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Former Illinois Governor Jim Edgar Weighs In On State’s Pension Problems; Calls Pension Reform Law A “Huge Mistake”

Jim Edgar, former Illinois governor from 1991 to 1999, sat down with Reboot Illinois this week to discuss the state’s pension crisis and the court ruling that deemed Illinois’ pension reform law unconstitutional.

Edgar talked about the ruling and placed fault on lawmakers for not drafting a bill that would pass the scrutiny of the courts. From Reboot Illinois:

I thought they made a huge mistake passing a clearly unconstitutional proposal. It just delayed trying to figure out something that we can do for three years and we went through a lot of anguish we didn’t need to go through that scared a lot of people. I’m not a lawyer, but it’s pretty plain if you read the constitution, if you read the debates of the convention, they put that language in exactly to keep the Legislature from doing what they did two years ago. I expect courts will throw it out and we’re going to have to start over.

Then, I don’t think there’s any silver bullet. It’s obvious you can’t say we’re going to solve this on the backs of the retirees or the employees. I don’t think it’s going to get done overnight. Whatever plan gets put in place will be like the plan we put in place back in the mid ‘90s and, unfortunately, they got away from it.

He talked about the funding ratio Illinois should be shooting for:

I don’t think also you have to have 100 percent funding in the pension plan. Everybody’s not going to retire at the same time. I think you can keep probably 75, 80 percent is sufficient, but I think what you’ve got to demonstrate to a lot of folks out there who rate the state’s credit and a lot of those things is that the plan will work over a period of time and that they are committed and are going to stick with it. We thought when we put in the provision you had to pay into the pension plan first thing before you did anything else that they would keep paying in. I never thought they would have the nerve to change that, but under (former Gov. Rod) Blagojevich they did and so you’re going to have to find some safeguards to put into the plan, but I think it’s going to take 20, 30 years to get to the level we want to get to, but if we start working toward it and don’t go on any spending spree with the pension plan, I think we can do that.

Edgar also touched on Bruce Rauner’s stated plan of moving new hires into a 401(k)-style plan:

That’s something they’re going to have to work out with the Legislature and if they do that, they have enough money to take care of the commitments. The constitution says the pension benefits already granted have to be honored. You can’t cut those. You’re going to have to balance those two things off.

[….]

unfortunately we won’t have that much growth in the number of new people coming in and if they’re not paying into the system, it’s like Social Security. Same thing with state workers. You had a growth in state workers that occurred from about ’68 and a lot of those people are now retiring, so I doubt if we’re going to keep seeing the growth in state government, so you’ve got to be careful on that.

That’s all his suggestion. I don’t think he’s said it’s this way or no way. I think he knows he’s going to have to negotiate it.

Read the entire interview here.

Oklahoma Labor Group Pushes For COLA Boost In Wake of Pension Funding Improvement

Since 2010, the aggregate funding ratio of Oklahoma’s state-level pension systems has risen from 58 percent to 74 percent. Meanwhile, unfunded liabilities have declined by over $6 billion.

Now, a labor group is pushing lawmakers to boost public employee cost-of-living adjustments. The state froze COLAs in 2008.

From the Associated Press:

Representatives of Oklahoma’s public retirees who have not had a cost-of-living adjustment, or COLA, since 2008 say the time has come to boost their pension incomes now that the state’s underfunded pension systems are regaining their financial strength.

Managers of some of Oklahoma’s biggest retirement systems say they are financially stronger than they were just four years ago. Unfunded liability has declined by $6.5 billion and the funded ratio of the systems has improved from 58 percent four years ago to 74.4 percent.

The turnaround has emboldened officials at the Oklahoma Public Employees Association to make COLAs for the state’s pensioners a top priority when the 2015 Legislature convenes in February.“We have made sacrifices to make sure our system is stronger,” OPEA Executive Director Sterling Zearley said. “I think it’s time that we start looking at allowing COLAs.”

But some lawmakers expressed hesitancy and called a COLA re-instatement “premature”. From the AP:

State officials responsible for overseeing the financial health of Oklahoma’s pension systems say that while their improved financial condition is good news for the state, they may still not be financially strong enough for COLAs.

“I would caution and suggest that it’s maybe still a little bit premature to be having that conversation,” said Preston Doerflinger, director of the Office of Management and Enterprise Services and Gov. Mary Fallin’s secretary of finance, administration and information technology.

