Ted Ballantine | Pension360

Could Climate Change Deplete Your Pension?

If oil, gas and coal companies were to face serious financial difficulty, the average person might anticipate the annoyance of a higher heating bill, or having to cough up more cash to fill up at the gas station.

They probably don’t think about their pension—but maybe they should.

Earlier this year, members of the British Parliament sent out a clear warning to the Bank of England and the country’s pension funds: watch out for the carbon bubble.

The “carbon bubble”? Here’s a quick explanation from the Guardian:

The idea of a carbon bubble – meaning that the true costs of carbon dioxide in intensifying climate change are not taken into account in a company’s stock market valuation – has been gaining currency in recent years, but this is the first time that MPs have addressed the question head-on.

Much of the world’s fossil fuel resource will have to be left unburned if the world is to avoid dangerous levels of global warming, the environmental audit committee warned.

To many, it probably sounds like a silly term. But its potential implications are serious enough that many in the UK are starting to worry about its effect on the global economy, and that includes pension funds—UK pension funds are particularly exposed to fossil fuel-based assets, as some estimates say 20 to 30 percent of the funds’ assets are allocated toward investments that would be seriously harmed by the burst of the “carbon bubble”.

But some experts say pension funds in the US should be worrying about this, too, because it’s a global issue. From The Ecologist:

If the impetus to prevent further climate change reaches the point where measures such as a global carbon tax are agreed, for example, then those fossil fuel reserves that have contributed to the heady share price performance of oil, gas and coal companies will become ‘unburnable’ or ‘stranded’ in the ground.

But even if we continue business as usual, value could begin to unravel.

Because to continue with business as usual would require an ever increasing amount of capital expenditure by the industry to explore territories previously off limits – the Arctic, for example and the Canadian Tar Sands – tapping these new resources, quite apart from being a bad idea environmentally, is hugely expensive.

Dividends – the payments earned by shareholders as a reward for keeping their shares, have come under increasing pressure as companies have had to spend their money on more exploratory drilling rather than rewarding shareholders.

So some shareholders are already feeling the impact and rather than see their dividends further eroded, might prefer to sell their shares in favour of a more rewarding dividend stock.

Some don’t have the stomach for all those hypotheticals. But it’s hard to deny the policy shifts in recent years leading us towards a lower-carbon world. That includes regulation in the US, Europe and China that cuts down emissions and encourages clean energy.

That trend doesn’t look to be reversing itself in the near future, and those policies are most likely to hurt the industries most reliant on fossil fuels.

There’ve been calls in the US for public pension funds to decrease their exposure to those industries. From the Financial Times:

US pension funds have ignored calls from city councils and mayors to divest from carbon-intensive companies, despite concern about the long-term viability of their business models.

At least 25 cities in the US have passed resolutions calling on pension fund boards to divest from fossil fuel holdings, according to figures from 350.org, a group that campaigns for investors to ditch their fossil fuel stocks.

Three Californian cities, Richmond, Berkeley and Oakland, urged Calpers, one of the largest US pension schemes, with $288bn of assets, and which manages their funds, to divest from fossil fuels. Calpers has ignored their request.

Calpers said: “The issue has been brought to our attention. [We] believe engagement is the best course of action.”

Pension fund experts point out that it is difficult to pull out of illiquid fossil fuel investments, or carbon intensive stocks that are undervalued, provide stable dividends or are better positioned for legislative change.

CalPERS isn’t the only fund that doesn’t want to divest. Not a single public fund has commited to divesting from carbon-reliant companies.

To some, CalPERS’ policy of “engagement” rather than divestment probably sounds like a cop-out. But some experts think the policy could be effective.

“With divestment you are not solving the problem necessarily, you are just not part of it.” Said George Serafeim, associate professor of business administration at Harvard Business School. “With engagement you are trying to solve the problem by engaging with companies to improve their energy efficiency, but you are still part of the mix.”

Photo: Paul Falardeau via Flickr CC License

With Lawmakers In Recess and Elections On Horizon, Pennsylvania’s Pension Debate is Heating Up

Pennsylvania Gov. Tom Corbett has spent the first week of August touring the state as part of his re-election campaign, and he’s using the opportunity to hammer home Pennsylvania’s need to lower the costs of its retirement system, and tout his policy ideas on the subject.

