cost of living adjustments

New Jersey Pension Commission Release Report; Proposal Would Bring Savings to State, Cuts to Workers

New Jersey Gov. Chris Christie unveiled a series of pension reform proposals at his budget address yesterday.

But he’s taking his cues from a just-released report from his pension commission, which he set up in the summer of 2014.

Christie acknowledged in mid-2014 that future pension changes would likely mean benefit cuts for workers. Now, we are getting more details about the specifics of the reforms Christie and his panel have in mind.

The five key pillars of the pension reform proposal, summarized by NJ.com:

1. Frozen Plan

The current pension plan would be frozen. Retirees would continue to receive their benefits, though without cost of living adjustments. Active employees would no longer accrue benefits under that plan.

2. “Cash balance” plan

The state would create a new “cash balance” plan, which is considered a hybrid between defined-contribution and defined-pension plans. Workers’ benefits are shown as a cash balance, funded by employee and employer contributions and investment returns, but they can take their payout as a lifetime annuity.

3. Health care premium change

Employees would pick up a larger share of their health care premiums, and health care coverage would be less generous overall. On average, employees pay 18 percent of their health care premiums. Under the proposal, that would increase to 25 percent, though higher-paid employees pay more. State and local governments pay, on average, 95 percent of the total cost of health care coverage, but the proposal calls for new health care plans that reduce the employer cost to 80 percent.

4. School plans

Local school districts would take on local education employee retirement benefits, which are currently paid for by the state, and the cost of the new cash balance plan. The commission estimates the savings from the health care cuts would more than cover those new responsibilities.

5. Constitutional amendment

Lawmakers would be asked to pass a proposed constitutional amendment that would appear on the November ballot and guarantee public employees adequate pension contributions from the state.

The commission’s report can be read here.

Cover photo credit: Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Documents: Illinois Gov. Rauner’s Budget Will Recommend Pension Cuts

Illinois Gov. Bruce Rauner will give his budget address on Wednesday afternoon. He’ll announce a number of cost-cutting proposals, and pensions are sure to be featured.

What specifically does Rauner have in mind for the state pension system?

Greg Hinz of Crain’s Chicago Business got a hold of budget documents that hint at Rauner’s plans.

From Crain’s:

On pensions, Rauner is proposing to go substantially farther than the reforms passed a year ago by the General Assembly, reforms that now are being challenged before the Illinois Supreme Court.

Specifically, according to budget documents shared with me, Rauner intends to save $2.2 billion next year, cutting the state’s unfunded pension liability by $25 billion. He’d do that by freezing all benefits as of July 1, moving workers to a new plan in which cost-of-living hikes would be cut from the current 3 percent a year to the lesser of 3 percent or half of inflation, non-compounding; the normal retirement age would be 67, and overtime would not be counted in pension benefits.

These changes would apply to benefits earned after July 1. Benefits earned prior to that date would be paid at the previous rate. The Rauner document says that makes it constitutional as “earned benefits” are not cut. Expect a court challenge to that.

All of these changes would apply only to plans covering teachers, university employees and other state workers—not public safety employees.

Read an overview of the rest of Rauner’s probable budget proposals here.

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Rhode Island Lawyers to Suss Out How Court Should Handle Pension Lawsuit

At the end of this week, the lawyers representing Rhode Island and its retirees will meet with a Superior Court judge to discuss a major point of contention in the pension lawsuit brought against the state: how many trials should be held?

Lawyers for retirees argue that the lawsuit should be separated into multiple trials.

But the state, citing cost, is arguing for one trial.

Chicago Lawyers Predict “Catastrophic Outcome” If City’s Own Pension Reforms Are Eventually Overturned

The City of Chicago submitted a brief to the Supreme Court this month supporting the legality of the state’s pension reform law.

That’s because a court decision against the pension law wouldn’t bode well for the legal standing of the city’s own set of pension reforms. Chicago’s lawyers said in the brief that a “catastrophic outcome” should be anticipated if the city’s reforms are eventually overturned.

