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Los Angeles Pension Reforms Rescinded by Labor Board; City Will Appeal

The Employee Relations Board, a five-member panel that handles labor complaints in Los Angeles’ City Hall, probably didn’t expect to become famous overnight.

But they’ve become a household name in Los Angeles this morning, after news broke that the Board voted to rescind a series of pension reforms passed by Los Angeles in 2012.

The Board ruled that city officials did not properly negotiate the reforms –which reduced pension benefits for new hires and raised retirement ages—with municipal employee unions. From the LA Times:

The Employee Relations Board voted unanimously Monday to order the City Council to rescind a 2012 law scaling back pension benefits for new employees of the Coalition of L.A. City Unions, on the grounds that the changes were not properly negotiated. That law, backed by Mayor Eric Garcetti when he was a councilman, was expected to cut retirement costs by up to $309 million over a decade, according to city analysts.

Ellen Greenstone, a lawyer for the labor coalition, described the vote as a “huge, big deal” — one that shows the city could not unilaterally impose changes in pension benefits on its workforce.

Coalition chairwoman Cheryl Parisi said in a statement that the reduction in benefits, which included a hike in the employee retirement age, “devalues middle-class city workers and their dedication to serving the residents of Los Angeles.

The city’s labor board is a quasi-judicial body that reviews complaints from unions, managers and individual employees. Under the city’s labor ordinance, the panel has the power to invalidate decisions by the council, said the board’s executive director, Robert Bergeson.

If council members do not agree with Monday’s decision, they can file legal paperwork seeking to have a judge overturn it, Bergeson said.

City officials have previously argued that changes in the retirement benefits of future employees do not need to be negotiated. The 2012 law rolling back benefits applied only to employees hired after July 1, 2013. Budget officials had hoped that the reductions would trim the city’s retirement costs by more than $4 billion over a 30-year period.

The board’s decision comes as the city’s contributions for civilian employee retirement costs have climbed from $260 million in 2005 to an estimated $410 million this year, according to a recent budget report.

Los Angeles, meanwhile, plans to appeal the board’s decision. From Bloomberg:

Los Angeles will appeal an administrative panel’s decision to roll back changes in public employee pensions that were expected to save as much as $4.3 billion over 30 years, a spokesman for Mayor Eric Garcetti said.

The second most-populous city’s Employee Relations Board concluded yesterday that officials failed to properly consult with municipal employee unions before pushing through the changes in a City Council vote in October 2012.

The city will appeal the board’s 5-0 vote in court, Jeff Millman, a spokesman for the mayor, said by e-mail. Millman said Garcetti, a 43-year-old Democrat, disagreed with the ruling, although Millman didn’t spell out the reasons.

Los Angeles was expecting to save between $3.9 and $4.3 billion over the next 30 years. If the city does indeed appeal the ruling, the reforms will then land in front of a judge, who will have the final say.

Photo: “LA Skyline Mountains2″ by Nserrano – Own work. Licensed under Creative Commons

Chris Christie’s New Pension Proposal May Trigger Another Wave of Mass Retirements

Back in 2011, when New Jersey Gov. Chris Christie signed into law the state’s first round of pension reforms, a curious thing happened: state workers started heading for the exits. And they weren’t leaving for the weekend—they were leaving for good.

In fact, state workers retired in unprecedented numbers in 2010 and 2011, when the pension proposal was being discussed and passed through the legislature. Under the plan, workers have to contribute more of their paychecks to the pension system.

Now, Gov. Christie has announced he’s planning to propose a new set of pension reforms—and he’s made it clear that the benefits of workers will not come out unscathed.

With that news circulating, New Jersey is reporting that another wave of retirements is already in the making. The Star-Ledger reports:

As Gov. Chris Christie bangs the drum for a second round of pension reform in New Jersey, public officials and union leaders are bracing for another wave of public workers rushing to retire.

