Pension360

Has New Jersey set aside enough money in its FY 2015-16 budget to make an adequate contribution to its pension system?

That’s the question a judge will answer in the coming months, as the state again goes to court over reduced annual pension payments.

The state is scheduled to make a $1.3 billion payment to the pension system – but Christie’s 2011 reform law mandates the payment be around $3 billion.

Unions are suing the state over the shorted payment.

If this seems like déjà vu, that’s because this lawsuit closely resembles a suit heard earlier this month – which the state lost but is appealing – over pension payments that were slashed in 2014 and 2015.

A judge on Monday set the court dates for the new lawsuit.

From the Wall Street Journal:

Mary Jacobson, a superior court judge in Mercer County, said in a filing that the state and the more than dozen union litigants must submit their briefings and responses by next month. Oral arguments for the case are set for May 12.

Unions backing the lawsuit say that Gov. Christie is violating state law by not making promised payments in the state’s upcoming budget and underfunding the pensions by around $1.8 billion. A spokesman for Gov. Christie did not immediately respond to a request for comment, but Gov. Christie previously has said the state’s budget woes made full pension payments impossible over the past two years.

[…]

“It’s very disheartening that we must return to court yet again to compel this governor to abide by his own pension funding law,” said Charles Wowkanech, president of the New Jersey State AFL-CIO, in a statement.

The lawsuit alleges Gov. Christie “made a conscious and calculated decision to continue violating” state law by recommending a fiscal year 2016 contribution that is “$1.8 billion less than the State is legally obligated to pay,” according to the complaint filed on March 13.

Out of all states, New Jersey pays the smallest percentage of its annual required pension contribution, according to a report from the National Association of State Retirement Administrators.

Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

The Illinois Supreme Court earlier this month heard arguments for and against the legality of the state’s pension overhaul from attorneys on both sides of the lawsuit.

In this video, Aaron Maduff – an attorney representing one of the employee groups suing the state – reacts and discusses the arguments presented by the state.

Japan’s mid-sized pension funds on Friday announced their intentions to mimic the portfolio shift of the giant Government Pension Investment Fund.

The GPIF is in the midst of a reallocation that involved cutting bond exposure and loading up on foreign and domestic stocks.

The three smaller funds following suit are: the Promotion and Mutual Aid Corporation for Private Schools of Japan, the Pension Fund Association for Local Government Officials, and the Federation of National Public Service Personnel Mutual Aid Associations.

From the Wall Street Journal:

The three smaller pensions’ decision to use the GPIF’s portfolio as a model reflects a 2012 law that mandates the consolidation of the nation’s employee pension system by October 2015. Though the funds will align their investment strategies, they will still be organizationally independent, welfare minister Yasuhisa Shiozaki said earlier this month.

The three smaller funds also hold assets that the GPIF doesn’t have, including real estate and educational and home loans to members. They will treat any such assets as either stocks or bonds, the statement said.

Data indicate the three smaller pensions have already started to shift their portfolios. Trust banks, which manage money for pensions, sold a net ¥389.1 billion of super-long Japanese government bonds in February, the sixth consecutive month of net selling, according to data released Friday by the Japan Securities Dealers Associations. Pensions are big investors in super-long JGBs as they invest over a long time horizon.

The three smaller funds manage $249 billion in pension assets collectively.

 

Photo by Ville Miettinen via FLickr CC License

The top Republican in the Pennsylvania Senate on Monday made it clear that the fight over state pension changes will only become harder fought in the coming months.

Sen. Jake Corman said Monday that Republicans will introduce a plan to switch new state hires into 401(k) plans, and introduce some sort of cap on benefits for other workers.

The statement came with a twist: Corman said he wouldn’t vote on the state budget, due June 30, until pension reform is passed.

From the Pittsburgh Post-Gazette:

“Pensions is the budget,” Mr. Corman, R-Centre, told a luncheon of the Pennsylvania Press Club. “We’re not doing a budget without it. We can’t. It’s been like a tsunami. It’s been nice — it’s sort of a pretty wave when it’s hundreds of miles out there, but when it hits land, it causes a lot of damage. Well, this one’s hit land, and it’s time to deal with it.”

Mr. Corman supports enrolling future state and public school workers in 401(k)-style, defined-contribution retirement plans. He said he also believes the state could make changes to the future benefits of some current workers.

[…]

On Monday, Mr. Corman described the proposal for current employees as returning them to 2001 benefit levels. Workers would have a choice between returning to those benefits for future earnings or paying more to maintain the current benefit, said Jennifer Kocher, Mr. Corman’s spokeswoman.

According to TribLive, Gov. Tom Wolf declined to comment on the proposal.

Wolf has opposed any major structural changes to the state’s pension system.

The bill is likely to be introduced in April and voted on in May.

 

Photo by  Penn State via Flickr CC License

Rhode Island retirees on Monday approved the proposed pension settlement between the state and its pensioners, according to the Providence Journal.

Retirees reportedly approved the measure by a wide margin, although voter turnout was low.

The exact numbers are still under wraps as the involved parties are bound by a gag order.

There are still several obstacles the proposed settlement has yet to maneuver: union members will vote on the measure throughout the week, and then the settlement will go to state lawmakers and eventually a judge for approval.

