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Pension Shortfalls Felt By Police Departments As Hiring, Retainment Becomes More Difficult for Cities

Pension obligations have strained police departments across the county as they weigh ways to cut costs without hurting the quality of their force.

But sound solutions are hard to come by as benefit cuts make it harder to recruit and retain good officers.

By the same token, mounting pension obligations make it more unlikely cities will spend money on hiring new officers even as department numbers dwindle.

From Bloomberg:

The shortfalls in the 25 largest state and local-government pensions have tripled over the past decade to more than $2 trillion, according to Moody’s Investors Service. Those gaps, which persist even as the stock market reaches record highs, have mayors scrapping plans to increase patrols and reopen precincts as they spend more on retirement instead.

In cities that cut benefits, officers have quit or retired, underscoring the challenge of balancing the promises of the past with the duties of the present.

“The difficulty you run into when you have minimal staffing is there’s less proactive time that an officer can spend on community-oriented policing,” said Brian Marvel, president of the police union in San Diego, where the number of officers has dropped by 200 since 2009. “There are officers out there doing great work every day. They’re just not doing as much of it.”

[…]

The diminished force in San Diego, which has declined to 1,850 sworn officers from 2,050 five years ago, mirrors a national trend: There were about 390,000 police officers nationwide in 2013, down 14 percent from four years earlier, according to the Federal Bureau of Investigation’s most recent figures.

Rebuilding police ranks is crucial to preventing their standing in communities from slipping even more, said George Kelling, a senior fellow at the Manhattan Institute for Policy Research, a New York nonprofit that studies techniques for making police more effective at reducing crime.

“Community policing is very labor intensive, and if you want to get out into the community, you have to have the resources,” said Kelling, who helped develop law-enforcement tactics adopted in New York. “Most cities ought to be viewing policing as an investment rather than a cost.”

San Diego’s police force isn’t only declining in terms of officers employed; the force has become less experienced, as the average officer only has 6 years of police experience, according to Bloomberg.

Photo by www.GlynLowe.com via Flickr CC License

UK Pension Funding Could Suffer As European Central Bank Begins QE

The European Central Bank announced on Thursday that it would soon kick off its massive quantitative easing program.

Pension consultants say the move will likely push the funding ratios of UK pensions lower – with one consultant going so far as to say the QE program would be “horrendous” for pensions.

From EFinancialNews:

The steep fall in yields on UK bonds, with more possibly to come, has left unhedged pension funds nursing bigger deficits because actuaries use the yields to calculate pension liabilities. And actuaries’ valuations determine the contributions companies need to make to pension schemes. When interest rates fall to extremely low levels, any changes have a significant impact on the size of liabilities.

Dawid Konotey-Ahulu, co-founder of consultant Redington, said: “The sustained decline in long-term interest rates has had a catastrophic effect on unhedged pension schemes. Prepare for a set of truly horrendous funding levels when some pension schemes run their calculations in March.”

Liabilities have risen 25% in a year, according to consultancy Hymans Robertson. Partner Jon Hatchett said they had risen 2% in the past 10 days alone: “They’re going up by the day. It’s astonishing.”

Mercer partner Alan Baker said liabilities at large UK companies’ pension schemes were up by £93 billion, or 14%, over three months.

Roughly 45% of UK scheme liabilities are protected through interest rate hedges, but other schemes will suffer.

One manager of a large UK pension scheme said: “I just wonder whether real yields can go any lower, so schemes will be exploring other ways to hedge. Just remember the silver lining though – if rates are so low then companies can raise capital cheaply and continue to support their schemes – even though the endgame is probably further out.”

Read the full piece, with more reaction, here.

Photo by @Doug88888 via Flickr CC License

CalPERS CEO: “The Companies We Invest In Have to Be Sustainable”

CalPERS CEO Anne Stausboll sat down with the Financial Times for an extensive interview last week.

She talked about her push to make CalPERS an agent of change on social and environmental issues, including the use of shareholder power to engage with companies about sustainable business practices.