One idea that Corbett has frequently proposed is shifting some state workers from their defined-benefit plans into 401(k)-style plans. Nearly every state burdened with pension obligations has considered this policy option. Many have even implemented it. From PennLive:

Only Alaska and Michigan have shifted new hires into 401(k)-style programs, but nearly a dozen states have crafted hybrid programs featuring smaller lifetime pension plans along with a 401(k)-style plan, and some states, such as Florida, are giving new employees the option of going entirely into a 401(k)-style plan, our pal Deb Erdley at The Tribune-Review reports.

Corbett’s repeated harping on the pension issue has gotten him, to some extent, what he wanted back in June: a debate. Even if state lawmakers remain on vacation, many experts have been weighing in on the issue.

Richard Johnson, director of the Washington-based Urban Institute’s Program on Retirement Policy, makes this note on the switch from DB to DC:

“These defined-benefit plans work very well if you’re going to stay for 30-35 years, but they require a pretty large employee contribution, and they don’t work very well for the shorter-term worker,” Johnson tells the newspaper.

Stephen Herzenberg of the Keystone Research Center points to the experiences of other states as an argument against switching to a 401(k)-style plan:

In fact, when Florida created this choice, its traditional pension was overfunded. In a decade-plus since, the investment returns of Florida’s traditional pension have been 10 percent higher than the return on individual accounts. Over the 30 years that typical retirement contributions grow, this difference would become a one-third gap in savings available for retirement.

Alaska and Michigan did shift all new hires into 401(k)-style plans but the switch did not, in fact, work. Pension debt in both states grew.

Rhode Island did save some money but only because of deep cuts in traditional pensions, including for current retirees. The state then wasted some savings on a “hybrid plan” for new employees that included 401(k)-type accounts with low returns and high fees.

Guaranteed pensions need sound management and can get in trouble if politicians fail to make required contributions. But long term, there’s no beating the high returns of professional managers and the low costs of pooled pension assets. That’s why Pennsylvania’s current pension design is the best deal, long term, for taxpayers and retirees.

Nathan A. Benefield, Vice President of Policy Analysis at the Commonwealth Foundation, took issue with that critique:

Herzenberg claims that reforms moving state workers to a 401(k)-style retirement plan in other states have “failed” because their traditional, non-401(k) pension funds lost value during the most recent recession. Huh?

Every state¹s pension fund lost value when the stock market fell, including Pennsylvania’s, which went from being fully funded to today having more than $50 billion (and growing) in unfunded liabilities. That’s about $10,000 per household in the state.

Now here’s the rub. States like Michigan and Alaska would have lost more from their pension funds had they not started to convert new employees into a 401(k). In fact, without reform, Michigan’s unfunded liability would be upwards of $4.3 billion more.

Thankfully, because lawmakers in the Wolverine state acted early, they saved taxpayers those additional costs. Pennsylvania would have also had substantial savings had we followed Michigan’s lead.

Corbett has tried desperately to make pension reform a campaign issue. It has worked. He’s gotten the media, thought leaders and everyday citizens talking about Pennsylvania’s retirement system and the policy options to address the issues Corbett foresees.

That’s healthy for the state—but make no mistake, it’s probably just as healthy for Corbett’s election chances.

Screen shot 2014-08-08 at 10.35.12 AM — Credit: Wikipedia

He’s been gaining ground on challenger Tom Wolf in recent weeks.

Judge: Unions Must Use Different Argument If They Want To Overturn Baltimore Reforms

After several years and numerous legal battles, a federal judge today affirmed that a series of pension reforms enacted by Baltimore in 2010 were constitutional.

But the judge, Barbara Milano Keenan of 4th U.S. Circuit Court of Appeals, left the door open for unions to again challenge the reforms. This time, unions will have to bring a different legal argument to the table.

Quick context: In 2010, Baltimore overhauled its police and fire pension systems and implemented reforms—higher employee contributions, higher retirement ages and lower COLAs—which were projected to save the city $64 million annually. Details from the Baltimore Sun:

Under the mayor’s plan, firefighters and police have been required to increase contributions to the pension fund — now 10 percent of their salaries. Many officers were told that they would no longer be able to retire after 20 years, but would have to stay on the force for 25 years to receive their pensions. Retired workers also lost what was called the “variable benefit,” an annual increase tied to the stock market. Instead, the youngest retirees receive no annual increase through the variable benefit, and older retirees receive a 1 percent or 2 percent annual increase.

