change have often foundered in the face of nationwide street protest.
"These are still generous conditions compared
to other European countries, but you have to take the French situation into account," said Laurent Bilke, chief European
economist at Nomura in London.
"The
government can come back in two or three years with another reform if it's needed."
The state pay-as-you-go pension system is forecast to register a 32-billion-euro
($39 billion) deficit in 2010, with this figure set to rise above 100 billion euros by 2050 on current trends, with an ageing
population living ever longer.
Woerth
said the government proposals meant pensions accounts would be balanced by 2018 and register a 100 million euro surplus in
2020. His forecast was based on the assumption the jobless rate would be 6.5 percent in 2018 -- a level not seen in France
for many, many years.
Even
if it succeeds in stemming pensions losses, the state still faces major problems with welfare spending, especially health
expenditure, and the broader budget, which is forecast to register a deficit of 8 percent of GDP this year.
EUROPEAN COUNTRIES RUSH TO REFORM
France's
move is one of a number of reforms being rushed into place by European Union countries struggling to contain a debt crisis
that has rocked markets. Spain was due to spell out crucial labour reforms later on Wednesday. [ID:nLDE65F08T]
In a multi-pronged pension package, Woerth said people
would have to work at least 41.5 years by 2020 to earn a full pension at 62, against 40.5 years now.
He also announced a wave of tax increases aimed primarily
at the rich, raising 3.7 billion euros in extra revenue in 2018, including a one percent surcharge on the top income tax bracket.
"Those who have more resources than others should contribute more than others to financing pensions," Woerth said.
Unions have been urging the government to make up
the pension shortfall with higher taxes on the wealthy, and the Wednesday's fiscal tightening went further than many expected.
In another attempt to forestall union anger, Woerth
said those who began work before 18 would continue to retire at 60 and those with especially arduous jobs will continue to
leave the workplace early if they can prove their medical case.
However, all this might not be enough to prevent a showdown, with France's main unions already planning a day
of action on June 24 to protest against the reform drive.
Any
street demonstrations would be unlikely to gain critical mass until September, when the reform goes to parliament for ratification.
Unions shot down an ambitious pension reform in 1995 and have threatened a fresh revolt this time around. "The aim is
to succeed in September. That is when things are going to get the most heated," Jean-Claude Mailly, the head of the Force
Ouvriere union, said on Tuesday.