Here’s that excerpt, from the Financial Times:

Where Ms Stausboll is most passionate about the power of Calpers to make a difference is in the social and environmental sphere. A vegetarian on moral grounds since her university days, she began her career as a lawyer fighting for equal pay for female workers. On her way to the top she has moved back and forth between Calpers and Californian government, working as deputy to the state treasurer, Phil Angelides, at the turn of the century, when he was pushing for US public pension funds to use their power as shareholders to encourage greener business practices.

Today, Calpers is urging corporations to assess the risks that climate change pose to their businesses; it will be putting motions to shareholder meetings demanding as much. The idea is these shareholder resolutions will be a not-so-subtle nudge to executives to push for more environmentally friendly practices, not just at oil and gas companies but in the insurance sector, in agriculture and across corporate America.

“Our portfolio has to be sustainable for decades and generations, and . . . to make the portfolio sustainable, the companies we invest in have to be sustainable,” she says.

The interview also covers CalPERS’ push for corporate board diversity, the fund’s corruption scandal and its quest to reduce investment expenses.

Read the full interview here.

Photo by rocor via Flickr CC License

Atlantic Beach May Throw Support Behind State Investigation of Jacksonville Pension Fund

There is growing support for a state investigation into Jacksonville’s Police and Fire Pension Fund and its deferred retirement option plan (DROP).

At least one state representative and a handful of others, including city council members and a mayor, have called for a state investigation into whether the fund engaged in regulatory violations in its administration of the DROP.

Now the city of Atlantic Beach is considering joining the calls for an investigation.

From the Jacksonville Business Journal:

The Atlantic Beach City Commission may get behind calls for an investigation into the Police and Fire Pension Fund.

The commission, which meets Monday, could join Rep. Janet Adkins in requesting Gov. Rick Scott to order an investigation of the pension fund.

Atlantic Beach doesn’t contribute to the pension fund, but does contract with Jacksonville for its firefighting service, according to the Florida Times-Union.

In addition, the Atlantic Beach mayor, Carolyn Woods, has said that her constituents have a stake in the pension fund, as contributors to both Jacksonville and Atlantic Beach.

The city commission backing Adkins’ request would mark the first time a government agency has joined the pursuit.

Read more Pension360 coverage of the Jacksonville Police and Fire fund here.

Photo by pshab via Flickr CC License

What Congressional Gridlock Means for Federal Pensions

Gridlock has become the new norm in Congress. The last two Congressional sessions (112^th and 113^th) were arguably the two least-productive sessions in the history of the country.

Republicans now control both chambers, but that doesn’t mean the gridlock will end.

In fact, some observers say that in 2015, the trickle of meaningful bills coming out of either Congressional chamber could slow even further.

That could be good news for federal workers.

Why?

Because trimming federal retirement benefits is a popular idea among a group of lawmakers, and gridlock could stave off those cuts.

Federal News Radio explains:

In 2014, the to-do-list of many pols included plans to charge workers more, via payroll deduction, for their CSRS and FERS benefits. It could have resulted in a pay cut of 2, 3 or even 4 percent.

Also on the list was a big budget saver — a plan to trim future cost-of-living adjustments for current and future retirees by 0.3 percent each year, every year. People would still get COLAs. But in a diet-version.

NARFE’s Jessica Klement estimated the typical CSRS retiree would miss out on $50,000 in future benefits if the COLA calculation change was made. It wasn’t, in part because of gridlock.

[…]

There is an upside to gridlock, especially for active and retired members of the federal family. It kept politicians with political, personal or fiscal axes to grind (out of your hide) from chopping up your benefits package. Feds even got a token raise. While only 1 percent (same as this year) it was 100 percent more than they got in 2013, 2012 and 2011.

The gridlock also gives retiree advocates and labor groups more time to combat those policies.

Two lawmakers, Rep. Jason Chaffetz [R-Utah] and Rep. Mark Meadows [R-N.C.], are leading the push for civil service reform, including pension changes.

OpenRetirement covered their plans here.

