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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.

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 31^st, 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.”

Detroit Emergency Manager backtracks on pension freeze

Just hours after news broke of an order to freeze some workers’ pensions, Detroit Manager Kevyn Orr is eating his words.

Earlier today, Reuters received a copy of an order issued last week by Orr ordering the freezing of the city’s General Retirement System fund, which halted accrual of benefits and closed the plan to new employees.

But now, Orr says he is holding off on the freeze to allow more time for mediation between representatives of Detroit and the city’s pension funds in federal bankruptcy court.

Orr stated he is putting the freeze on hold indefinitely, but he reserved the right to reinstate it at any time.

If the freeze is reinstated, affected workers will have access to a savings plan styled after a 401k plan.

Details, from the Detroit Free Press:

Instead of pensions, Orr’s order said the city would create a 401k-style savings plan…Under [the proposal] by Orr, the city would no longer pay into pension plans but would contribute an amount equal to a percentage of workers’ base pay — 5% for non-uniformed workers and 10% for police and fire — into retirement accounts. Employees also could contribute their own money into the accounts.

Orr ordered the freeze initially because he was frustrated by lack of progress in mediation between the city and its pension funds.

“Time is running short, and the city’s financial status remains dire,” Orr said after he rescinded the freeze order. “An additional delay without the prospect of a mediated solution threatens to further erode essential services and public safety.”

National security insiders overwhelmingly support military pension cuts, according to poll

Reducing pension benefits is a political minefield, and that sentiment applies two-fold when the benefits in question are for military personnel.

But no one sent that memo to House Rep. Paul Ryan (R-WI) or Sen. Patty Murray (D-WA), who last month passed a bi-partisan budget that cuts the annual cost-of-living adjustment (COLA) of military pensions by 1%.

The move caused anger among veterans, but was supported by national security insiders, according to a poll conducted by the National Journal, a magazine widely read by Washington insiders.

According to the poll, 52% of insiders support the COLA decrease and 38% think the cutbacks should have been deeper.

Only 10% of insiders think military benefits should be off-limits entirely.

The Washington Post explains the rationale for cutting military pensions:

Overall, military compensation — including health benefits and salaries paid to active-duty personnel — eats up roughly half the defense budget, a proportion that is steadily rising. In a speech in November, Defense Secretary Chuck Hagel warned that “without serious attempts to achieve significant savings” in military compensation, “we risk becoming an unbalanced force.”

Military pensions would appear to be particularly ripe for reduction. Anyone who puts in 20 years can receive payments immediately and look forward to annual cost-of-living adjustments, or COLAs, for life. That means service members who signed up at 18 could find themselves with a full pension — roughly half their active-duty paycheck — at 38. And the government finds itself doling out cash to former troops who have launched lucrative second careers, often with defense contractors that draw their profits from government coffers.

A 1% decrease in COLAs may not sound like much, but the decrease is projected to save the federal government $6 billion over the next 10 years.

Click here to read a summary of the budget deal.

With pension lawsuits on horizon, Illinois Supreme Court justices take contributions from players in reform

It’s been less than a month since Illinois Governor Pat Quinn signed into law the state’s massive pension overhaul. There have already been lawsuits filed against the legislation, and many more are expected in the near future.

If any of those lawsuits should end up in the Supreme Court of Illinois, the subsequent judgment would have lasting, important effects on pension politics in Illinois and beyond.

But can the Supreme Court justices be trusted to judge the case impartially? A new investigation into the justice’s campaign donations raises doubts.

The Chicago-Sun Times explains:

All told, state records show six of seven justices have taken close to a combined $3 million in campaign contributions tied to those with a stake in the pension debate: labor unions, business groups and a political committee controlled by House Speaker Michael Madigan, D-Chicago, who last month said the legislation could not have passed without his muscle.

The largest beneficiary of pension-related money is Democratic Justice Thomas Kilbride, a former chief justice of the court who in 2010 was immersed in the nation’s most expensive judicial retention battle in nearly a quarter century.

During that fight, Kilbride took in $1.47 million from the Democratic Party of Illinois, which is controlled by Madigan, the state party chairman. That fund chipped in another $688,000 in 2000, when Kilbride was first elected as a justice, assuring another decade-plus of Democratic control of the state’s highest court.

