Author: Ted Ballantine

Congress backtracks on military pension cuts

Just two months ago, the US Congress voted to decrease cost-of-living-adjustments for 750,000 military pensioners in an effort to save $6.3 billion over 10 years and curb ballooning military benefit expenses.

But today, lawmakers reversed course: The US Senate voted overwhelmingly to repeal the cuts, and that vote came on the heels of a similarly one-sided vote that took place in the House yesterday.

The reversal came about as a result of various political realities; many military veterans and the groups that represent them expressed outrage at the initial pension cuts, and lawmakers facing mid-term elections were sensitive to the protests. Pension cuts, especially pertaining to military personnel, are a tumultuous political undertaking regardless of upcoming elections.

But some lawmakers expressed their discontent with reversing one of the few spending cuts that have made it past Congress in recent years. Reuters reports:

Conservative Republican Senator Jeff Flake of Arizona said it was untrue that lawmakers were “turning our backs on veterans” with the cuts. He warned that the U.S. fiscal situation would only get worse if lawmakers “roll back one of the few deficit reduction measures our president and Congress have agreed to.”

“For goodness sake, when deficit reduction measures get signed into law, surely at some point we need to stand by them,” Flake said on the Senate floor. He was one of the three senators to vote against the repeal, along with Indiana Republican Dan Coats and Delaware Democrat Tom Carper.

Had the pension cuts not been repealed, military personnel under the age of 62 would have seen the COLAs on their pensions decrease by 1% below the rate of inflation.

New York City Comptroller wants to reform rules for pension fund managers

New York State is in the midst of investigating 20 investment firms in an effort to weed out possible conflicts of interest within the city’s pension system.

But New York City Comptroller Scott M. Stringer isn’t waiting for the investigation to conclude; he unveiled a plan today to create new rules regulating the behavior of the officials who manage the city’s five pension funds.

The rules are aimed at cutting out conflicts of interest within the city’s Bureau of Asset Management, which is a division of the Comptroller’s office. Currently, fund managers are only required to disclose potential conflicts of interest once a year. The new rules would make disclosure of potential conflicts a quarterly occurrence.

Some of the other proposed rules:

  • Asset managers required to undergo ethics training
  • Placement of an internal auditor and an internal audit committee
  • Increased oversight of disability payments

In 2011, then-comptroller Alan G. Hevesi was sentenced to one to four years in prison for making investment decisions in exchange for kickbacks while controlling the city’s pension fund.

Major unions sue Illinois over pension overhaul

It was expected, and now it has arrived: a lawsuit has landed in the lap of a Sangamon County Circuit Court judge which seeks to overturn Illinois’ massive pension reform plan signed into law last month.

The lawsuit was filed by We Are One Illinois, a coalition of unions including the Illinois AFL-CIO, the American Federation of State, the Service Employees International Union, the Illinois Federation of Teachers, County and Municipal Employees, the Illinois Education Association and others.

The lawsuit, like the ones before it, centers on a provision in the Illinois Constitution that says pension benefits represent a “contractual relationship” and may not be “diminished or repaired”.

The Associated Press recaps the provisions of the reform law:

The plan reduces the annual cost-of-living increases for retirees and raises the retirement age for workers 45 and younger, giving some workers the option of freezing their pension and participating in a 401(k)-style contribution plan. It also puts some savings back into the pension funds and directs money from pension bond payments to the retirement systems after those bonds are paid off in 2019.

Lawmakers also included two components they say were intended to improve the plan’s odds of surviving a legal challenge: a 1 percent decrease in employee contributions and a funding guarantee, which allows the systems to sue the state if lawmakers don’t provide Illinois’ payments to the accounts.

The law was expected to take effect on June 1, 2014. But the lawsuit will likely delay implementation of the reforms, as the lawsuit asks the court to delay the law until the case is decided.

The Political Economy of Unfunded Public Pension Liabilities

This paper applies a public choice approach to the problem of unfunded pension liabilities and adopts the methodology of Congleton and Shughart (1990) to model underfunding of state-level public pension plans using the median voter theorem, along with the theory of “capture” by special interest groups, and a combined model of the two.

Chattanooga Mayor, public safety groups approve of pension reform proposal

When Andy Berke ran for the office of Chattanooga mayor, the city’s police and fire unions supported his bid. But allegiances change fast in politics, and Berke’s post-election crusade to cut pension costs drew the ire of the unions that had once backed him.

Now, after months of tense negotiations and an onslaught of police and firefighter retirements, the Mayor has approved a deal designed to overhaul the pension plan provided to the city’s police and firemen.

The plan would increase retirement ages for new hires and current employees with less than 10 years on the job. Cost-of-living increases would also be scaled back, and employee contributions would be increased by up to 37%.

Despite the cutbacks, the police and fire employees of Chattanooga seemed to have a jump in their step after the plan was announced.

Nooga.com reports:

The mood at the Fraternal Order of Police Lodge was palpably different, even positive, Thursday. Berke stood shoulder-to-shoulder with union reps who were skeptical of the administration only a month prior.

Toby Hewitt, the outgoing FOP president and a task force member, reminded reporters of the historically strained relationship between employee groups and City Hall. Then, he applauded the Berke administration for its willingness to seek their input and take their ideas and concerns seriously.

“That was a valuable part in the success of this,” he said.

“I feel like we have won because we have a defined-benefit plan that most of the other agencies across this nation do not have and it’s going to be solid,” Sgt. Toby Hewitt, president of the Chattanooga Fraternal Order of Police, told the Times Free Press.

The deal is projected to save the city $200 million over 26 years, but the city has hired two actuary firms that are now set to examine the proposal and project the savings it might bring.

Before the plan becomes law, it must go to a vote through the Fire and Police Pension Board and the City Council.

Detroit Emergency Manager freezes city pension funds

A leaked executive order from Detroit’s Emergency Manager revealed Monday that, as of last week, pension funds for many city workers will be frozen and replaced with a 401k-style plan.

The freeze, which was ordered by city Emergency Manager Kevyn Orr and took effect December 31st, pertains only to Detroit’s General Retirement System, which covers around 19,000 non-public safety workers.

The freeze closes the fund to any new or re-hired workers, halts benefit accruals for current workers and stops worker contributions to the fund. It also ends cost-of-living adjustments for the fund’s 12,000 retirees.

To replace the frozen fund, Orr ordered the creation of a defined contribution plan that all affected workers now have access to.

Tina Bassett, the spokeswoman for the General Retirement System, said in a statement that the freeze was “an outrageous and over-zealous action.”


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