Employees in state and local government headed for the door in record numbers at the beginning of Christie’s first term, thanks in part to laws passed by the governor and state lawmakers asking public workers to pay a larger share of their health and pension costs. More than 20,000 retired in 2010, followed by 19,500 the next year.

After slowing the next two years, the pace of public worker retirements is picking up again, according to state Treasury Department figures.

A total of 11,916 employees are scheduled to retire through the end of this month — a nearly 9 percent spike from the same point in 2013. If the pace continues, about 17,000 may file papers by the end of the year. A total of 15,700 public workers retired last year.

The change comes as Christie gets ready to introduce further changes to the pension system, which is facing $40 billion in unfunded liabilities.

The Republican governor, a potential 2016 presidential candidate who rose to popularity partly because of his pension fights with public worker unions, said the previous changes didn’t go far enough. He has put curtailing the costs of public employee benefits at the top of his summer agenda, suggesting the state could go bankrupt without more action.

Union leaders have offered up various explanations for the spike. Some say the retirements are indeed caused by the virtual guarantee that workers will see their benefits decrease if they don’t lock them in by retiring.

But other union officials claim that the surge in retirements can be chalked up to random fluctuations. From NJ.com:

Some union leaders say more public workers may be planning to retire out of fear they could see their pensions and health benefits cut if they don’t get out now.

“There’s a feeling of unease about what’s going to happen,” said Pat Colligan, president of the state Policemen’s Benevolent Association. “People have left the past couple of months because they’re afraid. And there are people who have their finger on the retirement button.”

But Steve Baker, a spokesman for the New Jersey Education Association, the state teachers union, said he’s not convinced this year’s 9 percent increase in retirements was caused by Christie’s warnings, saying numbers fluctuate from year to year.

“They may be on the higher end of the range, but they’re certainly within the range,” he said.

Hetty Rosenstein, director of the state chapter of the Communications Workers of America, said she would be upset if Christie’s talk caused more public workers to retire in the coming months.

“You have people who have dedicated their life to public service,” said Rosenstein, whose union represents more than 40,000 state workers in New Jersey. “It would be really terrible and shameful if people make their retirement decisions based upon fear that after 30 years their retirement isn’t secure.”

Among public workers, retirements for teachers and non-uniformed government workers are both up 12 percent so far this year, while police and firefighter retirements are down 14 percent. Retirements for the State Police dropped from 145 to 83, the figures show.

In the decade before Christie was governor, public workers retired at a rate of 13,656 a year. Since he took office, the clip is at 17,602 — a 29 percent increase.

Bill Dressel, executive director of the New Jersey League of Municipalities, said part of the problem is that Christie has yet to unveil any details of his plan to revise public worker benefits.

“There’s always fear of the unknown,” Dressel said. “There’s not a clear message coming from our state policymakers.”

Christie is currently holding a series of town hall meetings around the state addressing pension issues. He has not announced specific details of his latest pension reform proposal, but he says he will release the proposal to the public by the end of summer.

Oklahoma Teachers’ Retirement System Rakes in 22 Percent Returns

Driven in large part by index-beating equity investments, the Oklahoma Teachers’ Retirement System returned 22 percent for the fiscal year 2013-14, according to the System’s director. That number takes into account investment expenses and manager fees.

The System outperformed its internal benchmark, which was 18.1 percent for 2013-14. A more detailed breakdown of returns from Pensions and Investments:

The top performer was master limited partnerships, which returned approximately 42%, followed by total domestic equity, 27.6%; international equity, 21.1%; high-yield bonds, 12.5%; and core fixed income, 7.9%. Real estate and private equity returns were not provided.

Longer term, the pension returned a compound annualized 13.6% for the three years ended June 30, 16.1% for five years and 9% for 10 years.