The bolded section is key. The first legal challenge against the reforms centered around the decrease in COLAs. Unions argued that the change was illegal because Maryland, like many states, treats pension benefits as contracts that cannot be impaired.

Most states sidestep the contract issue by applying reforms to new hires only. But Baltimore had decreased COLAs for retirees as well.

So, in 2012, a District Court ruled the change illegal, saying “elimination of the variable benefit constituted a substantial impairment of certain members’ contract rights, and that the impairment was not reasonable and necessary to serve an important public purpose.”

The ruling today overturned the District Court’s decision and re-instated the COLA decreases. The logic behind the ruling, from Reuters:

The appeals court said the reform was a “mere breach of contract, not rising to the level of a constitutional impairment or obligation.”

It also dismissed the notion that allowing the reform to go through would give a city “unfettered discretion to breach its contracts with public employees,” because of protections in Maryland law.

“This contention lacks merit because, under Maryland law, the city is only permitted to make reasonable modifications to its pension plans,” wrote Keenan. “Any reduction in benefits ‘must be balanced by other benefits or justified by countervailing equities for the public’s welfare.’”

But the judge said unions could change their argument, and they might have another shot at overturning the legality of the reforms in court.

Judge Keenan said that unions should argue the city took “private property for public use, without just compensation.”

And unions do plan to keep fighting.

“We have to get with our attorneys and decide which way to go, whether it’s federal or state,” said Rick Hoffman, president of the firefighters union. “I personally think this ruling strengthens our stance.”

Photo: “Ext-Night” by Basilica1 Licensed under Public domain via Wikimedia Commons

Morgan Stanley Likely To Be Sued Over CalPERS Investment Losses

An SEC filing this week revealed that Morgan Stanley is anticipating a lawsuit from the California Attorney General stemming from massive investment losses sustained by CalPERS in 2007.

CalPERS claims it lost over $199 million on those “toxic” real estate investments, which it bought from Morgan Stanley after the bank allegedly “misrepresented” the quality of the investments.

The lawsuit concerns investments CalPERS made with Cheyne Finance LLC in 2006. The firm went bankrupt in 2007, leaving CalPERS with massive losses.

CalPERS has previously filed lawsuits against several ratings agencies for the AAA ratings they assigned to structured investment vehicles produced by Cheyne in 2006. More details from the Sacramento Bee:

California officials are threatening to sue investment bank Morgan Stanley over a series of toxic real estate investments that allegedly cost CalPERS nearly $200 million.

Morgan Stanley, in a Securities and Exchange Commission filing earlier this week, said it was told by California Attorney General Kamala Harris in early May to expect a lawsuit over its marketing of the investments, which were made during the housing boom. Harris said the bank misled investors and she is likely to seek triple damages.

In its filing, the bank said it “does not agree with these conclusions and has presented defenses” to the attorney general. A spokesman for Harris declined comment.

The bank said the potential lawsuit revolves around its marketing of “structured investment vehicles,” a series of deals developed by a firm called Cheyne Finance. The vehicles were grab bags of mortgage loans and other assets.

Between 2007 and 2009, CalPERS lost around $1 billion on its investments with Cheyne and two other SIVs, according to its lawsuit against S&P.

Photo by Jim Yi/Flickr CC License

Judge Orders Arizona Fund to Release Federal Subpoena to Public

There are so many scandals surrounding Arizona’s Public Safety Personnel Retirement System—illegal raises, large severance packages for fired personnel, allegations of sexual harassment—that it’s easy to forget that one has outlasted them all.

The longest running scandal dates back to last year, when the three high-level investment personnel mysteriously quit the fund—presumably in protest of something.

It didn’t take long to find out why. Allegations soon surfaced that other investment staff at the fund had inflated the value of real estate assets in order to trigger large bonuses for themselves. A federal criminal investigation is still ongoing.

But back in March, watchdog group Judicial Watch asked the fund to release the federal grand-jury subpoena related to those allegations to the public. The fund refused, and so the matter went to court.

