Pension360

The city council of Springfield, Massachusetts has delayed voting on the new budget due to issues with pension funding. The delay allows councilors to look over the budgets and deliberate on how to handle the city’s pension liability.

Mass. Live has more on the topic:

The City Council has postponed two special meetings this week to vote on the proposed $616 million fiscal 2017 budget after councilors raised concerns about the city’s pension liability that continues to rank as the worst-funded system in the state.

The council delayed special budget vote meetings on Tuesday and Wednesday, as formally requested by seven of the 13 councilors, led by council Finance Committee Chairman Timothy Allen. New dates are not yet scheduled.

“They wanted more time to deliberate on the extent of our unfunded pension liabilities,” said council President Michael Fenton, who has also raised concerns.

[…]

The city budget for the new fiscal year, beginning July 1, includes $50.6 million for pension costs and retiree health insurance, reflecting an 8 percent increase over the current year.

Allen and other councilors questioned if that increase is enough given that Springfield’s pension system is 26 percent funded — the lowest percentage in the state.

[…]

Timothy Plante, Springfield’s chief administrative and financial officer, told councilors Monday that the city has an “aggressive” plan to fully fund the pension system with a planned 14 percent increase in fiscal 2018 and another 14 percent increase in fiscal 2019.

Allen asked if more can be done for fiscal 2017, rather than “kick the can down the road.”

[…]

Councilor Timothy J. Rooke said there was no need to delay the vote on the city budget, saying it was “more saber-rattling than common sense.”

The pension liability crisis that faces the city and other communities across the state has been known for a long time and is under a long-term funding schedule, he said, questioning the “befuddlement” of some councilors. Rooke said that he has no problem with new councilors wanting to be educated on the issue, but that councilors with more experience “certainly should not be surprised” by the pension liability crisis

Massachusetts state law requires that all communities pay their pension liabilities in full by 2035.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Hal Dardick of the Chicago Tribune reports, Mayor floats plan to fix city’s smallest pension fund:

Mayor Rahm Emanuel on Monday floated a new idea to fix the city’s smallest government worker pension system, one that he hopes will become a model to address far greater financial woes in the largest retirement fund.

Under the plan, both taxpayers and newly hired city laborers would pay more toward pension costs, and in return, workers could retire two years earlier.

But the Emanuel administration declined to say precisely how much money such an approach could save, and the mayor does not plan to press state lawmakers for approval during the final scheduled week of spring session.

City officials hope the plan would pass muster with the Illinois Supreme Court, which in March struck down an earlier Emanuel plan aimed at addressing the money shortfalls in pension funds covering laborers and municipal employees.

What “we want is a concrete and sustainable funding path that’s not going to get caught up in any legal process, and if there should be some sort of lawsuit on any of this, this is extremely strong, and should not put us in a position of two years of uncertainty like we were” on the previous plan, said Michael Rendina, senior adviser to the mayor.

The Emanuel administration provided an outline of the plan Monday. Starting next year, newly hired employees would pay 11.5 percent of their wages toward retirement, compared with 8.5 percent today. Employees hired from 2011 to 2016 also could opt to pay more into the pension fund, city officials said. In exchange, workers who make the higher pension payments could retire at 65 instead of 67. The plan would not affect people hired by the city before 2011 or laborers who have already retired.

The city would gradually increase how much it puts into the laborers’ pension fund, with the aim of reaching 90 percent funding by 2057. To come up with part of the money, Emanuel would spend all of the proceeds from a $1.40-a-month tax hike on emergency services slapped onto all city phone bills in 2014. That boosted city revenue by about $40 million a year.

The administration, however, did not provide a schedule of how payments would increase the next 40 years. City Hall officials also said they don’t yet have figures on how much money they expect to save under the proposal. The laborers’ fund is about $1.2 billion short of what’s needed to pay retiree benefits. It’s at risk of going broke in about 11 years.

Joe Healy, business manager for Laborers Local 1092, said the two unions representing city laborers have agreed to the deal, figuring that the extra employee contributions represent an equal trade for retiring two years earlier. But Healy also cautioned that the Laborers’ Annuity and Benefit Fund is still reviewing the numbers on the value of the trade-off.