From the Chicago Sun-Times:

Chicago faces a $300 million deficit in 2016 with shortfalls continuing “for the forseeable future” — even before piling on $20 billion in pension liabilities that have saddled the city with the “worst credit rating of any major city other than Detroit.”

And if state legislation that saved two of four city employee pension funds is overturned, a “catastrophic outcome” awaits retirees and Chicago taxpayers alike triggered by “further downgrades.”

After putting the state case on a fast-track, the Illinois Supreme Court ruled this week that it won’t have time to hear any friend-of-the court briefs.

But the city’s filing nevertheless paints the bleakest and most accurate picture yet of the financial crisis that awaits the winner of the Feb. 24 mayoral election.

“The Chicago bill should survive, regardless of the outcome of this appeal. If it doesn’t, the city’s liabilities will increase by $2.5 million a day,” Corporation Counsel Stephen Patton wrote in the Jan. 12 filing.

“The city will suffer further [bond rating] downgrades that could materially increase the cost of borrowing money essential to funding basic operations. And it could make the city immediately liable to pay hundreds of millions of dollars as a result of default and early termination of debt-related obligations.”

Chicago’s pension reform measure ended compounded COLAs for some retirees and raised employee contributions by 29 percent.

Photo by bitsorf via Flickr CC LIcense

What Congressional Gridlock Means for Federal Pensions

Gridlock has become the new norm in Congress. The last two Congressional sessions (112^th and 113^th) were arguably the two least-productive sessions in the history of the country.

Republicans now control both chambers, but that doesn’t mean the gridlock will end.

In fact, some observers say that in 2015, the trickle of meaningful bills coming out of either Congressional chamber could slow even further.

That could be good news for federal workers.

Why?

Because trimming federal retirement benefits is a popular idea among a group of lawmakers, and gridlock could stave off those cuts.

Federal News Radio explains:

In 2014, the to-do-list of many pols included plans to charge workers more, via payroll deduction, for their CSRS and FERS benefits. It could have resulted in a pay cut of 2, 3 or even 4 percent.

Also on the list was a big budget saver — a plan to trim future cost-of-living adjustments for current and future retirees by 0.3 percent each year, every year. People would still get COLAs. But in a diet-version.

NARFE’s Jessica Klement estimated the typical CSRS retiree would miss out on $50,000 in future benefits if the COLA calculation change was made. It wasn’t, in part because of gridlock.

[…]

There is an upside to gridlock, especially for active and retired members of the federal family. It kept politicians with political, personal or fiscal axes to grind (out of your hide) from chopping up your benefits package. Feds even got a token raise. While only 1 percent (same as this year) it was 100 percent more than they got in 2013, 2012 and 2011.

The gridlock also gives retiree advocates and labor groups more time to combat those policies.

Two lawmakers, Rep. Jason Chaffetz [R-Utah] and Rep. Mark Meadows [R-N.C.], are leading the push for civil service reform, including pension changes.

OpenRetirement covered their plans here.

Jacksonville Mayor Submits New, Updated Reform Bill

Jacksonville Mayor Alvin Brown has submitted a reworked version of the city’s pension reform proposal, which was previously passed by City Council but wasn’t approved by the city’s Police and Fire Pension Fund.

The bill needs to be approved by both entities before it passes into law. The City Council may vote on the new bill next month, according to the Jacksonville Business Journal.

More details from the Jacksonville Business Journal:

Brown’s bill comes in the wake of a City Council version of pension reform legislation, which was approved by a 16-3 margin in December, being sent back by the Police and Fire Pension Fund.

City Council worked with Brown to come up with changes that will, hopefully, appease the board. City Council still expects to make some changes, though, President Clay Yarborough told the Florida Times-Union.

Some of the sticking points of the council-approved bill were the interest rate that firefighters and police officers get on Deferred Retirement Option Program accounts, cost-of-living adjustments and City Council’s power to change benefits.