As of June 30, the pension fund’s actual asset allocation was 45.7% domestic equity; 22.2% total “non-core” assets, which consists of 8.8% MLPs, 5.5% high-yield bonds, 4.1% real estate, 2.6% private equity and 1.2% opportunistic assets;, 16.6% international equity, 14.9% core fixed income and the rest in cash. The pension fund’s target allocations are 40% domestic equity, 25% total “non-core” assets and 17.5% each international equity and core fixed income.

Pensions and Investments also reports that several of the firms with which the pension fund invests with have been put “on alert”. From P&I:

Geneva Capital Management was put “on alert” as a result of being acquired by Henderson Global Investors. Geneva Capital Management runs a $186 million domestic small-cap growth equity strategy for Oklahoma Teachers.

Lord Abbett was put also put on alert for personnel changes. Lord Abbett currently manages $603 million in a core fixed-income strategy and $262 million in a high-yield fixed-income strategy for the pension fund.

Being put on alert is a step below being placed “on notice,” which is the last step before termination.

Photo: “Flag-map of Oklahoma” by Darwinek – self-made using Image:Flag of Oklahoma.svg and Image:USA Oklahoma location map.svg. Licensed under Creative Commons Attribution

Montana Funds Return 17 percent for Fiscal Year

The Montana Board of Investments, the entity that manages investments for the state’s pension funds, released its annual return data yesterday. As a whole, the Board pulled in a return of just over 17 percent for fiscal year 2013-14. From the Missoulian:

State investments showed a return of 17.17 percent on all pension investments in the fiscal year that ended June 30.

The state Board of Investments’ return for the year was approaching the historic high return for the board, which was 21.8 percent in 2011. The return last year was 13 percent.

These percentages are net returns, calculated after all investment expenses are paid.

Montana has been in the top 25 percent of its peers for the past three years.

Since the Board of Investments’ inception in 1972, its overall earnings are 7.93 percent, exceeding the 7.75 percent needed to fund the pension systems.

The investments have bounced back since state pension funds lost a fourth of their money during the national recession in 2008 and 2009.

“The taxpayers of Montana re the winners with today’s announcement,” Gov. Steve Bullock said. “At a time when other states are forced to raise taxes to fix their pension problems, Montana has fixed our public pensions without increasing taxes.”

Bullock said the state is continuing to improve its financial picture through prudent investments of cash holdings and investments.

Over the same period, the S&P 500 returned approximately 21 percent.

Photo: “Winnett MT Rims South of Town” by J.B. Chandler – Own work. Licensed under Creative Commons

Oral Arguments by Pension Funds and Unions Pushed Back in Detroit Bankruptcy Hearing

When Detroit first raised the issue of cutting pension benefits for the city’s workers, unions and pension funds balked at the idea.

So when a Detroit bankruptcy court ruled that the city could indeed cut pension benefits as part of bankruptcy proceedings, several parties immediately filed appeals, including two public employee unions and one pension fund. They wanted their day in court; a chance to stand in front of a judge and make their arguments face-to-face.

That day was supposed to be Wednesday. But there will be no appeals heard that day, as the Appeals Court in question has postponed the oral arguments that were previously scheduled to be given by the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

The groups were going to argue that Detroit is ineligible for bankruptcy because Michigan law does not allow a city to file for bankruptcy. From Detroit News:

A federal appeals court Tuesday canceled oral arguments for two public safety unions, a retiree group and the city’s pension funds, which were trying to overturn the city’s eligibility for bankruptcy and its ability to slash pensions.

The cancellation comes one day before the groups were scheduled to deliver arguments in the U.S. 6th Circuit Court of Appeals in Cincinnati, Ohio, and following a request to delay the hearing by a city bankruptcy lawyer, who cited ongoing negotiations. The groups impacted by the cancellation are the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

Oral argument was set for 1:30 p.m. Wednesday and posed one last legal obstacle that could derail an Aug. 14 trial to determine whether Detroit can shed $7 billion in debt and emerge from the biggest municipal bankruptcy in U.S. history. Legal experts, however, believe appeals from pension funds, unions and retiree groups will fail and the bankruptcy case will continue to trial next month.