A judge ruled Wednesday that the subpoena is a matter of public record, and PSPRS has to release it. From the Arizona Republic:

Judicial Watch filed a public records request for the documents after The Arizona Republic in early March reported that PSPRS had received a federal grand jury subpoena as part of a criminal investigation into whether pension-trust managers inflated certain real-estate investment values. PSPRS has denied the allegations.

The trust refused to release the records, prompting Judicial Watch to sue. The trust claimed it was not in its best interest to release the records and that disclosure might interfere with a federal grand jury investigation.

However, the judge said “PSPRS does not show any specific, material harm that would result from disclosure of this federal grand jury subpoena.” He also ruled that “although the public records law does not mandate disclosure of every document held by a state agency, a document with a ‘substantial nexus to government activities’ is a public record. … Clearly there is such a substantial nexus here.’ “

The judge gave no timeline for the release. But PSPRS Chairman Brian Tobin said he will release it to the public sometime Monday, after a meeting with the system’s board of directors.

Illinois Governor, Challenger Spar over Pension Links to Cayman Islands

It’s become a tradition for politicians of either party: on the campaign trail, at some point, you need to accuse your challenger of dodging taxes. The race for Illinois governor is no exception, but there’s an interesting spin on this one.

Current Illinois Gov. Pat Quinn earlier this week accused wealthy challenger Bruce Rauner of dodging U.S. taxes by placing his money in offshore accounts in the Cayman Islands.

A Chicago Tribune investigation had previously revealed that Rauner paid a tax rate of around 15 percent on much of his fortune, even though his wealth made him eligible for tax brackets above 30 percent.

But Rauner fought back, first claiming that his offshore investments did not impact the tax rate he paid. Then, he claimed Quinn himself had money in the Caymans. His pension, to be exact.

Rauner claims that Illinois pension funds have hundreds of millions of dollars in Cayman-based investments.

From the Chicago Sun-Times:

Rauner’s campaign said the Teachers Retirement System has invested $433.5 million in Cayman Islands-based funds while the State Board of Investment has $2.3 billion in offshore holdings, which includes some Caymans-related funds though the agency could not specify how much.

Both are tax-exempt entities and, unlike individual investors, derive no direct tax benefit from investing in funds based there, spokesmen for both agencies said. TRS invests on behalf of current and retired suburban and downstate teachers. The State Board of Investment oversees pension investments for current and retired state workers, university employees, judges, lawmakers and state officials, including the governor.

“If Pat Quinn refuses to apologize and tell the truth, he should immediately move to divest all state investments from companies and funds domiciled overseas, including in the Cayman Islands,” Rauner’s campaign said.

As was bolded, pensions systems are tax-exempt and so there’s no tax benefit from putting money offshore.

Quinn’s camp, when pushed for a statement, declined to say whether Quinn would like the pension systems to stop investment in Cayman-related funds. But the Governors spokeswoman told the Sun-Times:

“The governor has no authority to direct pension fund investments, and he’s not about to start getting involved. That’s really not the issue.”

Why Did Ontario Lawmakers Wait So Long to Release A Report Critical of Its Pension Systems?

There’s been much concern in Ontario about the sustainability of its public pension systems, particularly in the electricity sector. Ontario Auditor General Bonnie Lysyk warned in 2013 that electricity sector pensions were unsustainable and quite possibly too generous.

Union leaders, taxpayers and other concerned parties agreed that the systems deserved a closer looking-at.

So, last December, Ontario lawmakers appointed Jim Leech—former head of the Ontario Teachers’ Pension Plan—to examine the pension systems inside and out to produce a report and make recommendations to improve their sustainability and affordability.

On March 18, 2014, the report was delivered to Ontario lawmakers. But not to the public.

For over four months it didn’t see the light of day. But last Friday, August 1, the report was finally released to the public. And it was highly critical of the sustainability and cost of the electricity sector’s public pension plans.

[The entire report can be read at the bottom of this page.]

From the Toronto Star:

As reported by the Star’s Rob Ferguson, the 45-pagestudy by former Ontario Teachers’ Pension Plan head Jim Leech finds that Ontario taxpayers contribute $5 for every $1 employees are putting into their pension plans at Hydro One.