More details emerged Monday about the specific terms of the settlement. The Providence Journal reports:

More than one version of the proposed settlement has circulated. The version provided the select group of retirees voting on Monday promised more frequent COLAs – every four years, instead of five – and on a larger portion of the retiree’s benefits.

It says, for example: Those with a suspended COLA, who are retired “as of the effective date of the new deal’’ will get a COLA on their first $30,000 in benefits, while $25,000 will remain the base for future retirees.

‘The current “indexed cap’’ is $25,855, for those retirees in more than 50 comparatively well-funded municipal retirement plans that qualified for a COLA this year. “The indexed cap which will be used for the next 4-year COLA in 2017 will be approximately $32,225.”

Currently, Rhode Island retirees only receive a COLA once every five years.

The settlement is also rumored to include a lower retirement age and two $500 stipends for retirees.

 

Photo by By Jim Jones (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

A new report from Fitch assigns a positive outlook to Mexico’s pension funds after 2014 returns beat 2013’s results.

From a Fitch release:

The outlook for Mexican pension funds (Siefores) is positive, according to a new Fitch Ratings report. In spite of economic fluctuations, the annual return of Siefores, as a weighted average of the system, was higher in 2014 compared to 2013 results. As of Sept. 30, 2014, Basic Siefores (BS) provided an average compound annual return of 7.42% (after commissions), higher than 2013’s 3.17%.

The good general performance of Siefores’ returns during 2014 was supported by a healthy financial environment in Mexico, positive behavior of the Mexican Stock Exchange and of the investments by Siefores in bonds, private debt and international equity. Nevertheless, in September 2014 significant capital losses were registered in BS portfolios, both in debt and equity, due to the instability that prevailed during that month in the markets. Nevertheless, for the same period, assets under management grew 13.66% versus the same period of 2013.

In addition to prevailing geopolitical problems, external factors will continue to play an important role in Siefores returns. The most relevant factors in coming months are: the U.S. economic recovery, given the pessimistic estimations on the economic activity in Europe and China; foreign investment flows to emerging economies; and interest rates, now that Fed’s ended QE facing an eventual increase in rates.

The report, titled ‘Better Returns for Mexican Pension Funds in 2014: Despite Recent Volatility and Capital Losses’, can be read here [subscription required].

 

Photo  jjMustang_79 via Flickr CC License

Texas’ rainy day fund is overflowing – and one lawmaker wants to use the state’s excess cash to help fund its pension system, according to the Dallas Morning News.

Texas maintains a rainy day fund, funded mostly by oil and gas-related taxes.

But the fund is growing so large – it totaled $8.5 billion as of February – that it could soon hit its “cap”.

One lawmaker has proposed a constitutional amendment that would let lawmakers take the “overflow” – or, money that exceeds the fund’s cap – and divert it to the state’s pension systems.

From the Dallas Morning News:

[Sen. Van Taylor’s] constitutional amendment would take excess money, over the rainy day fund’s ceiling, and wall it off for use in shoring up the Teacher Retirement System, Employees Retirement System and savings accounts parents can open for college tuition.

Taylor noted that under the transportation funding measures enacted two years ago, the rainy day fund has a floor of $7 billion. If lawmakers take it below that, the road money dries up.

That creates an incentive to protect the fund. Taylor said he wants to give pensioners the same motive to oppose casual use of the savings account.

“If the [rainy day fund] were to become full, and money started to be used to make pension funds stronger, you would watch a new constituency, retired teachers, say, ‘Hey, don’t pull money out of the rainy day fund because if you do that, it has to fill back up again before you can use that money to make our pension fund sound,’” he said.

Texas manages over $200 billion in pension assets between its seven major systems.

 

Photo credit: “Flag-map of Texas” by Darwinek. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Texas.svg#/media/File:Flag-map_of_Texas.svg

Retirees across Rhode Island are voting Monday on the proposed settlement to the long-running lawsuit against the state’s pension reforms.

If the settlement passes a vote by retirees, it will then need to be approved by state lawmakers and a judge.

The settlement would scale back benefit cuts and other changes enacted in 2011 as part of the state’s massive pension overhaul.

What can retirees expect if the settlement is approved? A stipend, occasional COLAs, and lower retirement ages, among other things.

PlanSponsor explains the terms of the proposed settlement:

* Two, one-time $500 stipends to current retirees, with the first payment a month after enactment, and the second paid a year later;

* A once-every-four years increase in the pensions paid to current retirees on their first $30,000 in retirement benefits, as opposed to the first $25,000; and

* A tweak in the retirement age to allow workers to retire with full benefits at age 65 after 30 years of service; age 64 (31 years): age 63 (32 years) and age 62 (33 years).

* Also under discussion is a proposal to allow police officers and firefighters to retire with full benefits at age 50, after 25 years of service, and at any age, after 27 years of service.

The settlement could cost cities and towns $13.7 million collectively, according to calculations from the Providence Journal.

 

Photo credit: “Flag-map of Rhode Island” by Darwinek – self-made using Image:Flag of Rhode Island.svg and Image:USA Rhode Island location map.svg. Licensed under CC BY-SA 3.0 via Wikimedia Commons