increase pension contributions

On Pensions, Chicago Mayoral Candidates Mum on Specifics

On Friday, Chicago’s five mayoral candidates debated in front of the Chicago Sun-Times Editorial Board, seeking the newspaper’s endorsement.

Pensions was among the first issues to come up – and while everyone agreed that Chicago’s pension debt needs to be tamed, the candidates were largely mum on specific ways to accomplish that goal aside from a few tax proposals.

From the Chicago Sun-Times:

You might think there would be no avoiding the issue that is sure to dominate the next mayor’s agenda.

Unfortunately, a lack of specifics from Mayor Rahm Emanuel has made it easier for the others to dodge as well.

The mayor couldn’t be budged from what I’ll call his “Trust Me” speech in which he recounts his track record on financial matters, which includes more responsible annual budgeting than his predecessors plus legislative deals that reduce pension benefits and increase pension contributions for some city employees and retirees.

With a great deal of prodding, Emanuel acknowledged he’s not ruling out a property tax increase to help bring down the city’s huge pension liability.

[…]

Fioretti, who flatly rules out a property tax increase, is the only candidate ready to put alternative revenue sources on the table. His calls for a commuter tax and/or a financial transactions tax on Chicago’s trading exchanges undoubtedly have some populist appeal.

[…]

At least Fioretti is willing to stick his neck out for something. Cook County Commissioner Jesus “Chuy” Garcia couldn’t have been more vague about what he has in mind, arguing there are still too many unknowns about the scope of the problem until the Illinois Supreme Court has ruled on pension reform legislation.

Garcia also said he opposes reducing pension benefits to current retirees, which was a key part of Emanuel’s pension legislation. That means Garcia would need to find even more revenue.

Chicago voters have just three more weeks to demand real answers.

Watch the video of the debate here.

Photo by bitsorf via Flickr CC License

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

Photo by bitsorf via Flickr CC License

Jacksonville Mayoral Candidate Wants to Use Sales Tax to Pay Down Pension Debt

Bill Bishop, a candidate for mayor of Jacksonville, this week addressed one of the city’s hottest topics: pension debt and reform.

Bishop said he would levy a sales tax increase and use the revenue to pay down the city’s pension debt.

From the Florida Times-Union:

City Councilman Bill Bishop, who is running for mayor, said Monday during a forum hosted by the Meninak Club of Jacksonville that putting a half-cent sales tax on the ballot would be the best way to shore up the finances of Jacksonville’s pension system.

[…]

Bishop said the economy is recovering so tax revenue is increasing, but not fast enough for growth to solve the city’s financial problems. He said a sales tax spreads the cost widely among residents as well as those who come into Duval County for shopping.

A half-cent sales tax would generate about $63 million and it would come with an expiration date if voters approved it. But state law currently doesn’t allow a sales tax geared specifically toward paying down pension debt. State lawmakers have been cool to the idea so there’s nothing in the works to schedule an election.

Jacksonville has been grapping for months with a way to pay for a proposed increase in pension contributions to the tune of $400 million over the next 10 years.

The city is trying to get out in front of its pension debt, to keep costs from spiraling further.

Photo by pshab via Flickr CC License

Pension Board to Cast Final Vote on Florida Reforms

The board of Jacksonville’s Police and Fire Pension Fund will vote Monday on a pension reform measure that would improve its funding status but also affect member benefits.

The measure was passed by the City Council in early December. More from the Jacksonville Business Journal:

The final status of the pension reform package, which calls for a mix of surging money into the pension fund and cutting benefits, rests with the board, who can either reject it altogether, elect to modify it or accept it.

Rejecting it would kill the legislation, while modifying it would mean that City Council would have to agree to changes proposed by the board.

The city’s latest estimates of the savings the pension reform legislation could bring come to about $1.33 billion over 30 years.

The legislation’s approval, however, will mean nothing unless the city decides how to pay off the $1.6 billion in debt it already owes the pension fund. Some of the suggestions by the city include infusing $300 million to the fund by increasing its and JEA’s annual contribution to the pension fund.

Pension360 will track the outcome of the vote.

Photo by pshab via Flickr CC License

Cincinnati Strikes Pension Deal; City to Pay More, Retiree Benefits Reduced

After nearly a year of negotiations, Cincinnati and its public workers have reached an agreement that aims to increase the sustainability of the city’s pension system.

The city will contribute significantly more money to the pension system. In exchange, retirees will not see a cost-of-living adjustment for the next three years and will see smaller COLAs in the years after.

The terms of the agreement, from the Cincinnati Enquirer:

Under the agreement, the city will:

* Contribute $38 million to the pension system next year. The city will do that over the next seven years by borrowing against future revenue.

* Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

* Make a larger contribution to the pension starting in July 2016 – 16.25 percent of the annual operating budget compared to 14 percent – and continuing for 30 years.

Employees will:

* Take a three-year cost of living adjustment holiday.