The council’s agreement with the Police and Fire Pension Fund will go until 2030. After 2030, the city and unions will have to settle all disputes through collective bargaining.

Additionally, City Council will be able to make changes to benefits if the groups are not able to reach an agreement.

The city’s Police and Fire Pension Fund was 43 percent funded at the end of 2013.

Photo by pshab via Flickr CC License

Pension Board Changes Might Be “Deal Killer” For Jacksonville Reform

On Monday, the Jacksonville Police and Fire Pension board made several changes to the city’s pending pension reform measure and sent it back to city council for approval.

But the changes could be a “deal killer”, according to one council member.

One major change was the length of time the measure would be in effect. The council wanted three years, but the board changed it to ten.

Reported by the Jacksonville Daily Record:

“If it’s not at least 10 years, I’m not voting for any of it,” said Lt. Richard Tuten III, the firefighter’s representative on the board.

Police representative Chief Larry Schmitt and fifth member Nat Glover also were leaning that way — a majority.

That vote would mean the meat of council’s decisions had been undone, a move board Chair Walt Bussells said might doom reform and leave it for a judge to decide.

So, he asked members to reconsider the benefit components. The board did and approved rates that weren’t what council passed, but did eliminate fixed guarantees.

It didn’t budge on the length of the deal, though. And that could be a “deal killer,” said council member Lori Boyer.

“If that’s the case, then that’s a real big problem for me,” she said.

Boyer maintains state law says such deals can’t extend beyond three years. And like the police and firefighters who uphold the law on a daily basis, she says she took an oath to do the same.

“We can’t start putting politics above the law,” she said.

She said she possibly could handle changes to the benefits side, but without the three-year term it’s a non-issue.

Council member Bill Gulliford authored the amendments to those benefit changes on cost-of-living adjustments and DROP. He said if the only issue had been the former, he probably could have lived with it. But all the tweaks?

“I can’t buy the changes, I’m sorry,” he said.

After council passed what he thinks was the best offer, he said he thought the board’s decisions rendered the deal “dead.”

“I think council pretty much spoke,” he said, referring to the 16-3 vote in December that passed the deal the pension board weighed in recent weeks.

Both the council and the pension board must approve the measure before it is passed into law.

Photo by pshab via Flickr CC License

Think Tank: New Jersey Pension Benefits Aren’t That Lucrative

One of the criticisms leveled at New Jersey and its underfunded pension system – and one of the main justifications used to cuts in worker benefits – is that New Jersey’s public employees receive more generous pension benefits than their peers in other states.

But a left-leaning think tank released a report Wednesday that cast doubt on the generosity of New Jersey’s pension benefits relative to other states.

From NJ.com:

New Jersey’s public employee pension plans ranked among the least generous of top public pension plans in the country, according to a report released today.

The study shows New Jersey’s pensions are more modest than 94 of the country’s 100 largest plans.

[…]

The study considered whether pension plans protect retirees from rising inflation, how benefits are calculated and how much employees contribute to their plans.

New Jersey fell in the bottom half in all three fields, which Stephen Herzenberg, the Executive Director of the Keystone Research Center, who authored the report, called the three most important dimensions of generosity.

[…]

Workers kick in 6.93 percent of their pay — and that number is rising — while employees contribute less in more than half of the other systems, according to the findings.

New Jersey’s retirees do not receive yearly cost-of-living adjustments to offset inflation, unlike 69 other plans included in the study that offer some protection from inflation. Retirees are suing to restore the cost-of-living increases that Gov. Chris Christie suspended as part of a 2011 pension reform package.

The state’s formula for calculating pension payments also uses a low multiplier — 1.67 percent — that lands it in the bottom quarter of plans.

The report notes that Garden State workers also receive some of the lowest pension benefits, but those were not factored into the rankings.

On average, pension benefits are $26,000 a year. Local government employees receive less on average, $16,000, while teachers receive more, $40,000. State employees collect $25,000.

