The Illinois Supreme Court announced on Thursday a specific date and time for oral arguments in the state’s high-profile pension lawsuit.
The arguments will be held on March 11 at 2:30 pm, CST, according to the Associated Press.
Unions, retirees and retiree groups are suing the state over a pension overhaul passed in late 2013. The law cuts benefits for many public workers, who are suing the state over the constitutionality of the law.
Read more Pension360 coverage of the lawsuit here.
The New Orleans Municipal Employees Retirement System returned less than 5 percent in 2014, a number that is pushing some board members – including the city’s finance director – to consider a more passive investment strategy.
Trustee and city finance director Norman Foster argued this week that the fund should be investing in funds that passively follow indices like the S&P 500, which saw double digit returns in 2014.
From NOLA.com:
Several board members expressed some frustration with the fund’s investment performance, none more than Norman Foster, the city’s finance director.
Foster argued that the city would have been better served by investing in index funds, passive investment vehicles that track the market and eliminate costly management fees. “I’ve made the case for passive investment, and I’ll be making it more and more,” he said.
[…]
Some of the performance lag can be attributed to the fund’s asset mix. Like many pension systems, the retirement system invests heavily in bonds, a strategy that minimizes risk but also limits returns during market booms.
Foster pointed out, however, that even when the asset mix is taken into account, the fund’s performance fell short of index benchmarks by nearly 3 percent, which means the managers failed to beat the market, despite collecting handsome fees.
Ian Jones, who advises the retirement system on investment issues, warned against dumping its asset managers based on one year’s worth of data.
The fund assumes a 7.5 percent annual return.
Over the past seven years, the fund’s returns have averaged 4.21 percent annually.
Photo by www.SeniorLiving.Org
In late 2014, the Kentucky Chamber of Commerce called for an extensive audit of the Kentucky Retirement Systems.
Some lawmakers and observers balked at the idea because of the expense it would incur and the recency of the last system review.
But in a new letter, Chamber President Dave Adkisson is again urging lawmakers to conduct a pension performance review. Adkisson also raises questions about the legislature’s plan to issue billions in bonds to fund pensions.
From Pure Politics:
“We strongly urge the legislature to fund this independent review by the State Auditor rather than continuing to rely solely on information provided by the system itself,” [Adkisson] wrote.
The chamber further recommended the establishment of a consensus actuarial group, allowing a review of annual retirement contributions recommended by actuaries hired by KRS, and a mechanism so governors can identify how pension contributions are funded.
[…]
The [bond] proposal, House Bill 4, has its skeptics in the private sector, “especially since taxpayers have not had the benefit of vetting such a major initiative,” Adkisson wrote in the letter.
“Simply put, it is difficult to know whether bonding is a good idea or bad idea,” he wrote. “Furthermore, this discussion focuses solely on the funding side and does not include a comprehensive review of the costs and sustainability of the benefits structure over time.
“For now, it would be imprudent for the business community to support such a proposal without a significant amount of open, public deliberation.”
Read Adkisson’s full letter here.
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Illinois Gov. Bruce Rauner laid out his budget plan on Wednesday, and it included a number of pension cuts – decreasing annual COLAs, freezing benefits, and moving employees into a plan that yields fewer benefits.
(Under Rauner’s proposal, police and firefighters would be exempt from these changes.)
One lawmaker on Wednesday accused Rauner of using “fuzzy pension math” to calculate the savings the cuts would yield.
That followed the accusatory words of another top lawmaker, who claimed Rauner’s pension changes produced “phantom savings”.
Here’s Illinois Senate President John Cullerton:
The basic math still doesn’t work in his proposal. Governor Rauner leaves a $2.2 billion hole in the budget by relying on unrealistic revenues from a questionable pension proposal. Even as the courts review a significant test case, the governor’s plan banks phantom savings for a pension plan that may fail key legislative and judicial tests. When we passed pension reform last year, we took care to exclude possible savings from budget plans pending a legal resolution. The governor’s plan rejects that wisdom.
Indeed, when the state passed its pension overhaul in late 2013, it never included the savings in the budget. That’s because a legal challenge was sure to be brought against the law and Illinois didn’t want to assume savings only to get burned later.
Rauner’s proposals, if enacted, are likely to end up in court as well, depending on the outcome of the state’s current pension lawsuit.
Photo by Tricia Scully via Flickr CC License
Here’s an informative, extended look at how public pension funds invest — from principles and preferences, to assumptions and returns. The presentation was given by the National Institute on Retirement Security.