Emanuel went back to the drawing board after the state’s high court rejected his 2014 plan to restore financial health to both the laborers’ fund and the Municipal Employees’ Annuity and Benefit Fund. Justices ruled that reduced cost-of-living increases violated a clause in the Illinois Constitution that states retiree benefits “shall not be diminished or impaired.”

But the court left unanswered the question of whether the city could require employees to pay more toward their retirement and also suggested the city could give employees the option of keeping their own plan or switching to a new one, provided they were offered something of value — “consideration” in legal contract parlance. With the mayor’s new plan, the earlier retirement is the consideration, Rendina said.

Ralph Martire, the executive director of the Center for Tax and Budget Accountability who was critical of the legal soundness of the Emanuel’s earlier plan, said the outline of the latest one likely would fall within the boundaries of the constitution. The city can “create any kind of new” pension plan it wants for employees yet to be hired, and it can provide options to current employees — provided one of the choices is keeping their current plan.

“I don’t see how there’s a constitutional complication to it,” said Martire, who added one caution: If future benefits fall below those provided by Social Security — which city workers don’t receive — the city could ultimately run afoul of federal law and have to pay more into the funds.

The $1.2 billion laborers’ shortfall is significantly smaller than the ones faced by city pension funds for municipal workers, police officers and firefighters. The municipal workers’ fund alone is nearly $10 billion short and at risk of going broke within eight years.

Still, the mayor hopes that the new laborers’ bill serves as a model for talks with the municipal workers’ fund, and city officials have started talking to leaders of some of the dozens of unions that represent those city employees. “If we reach agreement with them, we’ll have to come up with alternate funding source for that,” said Alexandra Holt, the city’s budget director.

Emanuel’s latest pension plan comes as he’s under pressure for solutions. After the Supreme Court ruling in March, Wall Street agencies that evaluate city creditworthiness warned the city that it could further downgrade the city’s already low debt ratings if it did not come up with a plan. At the time, Emanuel financial aides told the analysts that the city would come up with a plan within weeks.

Given unresolved problems with all four city pension funds, it’s uncertain whether proposing a plan for the smallest of the funds will soothe the angst felt on Wall Street over the city’s financial problems. Emanuel last week won City Council approval to borrow up to $600 million, and a lowered credit rating could increase interest costs.

Karen Pierog of Reuters also reports, Chicago, unions reach deal to rescue city pension fund:

Chicago would increase its annual contribution to its laborers’ retirement system, as would newer workers, in order to save the fund from insolvency, under an agreement in principle announced on Monday by Mayor Rahm Emanuel and unions.

While the city hailed the deal for the smallest of its four pension systems, a solution has yet to emerge for its largest fund, covering more than 50,000 active and retired municipal workers.

The city will dedicate $40 million a year from a 2014 increase in its 911 telephone surcharge to the laborers’ fund, under the agreement. Workers hired after Jan. 1, 2017, would have to contribute 11.5 percent of their salaries, while those hired after Jan. 1, 2011, would choose between contributing 11.5 percent and retiring at age 65 or contributing 8.5 percent and retiring at 67.

Chicago needs the Illinois legislature to approve later this year a five-year phase-in of the higher contributions by the city to the laborers’ system to attain a 90 percent funding level by 2057. The fund, which had $1.36 billion in assets at the end of 2014, covers nearly 3,000 active workers and 2,700 retirees.

In March, the Illinois Supreme Court tossed out a 2014 state law aimed at making the laborers’ fund and the municipal pension system solvent by requiring higher contributions from the city and affected workers and reducing benefits.

Emanuel has said that ruling put Chicago into a straitjacket by reaffirming iron-clad protection in the Illinois Constitution against reducing public sector worker pension benefits.

Chicago Budget Director Alex Holt said the deal for the laborers’ fund does not reduce benefits but gives newer workers choices as to when they can retire.