[…]

Rep. Randy McDaniel, R-Edmond, who has authored many pension overhaul bills, said he favors postponing consideration of pension benefit increases until pending litigation that is challenging one of the measures is resolved.

The lawsuit challenges legislation adopted this year that would end the traditional pension system for newly hired state workers in favor of a 401(k)-style retirement plan beginning in November 2015. It alleges the transition could cost Oklahoma taxpayers millions of dollars in lost revenue returns and reduced employee contributions

State Treasurer Ken Miller cautioned that the turnaround was fueled in part on income from the investment of pension funds that has been “exceptional yet unsustainable.”

“If you look at the long term average of the stock market, 20 percent returns are extraordinary but not sustainable,” Miller said.

Oklahoma Pension Officials Report Big Improvements in Funding, Liabilities Since 2010

Four years ago, Oklahoma’s state-level pension systems were collectively 58 percent funded. Now, their aggregate funding ratio stands at 74.4 percent, and unfunded liabilities have declined by $6.5 billion.

Pension officials reported the figures to state lawmakers on Wednesday during a House hearing.

More details from the Associated Press:

The improvements reflect the impact of legislation approved by lawmakers in recent years designed to improve the financial health of the systems, including bills passed in 2011 that increased the retirement age of some state employees and required that any retiree cost-of-living raises be fully funded, said state Rep. Randy McDaniel, R-Edmond, author of many pension overhaul bills.

“We’ve been monitoring this for several years,” McDaniel told members of the House Economic Development and Financial Services Committee. “I’m very proud of what Oklahoma has done.”

McDaniel, chairman of the committee, made the comments after officials from the Oklahoma Teachers Retirement System, the Oklahoma Public Employees Retirement System and other major retirement systems outlined their financial conditions.

In 2010, the state pension systems’ unfunded liability — the amount owed to pensioners beyond what the system can afford to pay — was more than $16 billion. The Teacher’s Retirement System was only 48 percent funded and had a $10.4 billion unfunded liability, and the Public Employees Retirement System was 66 percent funded and had $3.3 billion in unfunded liability.

At the time, officials said the pension systems threatened to place financial burdens on the state’s ability to finance road and bridge construction and other capital projects.

“The status quo was not sustainable,” McDaniel said. “Reforms were needed to ensure strength and security.”

Oklahoma’s most aggressive pension changes will be implemented next year, when new hires will be enrolled in a 401(k)-style plan instead of a defined-benefit plan.

A group of public employees are suing the state over the changes.

Pension Reform in Illinois Likely to Look Different Under Rauner If Supreme Court Rejects Current Law

Under Gov. Pat Quinn, Illinois passed a sweeping pension overhaul that cut COLAs and raised retirement ages for some workers.

But the state Supreme Court could reject the law. If that happens, it will be Bruce Rauner who will be able to shape reform legislation, which will likely look different than Quinn’s. From the Wall Street Journal:

Confronting the nation’s worst state pension shortfall was the top concern of Illinois Gov. Pat Quinn. The same will likely be true for Bruce Rauner, his newly elected successor.

The Illinois Supreme Court in coming months could dump the $100 billion problem in the lap of Mr. Rauner, who defeated Mr. Quinn on Tuesday to become the state’s first Republican governor in more than a decade.

A year ago, Mr. Quinn, a Democrat, won passage of a bill that lowered future pension costs by shrinking cost-of-living increases for retirees and raising retirement ages for younger employees, among other steps. State workers and retirees challenged the law, and a recent ruling by Illinois’s top court signaled the justices may end up overturning the law.

Mr. Rauner, who was a longtime private-equity executive before deciding to run for governor, has said he favors moving to a 401(k)-style system over pensions, but the shape that would take at the state capitol remains to be seen. Mr. Rauner was quiet the day after his big victory and his campaign declined an interview request.

Part of the challenge for any plan for Mr. Rauner will be getting it through the Democratic-controlled legislature. Many there agree the state has a big problem, but Mr. Quinn had a bruising fight with his own party to broker a deal.

To be sure, Illinois will continue to be a focus of the national debate that’s raging over how to fix ailing public pension systems. But on Tuesday, the Land of Lincoln wasn’t alone in having the issue play a role in the elections.