Robert Gordon, a lead attorney for Detroit’s retirement systems, said the appellate court’s clerk’s office called attorneys involved late Monday and informed them of the cancellation.

A spokeswoman for the Retired Detroit Police Members Association confirmed Tuesday morning the group had struck a deal with the city late Monday night to avoid Wednesday’s planned hearing. That group has argued Michigan’s emergency manager law is unconstitutional because of its similarities to a previous law voters repealed in November 2012.

Detroit has settled with most of its creditors as part of its bankruptcy proceedings. But there has been one notable holdout: Syncora Guarantee Inc, which is facing millions of dollars in potential losses due to the drastic decline in value of the Detroit bonds the corporation holds.

Photo: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons

Value of New York City Funds Reach All-Time High After Big Returns

New York City’s pension funds together returned over 17 percent for fiscal year 2013-14, the City’s strongest return since fiscal year 2010-11. As a result, the value of the City’s pension system has reached an all-time high. From Reuters:

New York City’s pension system had a banner fiscal year in 2014, increasing its total value to a record $160.5 billion, Comptroller Scott Stringer is set to announce on Monday.

That is a nearly $19 billion increase from the fiscal year ending July 31, 2013, when the five pension funds had a combined value of $141.7 billion, according to records on Stringer’s website.

As a result of the funds’ performance, the city will save $17.8 billion over the next two decades, due to an above-average rate of return, according to a press release distributed to reporters on Sunday.

“Five years of positive returns are good news for the pension funds and for the city,” Stringer said in the release.

The five combined funds had a 17.4 percent rate of return on investments for FY2014, which ended on June 30. That tops the rates of 12.1 percent in FY2013 and 1.4 percent in FY2012, but falls short of the 23.2 percent rate in FY11. The rate in FY2010 was 14.2 percent.

The assumed rate of return, which is set by the city’s actuary, is 7 percent. That means that if the funds perform below that rate, the city must make up the difference with taxpayer money.

The $17.8 billion in savings will begin in FY2016 and will be phased in over a six-year period. Each year’s incremental savings will be repeated for 15 years thereafter.

New York City is now planning on decreasing its contributions into the System, as the required payments are tied to investment returns; the bigger the returns, the less money the state is legally required to pay into the system.

Over fiscal year 2013, the S&P 500 returned nearly 22 percent.

Pension360 had previously covered the lackluster private equity returns from New York City pension funds.

The New York City Employees’ Retirement System (NYCERS) was 65 percent funded as of 2013, while the New York State and Local Retirement System was 87 percent funded.

Photo: Manhattan amk by user AngMoKio. Licensed under Creative Commons

Christie Says New Pension Reform Plan Coming

Back in 2011, New Jersey Gov. Chris Christie signed into law a pension reform measure designed to eventually fix the funding status of the state’s ailing pension funds.

A big part of that law was ensuring that the state gradually began making bigger annual payments to the System. But that part of the plan hasn’t worked out, as Christie decided this year to take the funds meant for the pension system and allocate them toward balancing the budget—a balanced budget is mandated by the New Jersey constitution.

The move was highly publicized and highly scrutinized. But Christie now says he is drawing up a new proposal for pension reform in New Jersey, and he is putting on a series of town hall meetings to introduce the plan. From NJ Advance Media:

Gov. Chris Christie came to the Jersey Shore today to kick off his “no pain, no gain” summer tour to introduce a pension reform proposal, but details of a plan were scant.

The governor promised to unveil a proposal by the end of the summer to tackle the state’s economic woes, promising that unless the Democratic-controlled state Legislature enact reforms, New Jersey is headed toward bankruptcy.

“We have to pare back benefits, that’s what we have to do,” Christie declared in Long Beach.

“You cannot raise taxes enough in New Jersey to pay for the pension hole that’s been dug over the period of time that these exorbitant benefits that have been promised to people,” he said. “No on in public office, believe me, myself included, wants to come out here and say ‘I have to pare back in public benefits.’”