“Choice is one of the areas that the Illinois Supreme Court indicated should pass constitutional muster,” she told reporters in a conference call.

The impact of the high court’s ruling, along with new accounting changes, more than doubled the unfunded liability for the municipal fund to $18.6 billion at the end of 2015 from $7.13 billion at the end of 2014, according to an actuarial report by Segal Consulting released last week. It predicted the system will run out of money within the next 10 years in the absence of increased funding.

“We feel that the solution we laid out for laborers offers a good framework for discussions with the (municipal) fund,” said Chicago Chief Financial Officer Carole Brown.

Those new accounting changes really sting. Elizabeth Campbell of Bloomberg reports, Chicago’s Pension-Fund Woes Just Became $11.5 Billion Bigger:

Chicago’s pension-fund shortfall just got $11.5 billion bigger.

Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Court and new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to its annual report. The fund serves some 70,000 workers and retirees.

The new figure, a result of actuaries’ revised estimates for the value in today’s dollars of benefits due as long as decades from now, doesn’t change how much Chicago needs to contribute each year to make sure the promised checks arrive. But it highlights the long-term pressure on the city from shortchanging its retirement funds year after year — decisions that are now adding hundreds of millions of dollars to its annual bills and have left it with a lower credit rating than any big U.S. city but once-bankrupt Detroit.

“The longer they wait to get this fixed, the more expensive it’s going to get for the city’s taxpayers,” Richard Ciccarone, the Chicago-based president of Merritt Research Services LLC, which analyzes municipal finances.

The estimate presented Thursday to the board of the municipal fund, one of Chicago’s four pensions, will add to what had been an unfunded retirement liability for the city estimated at $20 billion.

A key driver was the court ruling striking down Mayor Rahm Emanuel’s plan that cut benefits and boosted city and employee contributions. Without it in place, the fund is now set to run out of money within 10 years.

That triggered another change. New accounting rules, adopted tokeep governments from using overly optimistic investment-return forecasts to mask the scale of their liabilities, require them to use more modest assumptions once pension plans go broke. As a result, the reported liabilities jump.

The Chicago fund is notable because very few governments have been affected by the change, according to Ciccarone. “The investment returns are not going to fix the problems themselves,” he said.

City officials from Emanuel to Chief Financial Officer Carole Brown have said the city is working on a solution to shore up the retirement system. Chicago has already passed a record property-tax increase that will bolster the police and fire funds.

Under the traditional way of estimating the municipal fund’s obligations, which is how annual contributions are set, the shortfall rose to $9.9 billion as of Dec. 31, based on market value of its assets, according to the actuaries report. That’s up from $7.1 billion a year earlier.

The pension is only 32 percent funded — meaning it has 32 cents for every dollar it owes — compared to 42 percent last year, according to the actuaries. And it has to sell 12 percent to 15 percent of its assets every year to pay out benefits.

City officials are having “very good discussions” with the unions about the issue, according to Emanuel, who has made clear that he disagrees with the court’s ruling to throw out his plan.

“We’re working through the issue to get to what I call a responsible way to fund their pensions within the confines, the straitjacket that the court has determined,” Emanuel told reporters at City Hall on Wednesday.

A proposal is pending in the state legislature to bolster funding for the benefit fund. The plan would ensure it’s 90 percent funded by the end of fiscal year 2055. Jim Mohler, executive director of the fund, told board members on Thursday that it’s a “fluid situation.”

I’ve already covered Chicago’s pension nightmare in detail. If you ever want to get a glimpse of America’s future pension crisis, have a look at what’s going on in Chicago because it’s coming to a city near you. I guarantee you will see a series of never-ending crazy hikes in property taxes to pay for chronically underfunded public pensions.

When Greece was going through its crisis last year, my uncle from Crete would call me and blurt: “It’s worse than Chicago here!” referring to the old Al Capone days when Chicago was the Wild West. Little did he know that in many ways, Chicago is much worse than Greece because Greeks had no choice but to swallow their bitter medicine (and they’re still swallowing it).