Bruce Rauner gives some hints about what his plans for pension reform would look like on his website:

I believe we must choose to address this problem head-on. No tinkering around the edges.

We must boldly reform our pension system. To do that, we can:

– Ensure pay and benefits do not rise faster than the rate of inflation.

– Eliminate the ability of government employees to receive massive pay raises before they retire just to increase their pension.

– Cap the current system and move towards a defined contribution system.

Voters Reject Phoenix Pension Overhaul

http://youtu.be/8GC0bEBzJ-g

The controversial Phoenix ballot measure Proposition 487, which would have transferred all the city’s non-public safety new hires into a 401(k)-style system, has been struck down by voters.

From Reuters:

In a big victory for city labor unions, voters rejected Prop. 487 by a margin of 56.5 percent to 43.5 percent, according to results posted online by the Maricopa County Recorder/Elections Office.

The measure proposed to end the city’s traditional defined-benefit pension plan for new workers, shifting them to a plan dominant in the private sector, with employees pay a far greater share of the cost. Existing workers could have kept their current pensions.

The initiative was one of this year’s biggest test cases pushed by pension-reform advocates, including Texas billionaire and former Enron executive John Arnold, who have argued that traditional pension plans are an increasingly unaffordable burden for cash-strapped state and local governments.

The measure, by the city council’s own admission, would have cut retirement benefits significantly for new hires.

The city’s non-public safety pension fund is 64.2 percent funded.

Phoenix Lawmakers Weigh In On Proposition 487

When Phoenix voters go to the polls today, they will decide the fate of one of the most controversial ballot measures in the country: Proposition 487.

The measure would close of the city’s defined-benefit system to new hires and shift them into a 401(k)-style plan.

Public safety workers are excluded, but unions say death and disability benefits could still be reduced.

The Arizona Republic asked city leaders from both sides of the aisle to weigh in on the bill:

“In 2013, I was proud to co-chair the city’s pension reform committee that successfully passed $700 million in savings. That reform passed the right way — considered by a citizen panel and approved with more than 80 percent of the vote. Prop. 487 was written and funded by dark, out-of-state money, with no local consideration or feedback. If it passes, it will undo all the work we did last year, and the city estimates that it will cost taxpayers more than $350 million. Phoenix should vote no on Prop.487.”

— Daniel Valenzula, District 5, parts of west and central Phoenix

“Assumption of risk has been largely ignored except for Bob Robb’s recent analysis. The pension of former City Manager David Cavazos illustrates the importance of this issue. Although I voted against his large salary increase, council action raised his pension to approaching $250,000 per year for life, starting at age 53. If the economy goes bad, if an emergency arises, the city still owes approximately $250,000 per year. Another individual would need about $5million set aside (never to be spent because of an economic downturn, a family emergency or anything else) earning 5 percent every year to match that pension.”

— Jim Waring, vice mayor (District 2), northeast Phoenix

“Voting yes on Prop. 487 brings fiscal accountability back to the city of Phoenix. Our city is in a financial crisis. Pension costs are cutting into services and causing new tax increases. Phoenix is short more than 500 police officers, and the politicians imposed a new water tax to pay for increasing pension costs. Prop. 487 stops the financial bleeding. Without Prop. 487, you will see more cuts in service and higher taxes. We could add 150 new police officers if we just stopped pension spiking alone. Pension spiking costs you more than $19 million per year. Please vote yes on Prop.487.”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“If Prop. 487 passes, Phoenix would be the only government employer in Arizona and one of the few in the nation that does not offer a defined benefit plan. This presents a disadvantage in attracting quality employees and will deter current public employees in considering Phoenix as an employment option. The public sector already faces challenges due to less competitive wages. One of our attracting factors is pension benefits. Our city is additionally disadvantaged since we increased our retirement eligibility rule of 80 to 87, and research shows that lowering our pension benefits will be yet another detriment to the employment packages we offer.”

— Michael Nowakowski, District 7, southwest Phoenix and parts of downtown

“Voters considering Prop. 487 should make no mistake: This measure will cost the city millions of dollars we don’t have, and every dollar spent on this shoddily drafted ballot initiative is a dollar taken away from the other priorities of the city: flood control, better streets, hiring new police officers, and other vital city services. Reasonable minds can disagree about Proposition 487 on many levels, but in the short-term, the evidence is clear: Proposition 487 is expensive. Our city is in a very difficult financial situation, and we simply cannot afford Prop. 487.”