Read the full think tank report here.

Photo: “New Jersey State House” by Marion Touvel. Licensed under Public domain via Wikimedia Commons

Many Rhode Island Retirees To See COLAs Unfrozen in 2015

One of the pillars of Rhode Island’s sweeping 2011 pension reform law was the suspension of annual cost-of-living-adjustments for retirees.

According to the Civic Federation, the reform law mandated:

Automatic annual increase in pensions benefits (COLA) is suspended until state employees, teachers, nurses, correctional, officers, judges, and state police plans’ funding level calculated together exceeds 80 percent; interim increases will be paid at 5-year intervals, based on investment returns.

The interim annual increase and all future annual increases will be applied only to the first $25,000 of income (indexed) and based on investment returns.

But in 2015, for the first time in years, many municipal retirees are will receive a COLA. The raise will be to the tune of 2.73 percent.

The increase was triggered by funding improvements that moved many pension systems over the 80 percent funding threshold required for members to receive COLAs. From the Providence Journal:

Good news for many Rhode Island municipal retirees: they will see a 2.73 percent increase in their pension benefits starting next year.

[…]

59 of the 113 municipal plans in the state-run Municipal Employees Retirement System are healthy enough now (at least 80 percent properly funded) that their members will see the COLA next year on the first $25,000 of their pension benefit, reported the state Retirement Board on Wednesday.

The COLAs were approved by the board as it accepted its annual valuation reports for the MERS plans and the Employees Retirement System of Rhode Island, the major retirement plan for state employees and teachers.

Those valuations reports showed that the state’s overall investments earned 8.23 percent last year on a five-year “smoothed” basis, outperforming the state’s 7.5 percent assumed rate of return.

The ERSRI plans are not expected to reach 80 percent funding until around 2031. But since passage of the pension overhaul law, lawmakers approved a provision where some pension increase for those workers could be added every five years if certain investment levels were met.

To see the list of retirement systems receiving COLAs, click here.

Jacksonville Will Vote On Pension Reform Measure This Week

After months of debate, the Jacksonville City Council could approve this week a measure to reduce the city’s pension debt.

Observers say the measure, which would increase city pension contributions, change retiree COLAS and give the Council the right to change benefits, has the votes needed to pass through the Council.

From the Florida Times-Union:

The full council will meet Tuesday and could take a vote on the legislation.

Thirteen council members — more than a necessary majority for passage — voted last week in favor of the bill during two committee meetings after making several changes they said make the agreement a financially better deal for taxpayers.

After years of failed attempts to reform the police and fire pension and reduce the city’s $1.65 billion debt obligation to it, council members appear close to passing a bill that Brown’s administration says will save the city $1.2 billion over a 30-year period.

“I suspect there will be limited discussion on it, and I suspect the vote will be significantly in favor, maybe even an unanimous vote,” said Councilman John Crescimbeni.

If the Council passes the bill, it will still need to be approved by the Police and Fire Pension Fund Board. There’s no guarantee they will accept the deal. From the Florida Times-Union:

The pension fund board is composed of five members. The police and firefighters union each appoint one member, the City Council appoints two members and the fifth member is chosen by the four other members.

Whether the board members pass the bill remains a major question, because it includes some significant differences from Brown’s original legislation that they supported.

Council amendments include changes to guaranteed annual cost-of-living adjustments that current police and firefighters will receive to their pensions and interest rates earned in their Deferred Retirement Option Program accounts. The council would also retain the power to impose pension benefit changes in three years if future collective bargaining talks reach an impasse.

When Brown negotiated his deal with the pension fund earlier this year, pension board members nixed the concepts now included in the council’s changes.

Officials from the mayor office told the council last month that any changes made to the deal could effectively kill it.

The reform measure would increase city contributions to the pension system by $40 million per year for the next 10 years. It would also change the way COLAs are calculated and would give the Council the right to change worker benefits for the next three years.

Photo by pshab via Flickr CC License

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