In Chicago, powerful public unions are going head to head with a powerful and unpopular mayor who got rebuffed by Illinois’s Supreme Court when he tried cutting pension benefits. Now, they are tinkering around the edges, increasing the contribution rate for new employeesof the city’s smallest pension, which is not going to make a significant impact on what is truly ailing Chicago and Illinois’s public pensions.

All these measures are like putting a band-aid over a metastasized tumor. Creditors know exactly what I’m talking about which is why I’ll be shocked if they ease up on the city’s credit rating.

Importantly, when a public pension is 42% or 32% funded, it’seffectively broke and nothing they do can fix the problem unless they increase contributions and cut benefits for everyone, top up these pensions and introduce real governance and a risk-sharing model.

When people ask me what’s the number one problem with Chicago’s public pensions, I tell them straight out: “Governance, Governance and Governance”. This city has a long history of corrupt public union leaders and equally corrupt politicians who kept masking the pension crisis for as long as possible. And Chicago isn’t alone; there are plenty of other American cities in dire straits when it comes to public finances and public pensions.

But nobody dares discuss these problems in an open and honest way. Unions point the finger at politicians and politicians point the finger at unions and US taxpayers end up footing the public pension bill.

This is why when I read stupid articles in Canadian newspapersquestioning the compensation and performance at Canada’s large public pensions, I ignore them because these foolish journalists haven’t done their research to understand why what we have here is infinitely better than what they have in the United States and elsewhere.

Why are we paying Canadian public pension fund managers big bucks? Because we got the governance right, paying public pension managers properly to bring assets internally, diversifying across public and private assets all around the world and only paying external funds when it can’t be replicated internally. This lowers the costs and improves the performance of our public pensions which is why none of Canada’s Top Ten pensions are chronically underfunded (a few are even over-funded and super-funded).

What else? Canada’s best public pensions — Ontario Teachers, HOOPP and even smaller ones like CAAT and OPTrust — have implemented arisk-sharing model that ensures pension beneficiaries and governments share the risk of the plan so as not to impose any additional tax burden on Canadian taxpayers if these plans ever become underfunded. This level of governance and risk-sharing simply doesn’t exist at any US public pension which is why many of them are chronically underfunded or on the verge of becoming chronically underfunded.

Below, FBN’s Jeff Flock breaks down Chicago’s growing pension shortfall. Like I said, get ready for never-ending property tax hikes if you live in cities like Chicago, it’s only going to get worse.

A bill in Kentucky that aimed to increase transparency surrounding the state pension system did not make it to the floor of the state House of Representatives. The bill had passed in committee and the Senate, but failed to make it past the House. Many Kentucky voters are upset about the lack of transparency.

Heartland has more on the issue:

A bill to reform Kentucky’s pensions by providing greater transparency for taxpayers was halted after it failed to make it to the floor of the state’s House of Representatives.

After being approved by the state’s Senate and a state House of Representatives committee, Senate Bill 2 did not receive consideration by the full assembly before the legislative session ended in April.

SB 2, sponsored by state Sen. Joe Bowen (R-Owensboro), would have required the state government’s public pension program to disclose fees and contracts for goods and services purchased by the pension boards. The bill would have also made appointment of trustees and executive directors subject to confirmation by lawmakers.

[…]

Bowen says the proposed reforms would have helped relieve taxpayers’ concerns about state pensions and make pension program managers more accountable to the people funding those plans.

“Unfortunately, the transparency bill did not make it through the process,” Bowen said. “People want transparency. You know, when you’ve got a $30­ billion to $40 billion pension liability, and you don’t have transparency, people are concerned. They want to know what is going on. They want to know what these investments are, what the contracts look like, what the fees are.”

Many local watchdog associations believe that Kentucky is concealing much deeper debt than what the state lists in reports. For more information, read the full article here.

This is the third time that a New York bill that would offer all veterans an extra three years of pension has reached Governor Andrew Cuomo’s office. The bill aims to include all veterans, regardless of when or where they served. Every time the bill has reached the Cuomo in the past, he has vetoed it, reportedly due to funding concerns.