— Kate Gallego, District 8, southeast Phoenix and parts of downtown

See Pension360’s previous coverage of Proposition 487 here.

Video: A Closer Look At Phoenix’s Proposition 487

Proposition 487 is a Phoenix ballot measure that would close off the city’s defined-benefit pension plan for new hires and instead shift them into a 401(k)-style system. The measure would also prohibit pension “spiking” practices.

Prop. 487 has been surrounded by debate about its true cost, and whether it would reduce death and disability benefits for public safety workers — even though the measure is not intended to change public safety benefits.

The video [above] tackles these issues, and others, in an analysis of the measure.

Would Phoenix’s Proposition 487 Hurt Public Safety Workers?

In exactly one week, Phoenix voters will determine the fate of Proposition 487 – the controversial ballot measure that would, among other things, end the city’s defined-benefit plan for all new hires and shift them into a 401(k)-style plan.

The measure excludes public safety workers, so nothing would change for police and firefighters. Or would it?

In recent weeks, a fiery debate has emerged over whether Prop 487 would actually harm the retirement security of the city’s public safety workers.

Dustin Gardiner at the Arizona Republic writes:

Hundreds of firefighters and police officers chant “No on 487!” outside an upscale Biltmore office tower, rallying against a ballot initiative they contend will gut their most critical benefits.

They say the measure…would jeopardize their retirement security and death and disability benefits.

That dire situation they portrayed at the protest earlier this month — suggesting Prop. 487 will eviscerate the pensions of officers and firefighters and leave families of fallen first responders without benefits — is improbable given that state law prohibits it.

Nevertheless, the hotly disputed claim has become the dominant argument in the final stretches of the campaign over the measure, which would close Phoenix’s employee-pension system for new hires and replace it with a 401(k)-type plan. The initiative is on the Nov. 4 ballot for city voters.

[…]

“Given that police officers and firefighters don’t receive Social Security and judges are apt to make unpredictable rulings, we refuse to take such risks with the public safety of our community,” leaders of the city’s police and fire unions wrote in a joint letter this week.

The Arizona Republic editorial board published a piece on Monday calling the arguments of public safety unions “thin”:

Prop. 487, which applies only to the Phoenix-run retirement system for non-public-safety employees, expressly excludes police and fire pensions. State law requires cities to contribute to the statewide public-safety pension system. The Arizona Constitution explicitly protects personnel already enrolled. Legal precedent clearly is on the side of public safety.

Even attorneys opposing Prop. 487 acknowledge that their arguments are thin. So why the fierce opposition?

Part of the explanation must be set at the feet of the Phoenix City Council, a majority of which opposes the proposition. The council created ballot language that disingenuously depicts the proposition taking action that is constitutionally forbidden.

The council majority and staff have made it clear which side they favor. It isn’t the side of the city’s taxpayers, who must bear the rapidly increasing expense of the city’s grossly underfunded pension plans.

But, largely, the anti-Prop. 487 campaign appears to be a statement by the city’s public-safety unions, which will adamantly oppose any effort to change any public-employee retirement system that promises to lessen the financial burden on the city’s taxpayers.

Even to the point of rising up against a ballot measure that will in no way affect their benefits.

But union leaders call the measure “poorly written” and maintain that the ambiguity of the measure doesn’t bode well for public safety workers. From a column in the Arizona Republic authored by the presidents of three Arizona public safety unions:

Prop. 487 will impact Phoenix police officers and firefighters. The only question is: Exactly how much?

Because of this measure’s contradictory language and because, according to the city’s analyses, Prop. 487 has the potential to make it illegal for the city to contribute to the public-safety retirement system, our groups oppose this ballot measure. Simply put: It is the wrong kind of reform.

Inevitably, Prop. 487 will end up in court for a years-long legal fight. Our opponents and The Arizona Republic editorial board have discounted that risk — and the looming massive legal bills.

However, given that police officers and firefighters don’t receive Social Security and judges are apt to make unpredictable rulings, we refuse to take such risks with the public safety of our community. We hope Phoenix residents will refuse, as well.