Christie has said a specific plan is on its way — but it won’t be unveiled yet.

When pressed by a resident at the shore town hall to discuss his plan, Christie said his office is “looking at a bunch of different options right now,” but added it won’t be ready to be rolled out until the end of the summer.

“There are going to be some really difficult things,” he said. “There’s not a lot of places left to do things except to look at a whole different variety of ways to reduce benefits or to increase contributions by employees.”

Raising the retirement age again is also on the table for consideration, Christie said.

“But even then, the bottom line is that there will be a reduction in benefits,” he said. “It’s the only way to do this.”

It appears that details won’t be disclosed for the time being. The one detail that Christie seemed comfortable revealing was that New Jersey pensioners will be looking at smaller benefits moving forward. But come September, it will be interesting to see what Christie’s proposal consists of.

Could Detroit-Style Cuts Come to California?

Pension benefits, once thought safe, now stand on shakier footing than they ever have. Detroit’s citizens live in a state where pensions are protected by the Constitution, but that didn’t matter when a bankruptcy judge ruled that the city could cut worker pensions as part of its bankruptcy restructuring plan.

California workers are now wondering what this all means for them—particularly the workers in the bankrupt cities of Stockton and San Bernardino. The state heavily protects its pension benefits, present and future.

Still, the question on everyone’s mind is: Could Detroit-style pension cuts come to California? Ed Mendel explored that question in a post today on CalPensions:

U.S. Bankruptcy Judge Steven Rhodes, acting earlier than expected, ruled last December that Detroit pensions can be cut, even though the Michigan constitution says pensions are a “contractual obligation” that can’t be “diminished or impaired.”

The ruling that federal bankruptcy law allowing contract impairment overrides state law was appealed by unions. But the early ruling, along with potential loss of “grand bargain” financial aid, may have added to fear of deep pension cuts, influencing the vote.

A cut of 4.5 percent in active and retired general worker pensions and the elimination of cost-of-living adjustments was approved by 73 percent of voters. Leaving police and firefighter pensions intact but trimming their COLAs from 2.25 to 1 percent was approved by 82 percent.

In a brief supporting the appeal of Judge Rhodes’ ruling, CalPERS argued, among other things, that Detroit has a city-run plan and that an “arm of the state” like CalPERS cannot under federal bankruptcy law be impaired in a municipal bankruptcy.

The judge handling the Stockton case, U.S. Bankruptcy Judge Christopher Klein, has said one of his options is ruling on the general issue of whether CalPERS pensions can be cut without necessarily finding that Stockton pensions should be cut.

CalPERS filed the brief in question shortly after the Detroit ruling. The premise of CalPERS argument was that the Detroit ruling didn’t apply to them because Detroit is a city, while CalPERS operates on the state level.

But as Mendel points out, there are a few key similarities between Detroit‘s bankruptcy and those of California. From CalPensions:

Although differing on pensions, the Detroit and Stockton plans to exit bankruptcy are similar on retiree health care. Detroit announced last week that a 90 percent cut in retiree health care was approved by 88 percent of voters.

Judge Klein ruled in 2012 that retiree health care can be cut in bankruptcy, acknowledging the result may be “tragic hardships” for some. A Stockton retiree health care debt of $544 million was reduced to a one-time payment of $5.1 million.

Another similarity is that the Detroit and Stockton “plans of adjustment” to cut debt and exit bankruptcy face challenges from bondholders. Making little or no reduction in massive pension debt, but deep cuts in bond payments, is said to be unfair.

What happens in California will have a ripple effect across the country as cities nationwide are increasingly weighing the prospect of going through municipal bankruptcy proceedings. The judges presiding over these cases will be wading in uncharted waters—and their word will be law. Pension360 will be following subsequent developments closely.