Press Connects has more on the issue:

Now, with the bill on Cuomo’s desk a third time, representatives of various veterans groups traveled to the state Capitol on Tuesday, hoping to convince the governor to change his mind.

“We’ve got to get the governor to sign the bill,” said Bob Becker, legislative coordinator for the New York State Veterans Council. “I’m not a state employee, never was. I’m here supporting our veterans that are in the state of New York for this bill. The veteran community supports all veterans, male or female, who serve our country.”

The legislation — sponsored by Assemblywoman Amy Paulin, D-Scarsdale, Westchester County, and Sen. William Larkin, R-New Windsor, Orange County — would expand the state’s veterans pension buyback program, which currently allows certain veterans who are now state, local government or school employees and served in combat or during certain wars to claim an extra three years of service when they file for their retirement.

Both the Senate and Assembly passed it earlier this year.

If signed by Cuomo, any veteran — regardless of whether they are combat veterans or when they served — would be eligible for the credit.

Supporters of the bill say the state’s current eligibility rules lead to arbitrary results. Afghanistan veterans, for example, are excluded, as are women who served in certain conflicts prior to being able to hold combat roles.

In vetoing the bill each of the past two years, Cuomo has pointed to the financial implications. Like in previous years, the bill doesn’t include a funding source, meaning the state would still have to figure out how to pay for the added pension costs.

Cuomo must sign or veto the legislation by June 1.

Chicago unions have reached an agreement with Mayor Rahm Emmanuel that may fix Chicago’s massive pension debt. The new plan would allow workers to choose when to retire based on how much of their salary they would like to donate to the pension fund.

Reuters has more on the plan:

Chicago would increase its annual contribution to its laborers’ retirement system, as would newer workers, in order to save the fund from insolvency, under an agreement in principle announced on Monday by Mayor Rahm Emanuel and unions.

While the city hailed the deal for the smallest of its four pension systems, a solution has yet to emerge for its largest fund, covering more than 50,000 active and retired municipal workers.

The city will dedicate $40 million a year from a 2014 increase in its 911 telephone surcharge to the laborers’ fund, under the agreement. Workers hired after Jan. 1, 2017, would have to contribute 11.5 percent of their salaries, while those hired after Jan. 1, 2011, would choose between contributing 11.5 percent and retiring at age 65 or contributing 8.5 percent and retiring at 67.

Chicago needs the Illinois legislature to approve later this year a five-year phase-in of the higher contributions by the city to the laborers’ system to attain a 90 percent funding level by 2057. The fund, which had $1.36 billion in assets at the end of 2014, covers nearly 3,000 active workers and 2,700 retirees.

In March, the Illinois Supreme Court tossed out a 2014 state law aimed at making the laborers’ fund and the municipal pension system solvent by requiring higher contributions from the city and affected workers and reducing benefits.

Emanuel has said that ruling put Chicago into a straitjacket by reaffirming iron-clad protection in the Illinois Constitution against reducing public sector worker pension benefits.

Chicago Budget Director Alex Holt said the deal for the laborers’ fund does not reduce benefits but gives newer workers choices as to when they can retire.

“Choice is one of the areas that the Illinois Supreme Court indicated should pass constitutional muster,” she told reporters in a conference call.

Without increased funding, the city’s municipal fund is expected to run out of money within the next ten years.

A new study by Truth in Accounting discovered that while Illinois’ Comprehensive Annual Financial Report says that the state has $108.6 billion dollars in pension debt, the truth is even worse. Due to accounting loopholes, Illinois is able to hide the fact that its true pension debt is $116.7 billion.

Reboot Illinois has more on the topic:

Truth in Accounting’s annual financial state of the state report found Illinois has amassed nearly $213 billion in unpaid bills, including more than $40 billion in hidden pension debt.

Despite new accounting rules put in place by the Governmental Accounting Standards Board that require state and local governments to report all of its pension liabilities, Illinois continues to omit billions in unfunded pension obligations, says Truth in Accounting CEO Sheila Weinberg.