New York City Pension Wants In On Lawsuit Against Real Estate Firm Accused of Inflating Prices

The New York City retirement system is attempting to join a lawsuit already being brought by two pension funds against a real estate firm that allegedly inflated its performance figures.

The two pension funds already heading the case, State Teachers Retirement System of Ohio (STRS) and the Ohio Public Employees Retirement System (OPERS), are claiming millions in losses.

From ai-cio.com:

American Realty Capital Properties (ACRP), a real estate investment trust provider, is facing a growing group of investors claiming it fraudulently inflated performance figures.

The $159 billion New York City retirement system and TIAA-CREF have filed complaints against the firm, requesting to join in an ongoing lawsuit led by two Ohio public pension funds.

In October 2014, nine days after the Ohio pensions first filed suit, the real estate firm admitted it had made intentional accounting errors, and purposely failed to correct other mistaken figures. Its stock plummeted by 30% within hours of the revelation, and closed trading for the day having lost roughly $2 billion in market capitalization.

[…]

“In light of general investor concerns about the quality of the company’s accounting functions, internal controls, and corporate governance (as highlighted by several embarrassing reporting mishaps), ACRP desperately sought to reassure investors that it had righted the ship and that its internal control systems were above reproach,” TIAA-CREF’s complaint stated.

Photo by Joe Gratz via Flickr CC License

Nevada PERS Pokes Holes in Study Claiming Public Pensioners Make More in Retirement Than They Did On Job

Officials from the Nevada PERS are disputing a think tank report that claimed public pensioners were making more money in retirement than they did while working.

The report was produced by the Nevada Policy Research Institute.

But Nevada PERS says the findings were based on a small sample size that renders the results meaningless.

From the Las Vegas Review-Journal:

A retirement system official said Thursday a report showing that some public employees who retire collect more in pension benefits than they did while working was based on less than 2 percent of beneficiaries.

The analysis also does not reflect changes to the retirement plan made in 1985 that reduced pension payouts, said Tina Leiss, executive officer of the system.

The conclusions in the report issued by the Nevada Policy Research Institute, a conservative think tank based in Las Vegas, do not account for the vast majority of the members and retirees of the Public Employees’ Retirement System, she said.

“It appears that the analysis was based on a review of 790 retirees whereas there are currently 49,179 retirees (not including survivors and beneficiaries) receiving benefits from the system,” Leiss said. “Over the last 3 fiscal years, approximately 12 percent of those retiring in those years did so with 30 or more years of service while approximately 88 percent did so with less than 30 years of service.”

NPRI officials have used the analysis as evidence of the need for reforms to the public employee retirement system, but Leiss said the analysis is not representative of the benefit structure in place for almost ail current members of the system. Benefits were reduced in 1985 from 90 percent to 75 percent of average compensation for newly hired public employees, she said.

The executive vice president of the NPRI responded:

Victor Joecks, executive vice president at NPRI, said PERS likes to use averages to make its case, which is why the analysis looking at those retiring with 30 years of service is so important. Those with 30 years or more can begin collecting their pensions in their 50s while private-sector workers have to put in much more time to collect Social Security, he said.

Public employees in PERS do not participate in Social Security.

“What it shows is the PERS system has a big inequity in it,” Joecks said. “If you only work for five years or 10 years it’s not a very good system for you.”

Including a 401(k) type of element to the public pension plan would work better for younger workers who don’t plan to make a career in public service because it stays with the employee, Joecks said.

Read more on the think tank report here.

Photo by TaxCredits.net

San Bernardino Bankruptcy Plan Will Impair Bondholders, Not Pensions, Says City Lawyer

The attorney for the bankrupt California city of San Bernardino on Thursday said that pensions would not be altered in the course of the city’s bankruptcy.

The statement was important, because it was the first official word from the city that pensioners would be given much higher priority than its bondholders.

Observers are watching San Bernardino closely; specifically, how the city handles its pension debt during bankruptcy.

As municipal bankruptcies become more common, pension benefits are increasingly on the chopping block.

