Author: Ted Ballantine

Illinois judge halts reforms until constitutionality determined

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When Illinois lawmakers passed their landmark pension reform law in December, they marked their calendars for June 1, 2014.

That’s the date the law was supposed to go into effect, but lawmakers, unions and most citizens knew better—a myriad of legal challenges would surely push back the implementation of the reforms and pave the law’s path to the state Supreme Court.

Today, an Illinois judge confirmed that sentiment when he ordered a temporary restraining order on the law that will prevent it from taking effect on June 1. The ruling ensures that the law won’t go into effect until the legal battles over the law’s constitutionality are resolved.

The decision is a major victory for the group whose challenge catalyzed today’s judgment: We Are One Illinois, a coalition of retiree groups and unions.

From the Chicago Tribune:

The groups argued the law is unconstitutional because it scales back benefits and raises retirement ages. Under the Illinois Constitution, public employee pensions are a “contractual relationship” with benefits that cannot be “diminished or impaired.”

“This is an important first step in our efforts to overturn this unfair, unconstitutional law and to protect retirement security for working and retired Illinois families,” said Michael T. Carrigan, president of the Illinois AFL-CIO, the point man for the union coalition.

Judge John Belz recognized the retirees and others in the pension systems could suffer “irreparable harm” if the law is allowed to go forward while the constitutionality issues is still being fought out in the courts, according to his order. The case is expected to wind up in the Illinois Supreme Court.

The decision won’t affect Illinois’ budget; lawmakers anticipated the legal challenges against the reform law, and didn’t incorporate its projected effect into the budgets for fiscal year 2013 or fiscal year 2014, which begins July 1.

 

Photo Credit: SalFalko via Flickr Creative Commons License

Retirements in Illinois surge as workers try to shield pensions from reform law

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In a normal month in Illinois, the state expects about 200 public workers to retire.

Apparently, last April wasn’t a normal month. That’s because an estimated 1,100 state workers retired in April 2014 in an attempt to lock in their pensions, which could otherwise be affected by the state’s pension overhaul, signed into law in December.

It’s unknown whether early retirements will actually protect pensions from the reform measures. And while the staggering number of retirements caught state legislatures off guard, representatives from labor groups are less surprised.

From the Saint Louis Post-Dispatch:

Anders Lindall, spokesman for the American Federation of State, County and Municipal Employees Council 31, said the increase in retirements is not a surprise.

“It’s indicative of the harm done to employees and retirees and the complications posed by the implementation of Senate Bill 1,” Lindall said.

It’s not just state workers who are leaving the work force because of the changes.

Thousands of university employees also are retiring sooner than they expected because of mistake in Senate Bill 1 that calculates a university employee’s benefits as of last year instead of this year.

Lawmakers have pledged to fix the mistake, but that hasn’t stopped the departures.

Illinois’ pension overhaul, which raises retirement ages and decreases COLAs, among other things, was set to go into effect on June 1, 2014. But various legal challenges may push that date back.

Until then, the state’s public workers are left to roll the dice on whether they should retire early for a chance at an un-modified pension.

 

Photo Credit: TaxCredits.net via Creative Commons License

Report: Kentucky reforms benefit most workers—but hurt some, too

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It’s early yet, but a new analysis of Kentucky’s recent pension overhaul says that the reforms are working—at least for some.

The study, released by the Urban Institute today, shows that the state’s reform measures will result in more benefits for most workers, although the most experienced workers in Kentucky’s system are not likely to benefit at all.

From the Courier-Journal:

Researchers concluded that the shift will provide at least as much lifetime benefit to 55 percent of vested employees and that most workers with up to 24 years of service will fare better compared to the traditional plan.

But, the report notes, most workers with more than 25 years of service, or those hired later in life, would benefit more from the traditional plan. And employees with 30 years or more will receive about $180,000 less under the change, it said.

The reform measures, signed into law last year, switch public employees from a defined-benefit plan to a hybrid cash-balance plan.

A recap of the new plan:

The state’s traditional retirement plan determined pension benefits based on an employee’s salary. The cash balance approach guarantees a 4 percent return while basing additional benefits on investment performance at Kentucky Retirement Systems. But the change only applies to employees hired after Jan. 1.

Proponents argue that it will help spread out investment risks between government and workers and save the state money during economic downturns.

Draine said the report shows 90 percent of the benefits went to only a quarter of employees under the old system, while that number drops to 66 percent with the reforms.

But critics contend that it makes retirement income less predictable for public employees.

Kentucky is also required under the law to make its full Actuarially Required Contribution, which it frequently skipped out on over the past decade. That comes at a cost of about $100 million annually, which was paid for by eliminating COLAs and increasing the state’s personal income tax.

As of 2011, Kentucky’s retirement system has the 7th highest unfunded pension liability in the country. The Kentucky Employees Retirement System is only 50.5% funded.

 

Photo Credit: OZinOH via Flickr Creative Commons License

Detroit’s pension landscape altered after major deal between city, retirees

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Detroit, labor unions and the retirees they represent have been locked in federal mediation for months in the wake of the city’s bankruptcy proceedings. The negotiations centered on two competing concepts: pulling the city out of bankruptcy without pushing its pensioners into poverty.

The two sides had long been unable to find common ground, but the urgency of the issue meant something had to give. This weekend, something finally did.

The two sides emerged from mediation last Friday to announce they’d reached a deal in principle that supports Detroit’s restructuring plan but doesn’t gut retirees’ benefits.

USA Today gets into the deal’s details:

Friday’s deal sweetens the stakes for retirees on three major fronts:

• Pension cuts. It would cap total cuts to monthly pension benefits at 20% — critical because some pensioners in the city’s General Retirement System faced huge reductions beyond the base 4.5% cuts to all civilian retiree checks. That’s because Detroit wants to take back what it said were excessive interest payments made to retirees who invested in an annuity savings fund in 2003-2013. The total amount of the so-called annuity “claw back” would be capped at 15.5%, lower than the initial 20% the city had negotiated with the general pension fund.