In his 2010 retention battle, Kilbride accepted another $467,360 from the Illinois Federation of Teachers, $100,300 from AFSCME Council 31 and $16,000 from the Illinois AFL-CIO, all of which fought aggressively against the pension legislation Quinn signed.

For observers following Illinois’ pension reform, some of those organizations should sound familiar. The Illinois Federation of Teachers, for one, plans to file suit against the pension overhaul early in 2014. The Illinois AFL-CIO is part of the union coalition We Are One Illinois, a group that plans to file suit against the state’s pension law soon, as well.

There is one justice who appears to be clean: Justice Bob Thomas, according to the Sun-Times, is the only member of Illinois’ highest court not to have taken money from any players in the pension reform game.

Teachers group first to challenge Illinois reform law

Illinois’ sweeping pension reform law, passed earlier this month, was bound to rustle some feathers. Now, the first lawsuit against the new legislation has been filed in the Cook County Circuit Court.

The Illinois Retired Teachers Association filed a class-action lawsuit Friday challenging the constitutionality of the law, which limits cost-of-living increases, caps the amount of salaries eligible for retirement benefits and raises retirement ages for many current workers.

The challenge centers on a provision in the Illinois Constitution which states that public pensions represent “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

Illinois is one of seven states that protect pensions via constitutional provisions, and one of only a handful that constitutionally protect both accrued and future benefits—which makes it nearly impossible for the state to curb its unfunded liabilities.

This lawsuit is likely only the first of many to be filed against the law. The Illinois Education Association and the Illinois Federation of Teachers have said they both plan to file lawsuits in 2014 on behalf of their members.

The law, titled SB1, is designed to save Illinois $160 billion over the next 30 years and proponents claim the law will lead to a fully funded pension system by 2044.

Report: Rhode Island pension reforms “are working”

The Rhode Island Retirement Board was presented with a progress report on the state’s pension reform law last week. The state’s actuary, Joseph Newton, prepares a report every year to help lawmakers determine how much money needs to be set aside for future pension benefit payments, among other things.

The report shed light on the pension fund’s performance in fiscal year 2013.

The Providence Journal summarizes the findings:

The fund, with a market value of $7.6 billion, had an 11-percent rate of return for the year that ended June 30, 2013 — far better than the 1.4-percent rate of return the previous fiscal year and exceeding the fund’s 7.5-percent target. (Nationwide, the median return for public funds with more than $5 billion in assets was 12.4 percent.)

But when averaged over the last five years, the rate of return for the Rhode Island fund is 6.17 percent. Over 10 years: 7.24 percent.

The number of active state employees — whose contributions are important in keeping the pension fund healthy — has dropped slightly (1.6 percent) since 2003 to about 11,280 as of June 30, 2013. Meanwhile, the number of retirees has increased by about the same number to 11,139.

Annual cost-of-living adjustments were suspended under the 2011 pension overhaul law until the fund is 80 percent funded. Combined, the state employees and teacher pension plans are 57.3 percent funded. Annual COLAs are currently projected to remain suspended until 2032.

Rhode Island’s sweeping pension reform became law in 2011, and immediately decreased the state’s unfunded liabilities from around $7 billion to $4.5 billion, where it stands now.

Joseph Newton said his report “confirms that all the [reform] strategies put in place then are working right down the line of what we were expecting.”

Chattanooga lawmakers turn in reform ideas, but public safety workers want out

There have been a suspicious number of retirements this year in the Chattanooga Fire and Police Departments—and the city’s Fire and Police Pension Board says it’s not a coincidence.

Chattanooga Mayor Andy Burke recently put together a task force of lawmakers to come up with “concrete proposals” for reforming the city’s Police and Fire Pension Fund, which is currently only 51.8% funded.

The proposals have started rolling in, and many high ranking Police and Fire officials have begun rolling out—retiring to protect their pensions from being altered.

Forty-two officers and firefighters have retired in 2013—including Police Chief Bobby Dodd—which is double the number of retirees in an average year.

The latest proposal from the city would increase retirement ages, reduced cost of living adjustments, and raise minimum employee contributions from 9% to 13%.

Chris Willmore, President of Pension Board said the city’s proposal “will likely lead to a mass exodus from people of all ages and ranks.”

From the looks of it, the exodus has begun.

Mayor Burke will decide on a reform plan by December 31^st, although that timeline could be extended.

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