The presentation is moderated by Diane Oakley, Executive Director of NIRS. Panelists include Ronnnie Jung, CPA, a former executive director of TRS Texas; and Nari Rhee, PhD, Manager of Research at NIRS.
The video is a recording of a webinar that took place in 2013 – but its still holds up as an interesting and informative primer on public pension investing.
Photo by c_ambler via Flickr CC License
Mike Corones at Reuters has produced this graphic showing Chicago’s pension payments until 2020 – and the big spike the city will begin seeing in its contributions in this year.
The city paid $476 million into its pension systems in 2014, but that total will more than double in 2015. But 2020, $476 million will seem like pocket change as Chicago will be on the hook for $1.6 billion.
Chart credit: Reuters
U.S. Bankruptcy Judge Steven Rhodes – the judge that authorized Detroit’s pension cuts as part of its bankruptcy plan – said this week that, from a legal standpoint, the decision to let the city cut pensions was “not particularly difficult”.
But from a personal standpoint the cuts were more difficult, according to Rhodes.
Here’s what Rhodes had to say about the ruling, according to the Detroit Free Press:
Michigan’s Constitution describes public pensions as a contractual obligation that cannot be cut, but federal bankruptcy law allows contracts to be severed.
“I have to say that from a legal perspective, it was not a particularly difficult decision,” he said.
[…]
He felt still compassion for the city’s retirees and citizens who suffered because of the city’s financial collapse and water shutoffs.
Rhodes, who presided over the largest municipal bankruptcy in U.S. history from start to finish, told WDET’s “Detroit Today” that he invited citizens to speak in his courtroom on multiple occasions during the case because he wanted to hear their input.
“It wasn’t just show. It wasn’t just me trying to persuade people that I’m fair,” he said. “I was genuinely interested in what their concerns were and how I could possibly deal with them, if I could. So that was important to me.”
Rhodes also said in the interview that Detroit should have filed for bankruptcy as early as 2005.
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Illinois Gov. Bruce Rauner will give his budget address on Wednesday afternoon. He’ll announce a number of cost-cutting proposals, and pensions are sure to be featured.
What specifically does Rauner have in mind for the state pension system?
Greg Hinz of Crain’s Chicago Business got a hold of budget documents that hint at Rauner’s plans.
From Crain’s:
On pensions, Rauner is proposing to go substantially farther than the reforms passed a year ago by the General Assembly, reforms that now are being challenged before the Illinois Supreme Court.
Specifically, according to budget documents shared with me, Rauner intends to save $2.2 billion next year, cutting the state’s unfunded pension liability by $25 billion. He’d do that by freezing all benefits as of July 1, moving workers to a new plan in which cost-of-living hikes would be cut from the current 3 percent a year to the lesser of 3 percent or half of inflation, non-compounding; the normal retirement age would be 67, and overtime would not be counted in pension benefits.
These changes would apply to benefits earned after July 1. Benefits earned prior to that date would be paid at the previous rate. The Rauner document says that makes it constitutional as “earned benefits” are not cut. Expect a court challenge to that.
All of these changes would apply only to plans covering teachers, university employees and other state workers—not public safety employees.
Read an overview of the rest of Rauner’s probable budget proposals here.
By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons
In this interview, Governmental Accounting Standards Board chairman David Vaudt discusses the entity’s new public pension accounting rules, the results they have produced so far, and what the rules mean for the finances of cash-strapped states.
Video credit: CNBC
Feature photo credit: www.SeniorLiving.Org
The Jacksonville Electric Authority (JEA) has agreed to help the city in its efforts to fund its pension system – but there are a few strings attached.
JEA would make a one-time, $120 million payment to the city’s pension fund. In return, JEA wants the city to slash the utility’s future contributions and let it create its own pension plan for employees. (Since JEA is a public utility, it’s employees belong to the city’s pension plan.)
More from First Coast News:
The [JEA] board voted unanimously to support the deal on Tuesday following little debate, but months of work studying to determine if it was a good move for the authority.
The JEA, in turn for providing $120 million, would see its annual contributions to the city slashed plus allow the JEA to break away and create its own pension plan for its employees.
Mayor Alvin Brown has touted the JEA option as a good move because the city could match the $120 million to make a lump sump payment to drive down the pension obligations that push $1.6 billion.
The Jacksonville City Council still needs to approve the agreement.
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