• Retiree health care. The city agreed to set up a $450 million pot of money for retiree health care, up from less than $300 million previously offered. That additional money would guarantee current retirees monthly stipends for life, instead of eight years, as Detroit had proposed. The stipends vary by worker depending on their income level and whether they were disabled on duty, but the minimum is $125 a month.

• Possible future restoration of money. Detroit and the committee also agreed to firmer targets and goals that would allow retirees’ pension cuts to be reduced if the city’s pension fund investments perform well and other terms are met, Alberts said.

The tentative deal means the retiree committee will recommend that Detroit’s 32,000 pension beneficiaries approve the agreement. Individual retirees still have to vote on the city’s plan before any pension cuts are finalized.

Detroit also reached a separate deal today with 14 of its unions and 3,500 retirees on a five-year collective bargaining agreement.

From the Detroit Free-Press:

The deal includes restoration of some pay for city workers who have faced wage freezes and a 10% pay cut in recent years, although details will vary by union, according to a person familiar with the proposal who wasn’t authorized to discuss it and spoke on condition of anonymity.

Other factors in the deal include work-rules concessions from the unions, the person said.

Detroit’s public safety unions, which have formed a coalition in negotiations with the city, are not part of the deal announced today, said Mark Diaz, president of the Detroit Police Officers Association. The public safety labor coalition also includes the Detroit Fire Fighters Association, the Detroit Police Command Officers Association and the Detroit Police Lieutenants and Sergeants Association.

Diaz said the public safety unions are still open to negotiating with the city, but proposed contract terms so far have been unacceptable. The city has been offering police officers wages starting at $14 an hour, Diaz said.

Union members and federal bankruptcy court will have to ratify the agreement before it goes into effect.

 

Photo Credit: University of Michigan via Flickr Creative Commons License

Alaska mulls using savings to cover pension-funding shortfall

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Alaska is a state far removed geographically from the rest of the country it belongs to. But financially, it may as well be a part of the lower 48—because, unfortunately for Alaska, the United States’ public pension problems know no borders.

The state’s lawmakers have been trying to address the state’s pension funding shortfall—the fund was only 59.2% funded as of 2011, 9th worst in the country—with concrete proposals for months.

Alaska governor Sean Parnell proposed in December that the state move $3 billion from its rainy day fund into its retirement system in an effort to start paying down its $12 billion pension obligation.

The plan went to the state House of Representatives, where it passed with near unanimity, and now the bill has passed the Senate as well—albeit with some changes. In essence, the plan is to use the state’s savings account to infuse its retirement system with $3 billion in additional contributions over the next 25 years.

The Republic has more details:

The Senate Finance Committee’s rewrite of HB385 calls for a contribution rate determined by what’s known as a level percent of pay method for 25 years. While the bill itself does not include dollar amounts, information provided by the Legislative Finance Division and Buck Consultants indicates combined annual payments for the two systems starting at about $345 million in 2016 and slowly building to about $514 million in 2038. It calls for a final payment of about $490 million the following year.

The information shows the Senate Finance approach extending payments by three years beyond Parnell’s plan, which called for annual payments of $500 million between the systems after the infusion, and costing slightly more — about $13 billion total for Parnell’s plan compared with about $13.3 billion under the committee approach.

These are projections, not predictions, Buck and Legislative Finance Division Director David Teal have pointed out.

Though the bill now differs slightly from Gov. Parnell’s original plan, he was happy with the result.

“With this legislation, we are strengthening the state’s AAA bond rating and ensuring future generations are not saddled with this debt,” he said in a press release.

 

Photo Credit: SalFalko via Flickr Creative Commons License

Judge: Challenges to Rhode Island pension overhaul will move forward

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Rhode Island’s 2011 pension overhaul—considered to be the most sweeping pension reform law in the country—has had its fair share of legal challenges.

A number of public sector unions and retiree groups currently have suits pending against the law, and their arguments, as with similar cases in other state, center on provisions in the state constitution that protect pensions as contracts.

Rhode Island was hoping that those arguments wouldn’t hold water and requested to have the cases thrown out. But Superior Court Associate Justice Sarah Taft-Carter ruled today that the unions’ arguments are too strong to simply dismiss.

From the Washington Times:

Unions and retirees have argued that their pension benefits constituted an implied contract, while the state disputes that. Taft-Carter notes in her decision that unlike some other states, Rhode Island’s constitution and law do not explicitly state that public employees have a contractual right to their pension benefits.

But she writes that other factors support it being a contract, such as the fact that workers have served the public for a required number of years and contributed a required percentage of their salaries to the pension system in return for pension benefits.

“A valid contract exists between plaintiffs and the state, entitling plaintiffs to their pension benefits,” she wrote.

Taft-Carter notes that her standard for reviewing the state’s motion to dismiss was not whether the lawsuit is likely to succeed, but rather to assume the allegations are true, and examine the facts in a light favorable to the unions and retirees.

Rhode Island Gov. Lincoln Chafee and Treasurer Gina Raimondo said in a joint statement that they expected the judge’s decision and are now preparing for trial.

 

Photo Credit: Governor Chafee via Flickr Creative Commons License

Public Pensions: Reconciling Fiscal Sustainability with Intergenerational Equity

ABSTRACT: In many developed countries around the world, public pension schemes have become fiscally unsustainable with rising life expectancies and declining birth rates (i.e., a decreasing old age support ratio). Reforming public pension systems to render them fiscally sustainable in the long-run could in theory entail cuts in benefits, increases in contributions, or increases in the eligibility age


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