Ontario Power Generation isn’t much better, with employees contributing just 24 per cent of contributions compared to 76 per cent by the publicly owned utility.

Meanwhile, compared to other public-sector plans, the ones at Ontario’s four electricity agencies are “generous, expensive and inflexible,” Leech wrote.

What’s more, the study found all four pension plans “are far from sustainable.” Wrote Leech: “Should plans go further into deficit, the sponsors and, ultimately, ratepayers will be required to pay even larger contributions.”

The report has already accomplished part of its purpose: get the government thinking about ways to make these systems more sustainable and less costly.

But new questions are being raised about the transparency issues surrounding the report’s release. Although lawmakers saw the report in March, the public had to wait. Why was it allowed to gather dust for nearly five months?

Other stakeholders are wondering the same thing. Some reactions, as reported by The Star:

“This is awfully suspect,” said Progressive Conservative MPP Vic Fedeli, his party’s finance critic, questioning Wynne’s oft-stated goal of running an “open and transparent” government.

“There was ample opportunity to release this document with good public scrutiny. What are they hiding? What didn’t they want us to know?”

Also:

“Why now, why not before the election so people would have known what’s happening?” said Plamen Petkov, whose lobby group opposes the ORPP as too expensive.

“We’re very worried to see government agencies where employees are paying only 20 cents on the dollar for their pensions when taxpayers pay the other 80 cents. No wonder the government itself expects electricity prices to go up 42 per cent over the next five years,” he told the Star.

“It’s really disappointing. We recommend the government clean its own house first before they ask employers to contribute $3.5 billion a year to the Ontario Retirement Pension Plan.”

Government officials said they originally planned to release the report on May 1, when Ontario’s new budget was passed. But the budget wasn’t passed, and that led to new elections being held.

The report was held as elections played out. The results of those elections weren’t confirmed until June 24^th. Still, the report remained in the hands of the government for another 5 weeks afterward.

Here is the report, which can also be found on Ministry of Finance website.

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Photo: “Ontario-flag-contour” by Qyd. Licensed under Public domain via Wikimedia Commons

Six Years Later, Warren Buffett Is Winning His Bet Against Hedge Funds

In 2008, Warren Buffett made a $1 million wager with alternatives firm Protégé Partners. The money came from Buffet’s own pocket, not Berkshire’s. Around the country, the ears of pension funds began perking up in anticipation. The bet:

“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”

In other words, Buffett bet that, taking into account investment expenses, an index fund would outperform a fund of hedge funds over a ten-year period. The thinking is in line with what Buffet has publicly said in the past. And, six years later, Buffett is winning his bet.

(The winner of the bet, by the way, will donate the money to a charity of his choice).

This bet is of particular interest to pension funds because alternative asset classes have increasingly become part of their investment portfolios. Regardless of who wins the bet, however, the results will be largely symbolic.

But the over-arching philosophies behind the wager are still interesting to examine. For Buffett, his dislike of hedge funds comes down to fees.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor’s equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.

On the other end, Protégé Partners defends hedge funds:

Mr. Buffett is correct in his assertion that, on average, active management in a narrowly defined universe like the S&P 500 is destined to underperform market indexes. That is a well-established fact in the context of traditional long-only investment management. But applying the same argument to hedge funds is a bit of an apples-to-oranges comparison.

Having the flexibility to invest both long and short, hedge funds do not set out to beat the market. Rather, they seek to generate positive returns over time regardless of the market environment. They think very differently than do traditional “relative-return” investors, whose primary goal is to beat the market, even when that only means losing less than the market when it falls. For hedge funds, success can mean outperforming the market in lean times, while underperforming in the best of times. Through a cycle, nevertheless, top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well. We believe such results will continue.

Pension360 has covered the emerging trend of pension funds, including CalPERS, reducing their investments in hedge funds.

Photo by Fortune Live Media via Flickr CC

Argentina Default Devastates Pensions of Brazilian Mailmen

Argentina’s failure to pay interest on its debt—resulting in the country’s second default in 13 years—was always going to have an economic ripple effect.

But Brazilian mailmen probably didn’t realize they’d be near the top the list of negatively affected parties. In light of Argentina’s default, they’ve seen their pensions zapped.

That’s because Postalis, the pension manager to which about 130,000 active and retired Brazilian postal workers belong, is feeling the pain of the default.