But San Bernardino officials all along said that they would preserve pension benefits and keep making payments to the California Public Employees Retirement System.

The city’s other creditors won’t be so lucky. In order to preserve pensions, the city’s bondholders will likely be significantly impaired.

On Thursday, City Attorney Gary Saenz made the following statements about the city’s bankruptcy plan, according to Reuters:

Bankrupt San Bernardino will significantly impair its bondholder creditors while paying pension fund Calpers in full in a plan to be presented in May, City Attorney Gary Saenz said on Thursday.

[…]

Saenz said the city will present its bankruptcy plan in May to give creditors a clear idea of how much the city can afford to pay them. The city was preparing for months of challenges and possible litigation from unhappy creditors after the plan is presented, he said.

“From their perspective, they see some impairment of Calpers as reasonable if they are going to receive a significant impairment,” Saenz said, referring to EEPK, Ambac and Wells Fargo. “But we need to compare that argument to our ability to provide services for our city. And that needs a workforce. And you can’t have a workforce without pensions.”

Under the city’s bankruptcy plan that is being drafted, cutting its debt to its pension obligation bondholders “will not have the same impact on the city post-banktruptcy if we impaired pensions,” Saenz said.

In Detroit’s bankruptcy, pensions were indeed cut. But the cuts were less than many expected, and creditors still took the brunt of the hit.

Another bankrupt California city, Stockton, manages to keep pension benefits unimpaired.

Photo by Pete Zarria via Flickr CC License

Philadelphia Pension Board Appoints Interim CIO

The chief investment officer of Philadelphia’s Board of Pensions, Sumit Handa, announced his plans to resign earlier this month.

He officially left the post on January 15.

Now, the Board has appointed an interim CIO to take Handa’s place while a search for a long-term CIO plays out.

From Philly.com:

Francis Bielli, executive director of the Philadelphia Board of Pensions and Retirement, will be serving as the board’s interim chief investment officer, while the board conducts a search for a new CIO.

The board asked Bielli to put on a second hat, following Sumit Handa’s recent resignation. Handa, who was hired in 2011 to manage the investments of the underfunded $5 billion Philadelphia city workers’ retirement plan, is going back to the private sector, said Rob Dubow, pension board chairman and city finance director.

Bielli’s salary will get a $35,000 bump, totaling $204,000, to fill in the second job, the board announced at its meeting Thursday. A national search will be conducted to find a replacement for Handa.

Bielli will oversee the management of $4.7 billion in pension assets.

Photo credit: “GardenStreetBridgeSchuylkillRiverSkylinePhiladelphiaPennsylvania” by Massimo Catarinella – Own work. Licensed under CC BY 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:GardenStreetBridgeSchuylkillRiverSkylinePhiladelphiaPennsylvania.jpg#mediaviewer/File:GardenStreetBridgeSchuylkillRiverSkylinePhiladelphiaPennsylvania.jpg

Judge in Illinois Pension Lawsuit Rejects Request For More Time

Lawyers representing groups challenging Illinois’ pension reform law asked for more time to file arguments this week. The request would have extended the deadline by a month.

The judge presiding over the case rejected that request on Thursday.

From the Associated Press:

The Illinois Supreme Court has rejected a request for an extra month to file arguments by lawyers contesting the law that overhauls a state pension program that is $111 billion in debt.

Attorneys for state employees, retired teachers and others who contest the constitutionality of the law said they needed until March 16.

But the court denied the motion Thursday because it had already agreed to fast track the appeal of a lower court’s ruling. The case is scheduled to be heard in March.

The judge also rejected a request from outside groups who wanted to file additional briefs. From Pantagraph:

A lawsuit seeking to overturn changes to the state’s employee pension systems remains on a fast track.

In a decision issued Thursday, the Illinois Supreme Court denied a request from outside groups and individuals to file briefs in the case, saying the additional filings could put the court’s plan to hear the case during its March term in jeopardy.

Attorneys representing state retirees and employees who would be affected by the Legislature’s controversial 2013 pension overhaul supported the court’s decision.

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