Maryland’s Top Fund Returns 14 Percent for Year

The Maryland State Retirement and Pension System is the latest fund to release its investment performance data for fiscal year 2013-14, and the fund returned over 14 percent for the year, the System’s second consecutive year of double-digit investment returns. From the Baltimore Post-Examiner:

Maryland’s pension system for state employees and teachers had another strong investment performance for the fiscal year which ended June 30 earning 14.37%, bringing the value of the portfolio to $45.4 billion, a gain of more than $5 billion.

It was the second year in a row of strong performance due to sharp upturns in stocks, according to Chief Investment Officer Melissa Moye. The fund exceeded its target of 7.7% and its market benchmark of 14.16% — what its basket of assets would have been expected to earn.

The System is still in a hole due to its unfunded liabilities, which sit at about $20 billion. But the major credit rating agencies, even while weary of the liabilities, have commented on the improved health of the system of late as the effects of several reform measures have been positively felt. From the BPE:

These liabilities are consistently mentioned as a negative financial factor by all three bond rating agencies as they did earlier this month.

But the three New York agencies also note the improvements made in Maryland’s pension outlook after employee contributions were raised and benefits reduced by the legislature in 2011.

“The funds annual returns continue to reflect the strong market environment that has prevailed since the end of the credit crisis,” State Treasurer Nancy Kopp, chair of the pension board, said in a statement.

Typically, the System released investment performance figures by asset category. This year, the system only released aggregate returns and did not specify returns by asset category, although those figures may be released to the public eventually.

The S&P 500 returned around 21 percent for fiscal year 2014.

Some NY State Police Officers Use Private Jobs to Boost Public Pensions

Publicly employed police officers are often contracted to work private events—from keeping the peace at retail stores around Christmas-time, to keeping an eye on the crowds at music festivals.

But an investigation by a New York newspaper found that several police departments in the state are letting the overtime racked up at private events count towards an officer’s public pension—a practice which the state Comptroller’s Office says is not allowed.

From the Times-Union:

The state Comptroller’s Office says overtime reimbursed by a private company does not count toward an officer’s pension benefit.

But the Times Union found that several Capital Region police departments — including those in Colonie, Schenectady and Troy — report private duty overtime to the retirement system.

“I think a lot of people might be surprised to the extent with which this happens around the state,” said E.J. McMahon, president of Empire Center for Public Policy, an Albany think tank. “You can actually bolster your pension with time spent working in uniform on private time.”

Taxpayers should care about the practice, McMahon said, because pensions are lifelong payments backed by taxpayer dollars.

The legality of using private duty details as part of the pension calculation is murky. Several retirees are appealing the comptroller’s position in state Supreme Court.

The retirement of a Guilderland police officer who worked overtime at Crossgates Mall brought the issue to the attention of many Capital Region police chiefs. As a result, Guilderland stopped reporting private work to the retirement system and, last month, Bethlehem prohibited officers from working the jobs.

Albany and Saratoga Springs also comply with the comptroller’s view that private overtime is not pension eligible.

But several high-ranking police officials have publicly raised concerns about whether its fair to disallow private jobs when calculating pension benefits. From the Times-Union:

“Anytime a man or woman is in police uniform, they are on police duty, period,” Colonie Police Chief Steven Heider said.

Heider considers the officers on-duty, accountable to the police department and exposed to the dangers of police work.

Last year, Colonie police collected about $120,000 in reimbursements from private entities for police details, which Heider said are assigned by rotation. About 40 percent came from patrols at Colonie Center mall.

The town reported the wages to the retirement system as pension eligible.

Colonie requested guidance from the comptroller about whether to report the wages as pension eligible, but never heard back, Heider said. If the comptroller advises Colonie to stop, the town will, he said.

Of the seven police departments in upstate New York’s Capital Region, three departments allow private duty overtime to count toward public pensions. Officers in those departments have racked up nearly $200,000 in private duty overtime last year, according to the Times-Union investigation.

Photo by Giacomo Barbaro via Flickr CC License

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