Postalis was invested in the fund Brasil Sovereign II Fundo de Investimento de Divida Externa, a Brazil-based investment fund of Bank of New York Mellon, that this week wrote down its assets by 51 percent, according to Bloomberg:

Bank of New York Mellon Corp. said one of its Brazil-based investment funds wrote down more than half the value of its assets after recording losses on investments linked to Argentine government debt.

The Brasil Sovereign II Fundo de Investimento de Divida Externa FIDEX took a loss of 197.9 million reais ($87.2 million) on Aug. 1 after booking a provision on credit-linked notes tied to Argentine bonds, according to a regulatory filing yesterday by BNY Mellon DTVM, the bank’s Brazilian fund manager. The fund has just one investor and the identity is not public information, according to securities regulators.

Argentina last week failed to make a $539 million interest payment on its bonds, prompting Standard & Poor’s and Fitch Ratings to declare the country in default for the second time since 2001. The country has about $29 billion of overseas foreign-currency notes outstanding, and the International Swaps & Derivatives Association ruled last week that the failure to pay interest will trigger $1 billion of credit-default swaps.

“Due to the suspension of payment on foreign debt notes issued by Argentina backing the referred notes, and to the necessity to change its evaluation methodology of some credit-linked notes, provisions for losses have been made in its portfolio,” BNY Mellon DTVM said.

The fund that held the notes had 384.4 million reais worth of assets as of July 31, according to data available at the website of the Brazilian securities regulator. The value dropped about 52 percent to 185.5 million reais as of Aug. 1.

You’ll notice in the excerpt above that the fund has only one investor, the identity of which isn’t public information. But it’s widely believed that investor is Postalis. From Businessweek:

While the statement didn’t identify the entity that is the fund’s sole investor, all signs point to Postalis, the pension manager serving about 130,000 current and former postal workers in Brazil.

Postalis, which had 8 billion reais ($3.5 billion) in assets according to the latest data available, said in statements as early as 2011 and as recently as May that it had invested in the fund. Postalis’s press office declined to comment.

Postalis is Brazil’s 14th-biggest pension group by investments under management, according to June 2013 data available from the Brazilian pension association Abrapp.

Brazil’s pension regulator was asked by multiple media outlets to comment on the situation, but has so far declined all requests.

Photo: “Argentina Logo” by Guillermo Brea. Licensed under Creative Commons

In Illinois, Public Pension Benefits Are Gaining Ground On Worker Salaries

Over the past decade, the average public pension in Illinois has been gradually catching up to the average salary of employees still working.

Critics of increased benefits say this is the result of years of generous salary increases and compounded COLA increases.

Others say that increased pensions are simply the result of higher public sector salaries, which Illinois needs to pay in order to retain good employees.

The Daily Herald reports:

The average 2013 pension was $31,674 for retirees in nine statewide and metropolitan Chicago public pension systems for government workers, teachers, legislators, judges and university professors, a Daily Herald analysis shows. That’s 60 percent of the $55,120 average salary for pension fund members who are still working.

Ten years ago, the average pension was less than half of the average salary.

…

The narrowest gap between average salary and average pension is for members of retirement systems where advanced degrees and training are required.

In 2013, the average Teachers’ Retirement System pension was 69.4 percent of the average pay for those still working, according to the system’s annual comprehensive financial report.

Judges have the highest average salary — $183,998 — and highest average pension — $105,341.

The gap between average pay and average pension is widest within retirement systems with more transient employees.

The 108,814 local government employees receiving IMRF benefits in 2013 averaged pensions of $13,243. That was 34.8 percent of the system’s $38,059 average salary. However, that’s still a big change from a decade ago when the average IMRF pension was 27.9 percent of the average salary of workers paying into the system.

One lawmaker told the Daily Herald that, although the upward trend is undoubtedly real, the decreasing gap between pensions and worker salaries has slowed over recent years.

“There was a long period of time where there were rapid (pay) raises in the public sector … (and) that growth is tied to the pension formula,” said state Sen. Daniel Biss, an Evanston Democrat who helped sculpt the state’s most recent pension reform plan. “But a lot has changed and we’ve seen a dramatic slowdown, particularly in the last five years.”

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