* After that, the cost of living adjustment for both current retirees and active employees will go to 3 percent simple interest. Most current retirees receive an increase that is “compounded,” meaning the previous year’s increase is included in the following year’s calculation. Current employees already have a 3 percent simple COLA in place when they retire. The total cost of the cut was unclear Tuesday night, but can be projected. It is a significant amount.

More background and reaction from the city and unions, from the Cincinnati Enquirer:

Nobody walked away happy – not city officials, not current workers and not retirees – but everyone agreed it was a fair compromise.

The agreement ensures pension benefits will be sustained for current and future retirees and shores up the city’s financial position for years to come.

“I want to thank all of the parties for coming to the table and hammering out a compromise,” Cranley said. “It’s been a rough road and no party got everything they wanted. This settlement requires some sacrifice on all sides, but it will help strengthen the city’s financial health and ensures the pension system will still be there for everyone in it.”

The deal averts cuts to basic services for all Cincinnati residents.

Cranley, flanked by city union leaders and other top city officials, announced the agreement on the steps of the University Club at 10:45 p.m. Tuesday. All parties had been inside, negotiating since 1 p.m.

“We’re elated,” said Pete McClendon, the former president of AFSCME who is now the president of the Cincinnati AFL-CIO (of which AFSCME is a part). “The agreement stabilizes benefits … in a way that is fiscally responsible. We look forward to a workforce that can retire with dignity.”

The city’s unfunded pension liabilities hover near $862 million.

Texas Pension Official: Liabilities Could Hurt State Credit Rating Sooner Than Later

Texas budget analysts and pension officials are attempting to draw lawmakers’ attention to the unfunded liabilities of the Employee Retirement System of Texas. The analysts and the director of the pension system say the liabilities, if left unaddressed, could lead to a credit downgrade for the state.

From the Austin American-Statesman:

At a legislative hearing this month, outgoing Employee Retirement System Executive Director Ann Bishop piqued lawmakers’ interest when she said the plan’s current unfunded balance of $7.5 billion could at some point affect the state’s good credit rating if the Legislature doesn’t devise a plan to pay it off. The 2016 onset of new accounting rules will double that risk, she noted. The state only has 77 cents for every dollar needed to pay future benefits, according to the retirement system. If not addressed during next year’s legislative session, it is projected to grow to nearly $10 billion by 2018.

The agency again has asked the state for additional funding to make the plan actuarially sound – so that contributions and investment returns cover expenses and payouts – which it has not been since 2003. That would require an additional $350 million every two years.

Absent that, Bishop told members of the Senate State Affairs Committee that the solution is some combination of more benefit cuts or increased contributions from both the state and employees. Lawmakers in 2009 and 2013 increased state and employee contributions and cut benefits for newly hired workers.

While that “has done a lot to help close the gap,” Bishop said “it isn’t enough.”

“It will have to be fixed. And it’s just going to get worse before it gets better,” she told the committee, noting the plan will run out of money to pay for promised pension benefits by the 2050s if nothing changes.

That “sounds like a long time from now,” she continued, but “when you’re talking about attracting people into the workforce and you’re telling them they’re going to pay into a fund for 30 years and not have it in their retirement, that’s not much of a benefit.”

She also warned that further diminishing the plan could inspire a lawsuit or – even worse – spark a mass retirement exodus as more than a third of the state’s workforce is either already eligible to retire or will become so in the next five years. In 2013, retirees received an average annuity of $18,946 from the plan.

ERS Texas manages $25.6 billion in assets.

Unions Approve Omaha Pension Reforms

A third union has approved a contract with the city of Omaha, Nebraska that features major pension changes.

Among the changes: new employees will be shifted into a cash balance plan and the full retirement age will be raised. In exchange, Omaha will increase its payments into the city’s pension fund and employees will receive a raise.

From NBC Omaha:

Monday, Omaha Mayor Jean Stothert’s office announced a third and final civilian union in contract negotiations has approved an offer which includes changing to a cash balance pension plan for new employees.

A news release from the office says the offer “solves the underfunded pension liability and achieves unprecedented pension reform.”

CMPTEC members were the last union group to accept an offer changing from defined benefits to a cash balance plan. The change only impacts new employees hired after January 1st.

The unions include CMPTEC, Local 251 and the Functional Employees Group. A fourth group, AEC, is not represented by a bargaining unit, but it will receive the same benefits.

Each group’s agreement allows current employees to remain in the existing pension plan with reduced benefits and an extension to the number of years required to achieve normal retirement.

In return, the City agreed to increase contributions to the pension fund by 7% over the five-year agreement, give employees a 9% raise over the five-year period, and a 1% one-time “lump sum supplement” for 2013 when wage freezes were enacted.

“I am grateful to the membership, the union negotiators and our negotiating team led by Mark McQueen and Steve Kerrigan for agreements that are good for our employees and the taxpayers,” said Mayor Jean Stothert.

The Personnel Board has already approved the Local 251 agreement. In January, they will meet to approve the other two. The City Council must also approve the contracts.

The contracts run through 2017.