“Because of budgeting and accounting gimmicks the state uses, Illinois has been able to exclude massive debts off its balance sheet and hide related costs from taxpayers,” Weinberg said in a news release. “Unfortunately all of these financial problems are coming to a head in Illinois.”

While the Illinois comptroller’s Comprehensive Annual Financial Report for fiscal year 2015 puts the state’s net pension liability at $108.6 billion, Truth in Accounting’s analysts say that figure is underreported by about $8.1 billion, meaning Illinois’ unfunded pension liabilities are actually $116.7 billion.

The report also found an additional $32.3 billion in hidden retiree health care debt, bringing the state’s total hidden debt to $40.4 billion.

[…]

As of June 30, 2015, Illinois had $74 billion in assets. But when capital and restricted assets are excluded, the state only had $25.9 billion to pay $212.8 billion worth of bills — a $186.9 billion shortfall.

Read the full report here.

Due to an act recently passed in Congress, companies are required to pay significantly less money to pension funds than was expected in previous years. By using a model similar to what was in place during the recession, companies are allowed to base their payments on interest rates from 25 years ago.

The Boston Globe has more on the story:

A recession-era measure aimed at giving companies a temporary break from large pension obligations has been extended to 2021, allowing corporations to put off hundreds of millions of dollars in payments to fund employee retirement plans.

The amounts can be eye-popping at individual companies. Under the old rules, Massachusetts Mutual Life Insurance Co. of Springfield, for instance, would have had to put $129.8 million into its $2 billion pension plan last year, according to a notice sent to employees. With the break from Congress: $0.

[…]

This steep dive in pension funding is playing out across corporate America, retirement specialists say, and in some cases is pushing big bills out into the future.

“The rules from Congress have really allowed sponsors to kick the can’’ down the road, said Matt McDaniel, a partner in Philadelphia with Mercer, a benefits consultancy. “By saying you have to put in less today — at some point down the road, you’ll have to put in more.”

[…]

In an example of how this works, if the two-year average rate on high-quality corporate bonds for part of a pension was 1.47 percent, the adjusted rate under the 25-year average would be 4.43 percent, according to the IRS.

[…]

Thirty percent of pension plan sponsors in a study last year told Mercer, the consultant, they planned to pay only the minimum required into their pensions.

The other 70 percent are paying more than the minimum. ConEdison, for one, plans to contribute $507 million to its pension plans for 2015, according to a filing with securities regulators. That’s close to its $534 million that would have been required under the old interest rate assumption.

Congress has recently renewed the plan for the next six years.

Reporter Ed Mendel covered the California Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

Annual rates paid by employers to CalPERS and CalSTRS are going up, pension funding levels haven’t recovered from a big drop during the recession, and Gov. Brown’s pension reform put a lid on pension increases.

But there is still pressure for one type of retirement benefit increase: a lump-sum payment from pension funds received by survivors for funeral expenses when members die, often in addition to monthly payments for the spouse and dependents.

It’s usually called, ironically enough, the “death benefit.”

Last week, the CalPERS board took a neutral unless amended position on what has become perennial legislation to increase the death benefit from $2,000 to a minimum of $5,000 for its largest group of members, non-teaching school employees.

Last month, the CalSTRS board, after an initial look in September, once again put on hold a long-delayed increase in a $6,163 retiree death benefit for teachers. Since the board last increased the payment in 2002, inflation has increased 38 percent.

Part of the argument for the CalPERS non-teaching increase, in addition to the rising cost of funerals, is equity with other public pension members, which critics say has been used in the past to “ratchet up” retirement benefits.

Ivan Carillo of the California Federation of Teachers, the sponsor of the legislation (AB 1878), told the CalPERS board last week that since the death benefit was increased to $2,000 in 2000, the cost of the average funeral is up 40 percent to $10,000.

He said there have been too many “heartbreaking stories” of the lowest-paid school staff, the non-teaching “classified” employees, seeking money for funerals from friends, churches, and high-interest loans, some even losing their houses to cover costs.

The importance to the non-teaching school employees of an increase in the death benefit is the reason the legislation has been repeatedly introduced, he said, a half dozen times since 2009.