Read the entire column from the union leaders here.

You can read the Arizona Republic’s editorial board piece here.

How Would Phoenix Officials Handle The Up-Front Costs of Proposition 487?

In two weeks, Phoenix voters will decide the fate of Proposition 487 – the ballot measure that would close off the city’s defined-benefit plan from new hires and shift them into a 401(k)-style plan.

The plan, if passed, would cost the city millions up front – but the tradeoff, proponents of the plan say, is a more sustainable pension system.

There are ways to offset the initial cost of the plan. One option is to eliminate deferred compensation for workers.

Would city officials support eliminating deferred compensation as a cost-saving measure?

The Arizona Republic asked them:

We asked: If Prop. 487 is approved, would you support removing deferred compensation without providing employees its value in another form? Please explain.

“It is important to provide employees fair compensation and to ensure the city remains a competitive employer. With that said, should Prop. 487 pass, the city will comply with the law and not provide deferred compensation. However, I would not want to presume what the end point or other forms of compensation could or could not be. We are required to negotiate in a fair and neutral manner per our Meet and Confer ordinance and to do so without a predetermined outcome. The city would negotiate in good faith with employee groups as required and practice good labor relations practices.”

— Michael Nowakowski,District 7, southwest Phoenix and parts of downtown

“Yes. Prop. 487 lets current employees choose between their pensions or deferred compensation. They get to keep what they earned, but going forward, they can’t have both. Pensions are out of control — costs ballooned from $56 million in 2003 to $240 million in 2013. ‘Yes’ on Prop. 487 saves over $400 million by eliminating pension spiking and secondary retirement. This year, taxpayers saw a new water tax and cuts in police, after-school programs, seniors and libraries to fund the ballooning pension costs and $19 million in pension spiking. Prop. 487 treats employees and you fairly. Ask yourself, what do you get?”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“I support 487. We must end pension spiking, and the prohibitively expensive status quo. I have voted against all final labor contracts as a councilman. By the time the initiative kicks in, the current contracts would have 18 months to run. I believe we must honor the voters’ decision and meet our contractual obligations (even though I voted against the contracts) by re-opening the contracts to mitigate loss of deferred compensation. In subsequent negotiations in 2016 and beyond, we should take a much more realistic approach to negotiations. The ‘we’ve always done it this way’ approach to negotiation must stop.”

— Jim Waring, vice mayor (District 2), northeast Phoenix

“If deferred compensation is contained in contractual minutes — and rightfully owed to city employees — the city will be required to renegotiate its contract and provide payment in the form of wages. Ultimately, courts will decide the outcome at significant cost to taxpayers.”

— Thelda Williams, District 1, northwest Phoenix

NY Comptroller DiNapoli: Six Reasons the State Shouldn’t Switch to a 401(k) System

State Comptroller Thomas DiNapoli is the sole trustee of New York’s $180 billion Common Retirement Fund (CRF).

His challenger, Robert Antonacci, has said he would shift New York’s pensioners into a 401(k)-type plan if elected.

But during an editorial board meeting Monday, DiNapoli laid out six reasons why he’d keep New York’s defined-benefit system in place. From Syracuse.com:

1. It benefits 1 million New York employees and their families, a significant portion of the state’s population, he said. The average pension paid retirees, other than firefighters and police, is $21,000 a year.

2. The money paid out to retirees stays in New York, benefiting the state’s economy. About 80 percent of the people who receive a pension remain in the state, DiNapoli said.

3. The state’s pension plan is 92 percent funded and that’s a good asset to have when New York goes out to borrow money, he said. The health of the state’s pension plan is one of the things financial agencies look at when they issue bond ratings. Those ratings in turn affect the ability of the state and local municipalities to borrow.

4. New York has responded to current economic conditions by curtailing pension benefits for newly hired state employees. Local governments that have had a turnover in employees saw a savings as a result, DiNapoli said.

5. Twice in the past two years the state has cut the rate local governments pay into the system, he said.

6. Switching to a defined contribution plan won’t change the state’s obligation to provide a pension to the 1 million people already in the system, DiNapoli said. Plus, it would create retirement insecurity for even more New Yorkers. “A 401(k) was never meant to be the substitute for a pension,” DiNapoli said.

DiNapoli is leading Antonacci in the polls by double digits.

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