“They see it as an equity issue,” said Carillo. “As was also noted, CalSTRS members receive a death benefit of $6,163. So, their colleagues on their own school sites lives appear to be valued more than classified members.”

Equity was the reason given by CalPERS for sponsoring a major retroactive pension increase, SB 400 in 1999, best known for a Highway Patrol formula that became the local police-firefighter standard that some critics say is “unsustainable.”

But the legislation also gave other state and non-teaching school employees a major pension increase. In 1991 new state workers were given a pension well below the pensions of previous hires and most local government employees.

In a 17-page brochure about SB 400 titled “Addressing Benefit Equity,” CalPERS said the low pensions for new state workers made it difficult to attract talented employees in a tight job market, particularly for jobs requiring specialized skills.

“Employees are working side by side, and earning benefits at a smaller rate than colleagues performing the same jobs,” the CalPERS brochure said of state workers hired before and after the 1991 pension cut for new hires.

Equity also was part of the staff recommendation adopted by the CalPERS board last week on the school bill: neutral if amended to include state workers, who currently have a similar $2,000 death benefit, and an appropriate funding source is identified.

The bill is supported by the California Teachers Association and other leading labor groups. Listed as opposition are the Los Angeles County Office of Education and Gov. Brown’s Finance department.

“As a reminder, most benefits for current members are typically negotiated through collective bargaining contracts,” Katie Hagen, representing Brown’s Human Resources director, told her fellow CalPERS board members.

School employers currently are allowed to amend their CalPERS contracts to provide death benefits of $3,000, $4,000 or $5,000. When pension reformers propose legislation or initiatives, they are often told by union officials that benefit changes should be negotiated.

A statewide increase of the death benefit for school employees would create a $398 million liability, estimated a CalPERS analysis of AB 1878. The first annual payment would be $32.7 million and the final payment 20 years later $57.3 million.

In addition to a pension, school employees in the California Public Employees Retirement System receive federal Social Security, which provides a lump-sum death benefit of $255. Members of the California Teachers Retirement System do not receive Social Security.

Equity is the reason for a big difference between the current CalSTRS death benefit for retirees, $6,163, and the death benefit for active members, $24,652, both last increased in 2002 when the system was fully funded.

Rick Reed, CalSTRS chief actuary, told the board last month that when the pension plan was changed in the past to ensure equality between males and females, the large death benefit for active members was an “offset” to balance the outcome.

If the death benefit were increased to reflect a 38 percent increase in the cost of living since 2001, CalSTRS actuaries estimate, the retiree benefit would be $8,499, the active benefit $33,996, and the actuarial obligation increase would be $267 million.

The annual valuation issued last month showed that CalSTRS, as of June 30 last year, only had 68.5 percent of the projected assets needed to pay for pensions promised in the future.

That’s higher than predicted at this point when legislation two years ago began phasing in a long-delayed rate hike. School payments to CalSTRS will more than double, going from 8.25 percent of pay to 19.1 percent of pay by 2020.

But a staff report last month warned that the CalSTRS investment fund expected to pay two-thirds of future pensions had “losses experienced so far this fiscal year” that could result in lower funding than originally projected.

Last September, a CalSTRS committee rejected a policy that would have resumed inflation increases in the death benefit, but only in years when investment earnings were high enough to keep the plan on the path to full funding, despite the added cost.

At a full CalSTRS board meeting last month, Harry Keiley, one of three members elected by educators on the 12-member board, said he agrees with staying on the full-funding track but wants consideration of a death benefit increase at an “appropriate” time.

“Perhaps we look at this item separately as a stand-alone item at some future date as the funding status improves,” Keiley said. Several board members asked for information about death benefits in other pension systems, another look at equity.

The CalSTRS staff gave the board a survey last September of death benefits provided by 22 retirement systems throughout the nation, including one in Canada. CalSTRS is among the more generous.

Most of the retirement systems offer some form of continuing income to the survivors of retirees. Fewer provide income to the survivors of active workers. CalSTRS does both.

“In addition, only slightly more than half of the plans investigated provide a one-time lump-sum death benefit, other than the return of contributions and interest in the member’s account, to survivors of members who die while in active service and less than half provide a similar benefit to members who die after retiring,” said the staff report.

Due to a series of steep pension plans, Philadelphia is currently $5.9 billion short of what it needs for pensions this year. The shortage comes from a series of previous legislation that guarantee private sector workers up to 100% of their highest salary in pensions.

The Inquirer has more on the topic:

In fact, taxpayers continue to send each more than $100,0000 a year for their former service as mayor, district attorney, and police commissioner, respectively.

The trio of retirees are among 33 former city employees, including elected officials, who are paid more than $100,000 annually, despite no longer coming to work. Johnson tops the list with an annual pension of $152,439. Second is recently retired Mayor Michael Nutter at $141,906.

The pensions stand as a reminder of the roots of Philadelphia’s pension crisis – an arguably overly generous benefit formula combined with underfunding of the system along the way. Exacerbating the problem is the fact that there are now more retirees collecting pensions than active employees contributing to the fund. And those retirees are living longer than anticipated.

The end result is a pension funding crisis. The city is $5.9 billion short of its $11 billion pension liabilities.

[…]

Diane Oakley, of the National Institute on Retirement Security, said the public-pension levels are more understandable when the whole compensation package is taken into account. Public-sector employees generally receive lower salaries for similar jobs in the private sector, she said.

“They’ve made this deal that the benefits are more important to us than salary,” Oakley said. The pensions, then, are a draw to get people to work for the government.

The median private-pension benefit of individuals age 65 and older was $9,227 a year in 2014, according to the Pension Rights Center, a nonprofit advocacy group based in Washington. That same year, the median state- and local-government pension benefit was $14,158.

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Take last year. Nearly 28,000 employees contributed $58.7 million to the pension fund, while the city paid in $577.2 million. The fund paid out $719.5 million to the 37,945 retirees and beneficiaries. The city’s expense included $1.7 million in the controversial DROP retirement benefit.

An additional cost to the fund last year was the $62 million in pension bonuses doled out as result of legislation that was sponsored by Mayor Kenney when he was a councilman.

Those payments, plus a bad investment year, contributed to millions lost in asset value, dropping the pension system’s funding status to 45 percent.

City officials are currently speaking with union representatives to see if a solution can be found.

The Central States Pension Fund is rapidly running out of money, and is expected to be completely out by 2026. In efforts to save the fund, the Central States Pension Fund has proposed budget cuts, only to be denied by the Treasury Department.

CBS 58 has more on the topic:

The Central States Pension Fund has no new plan to avoid insolvency, fund director Thomas Nyhan said this week. Without government funding, the fund will run out of money in 10 years, he said.

At that time, pension benefits for about 407,000 people could be reduced to “virtually nothing,” he told workers and retirees in a letter sent Friday.

In a last-ditch effort, the Central States Pension Plan sought government approval to partially reduce the pensions of 115,000 retirees and the future benefits for 155,000 current workers. The proposed cuts were steep, as much as 60% for some, but it wasn’t enough. Earlier this month,the Treasury Department rejected the plan because it found that it would not actually head off insolvency.

The fund could submit a new plan, but decided this week that there’s no other way to successfully save the fund and comply with the law. The cuts needed would be too severe.

Normally, when a multi-employer fund like Central States runs out of money, a government insurance fund called the Pension Benefit Guaranty Corporation (PBGC) kicks in so that retirees still receive some kind of benefit.

But that’s not a great solution in this case. For one thing, the amount is smaller than what pensioners would have received under the Central States reduction plan, and is based on the number of years a retiree worked. A retiree would receive a maximum $35.75 a month for each year worked, according to the fund’s website. (That amounts to $1,072.50 a month for retiree who worked 30 years.)

But there’s yet another problem. The PBGC itself is underfunded and isn’t expected to be able to cover all the retirees in the Central States Pension Fund.

Leaders of the Central States Pension Fund stress that only government money can save the situation now.