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California Bill Would Force CalPERS, CalSTRS To Divest From Coal

California Senate President Kevin de Leon has introduced a bill that would force the state’s pension funds to exit all coal investments.

Additionally, CalSTRS and CalPERS would be prohibited from making new coal investments until 18 months after the bill becomes law.

De Leon hinted in November that he would introduce such a bill, and the pension funds had already responded negatively to the proposal.

Judges Sue California Over “Diminished” Pension Benefits

Six judges are suing California over “diminished” pension benefits brought on by the Public Employees Pension Reform Act, a law passed by the state in 2013.

The judges say their benefits shouldn’t be affected the law, because they were appointed a full year before the law was passed.

From the Appeal-Democrat:

Yuba County Judge Benjamin Wirtschafter and five other judges have sued the state, alleging they’re getting a raw deal on their pensions.

The judges allege the Public Employees Pension Reform Act, which became law in 2013, has increased their salary withholdings, allowed reductions in their pay in violation of the state constitution and “diminished the pension benefits they are entitled to earn,” according to the suit, filed last week in San Francisco Superior Court.

The judges were elected in 2012, so they should not be covered by the pension changes approved in the 2013 law, the suit said.

[…]

In 2012, Judges Retirement System II withheld a flat 8 percent of judges’ salaries.

Now, according to the suit, the six judges are subject to an additional 7.25 percent withholding, resulting in “a fluctuating and increasing — as opposed to guaranteed — rate of contribution toward their pension benefits.”

In addition, their “pension annuity has been diminished by application of a three-year average salary annuity formula,” the suit said.

The suit alleged judges become members of their pension system when they are elected or appointed, and “final benefits are computed with respect to the paid service performed by the time of their retirement.”

According to the suit, the 30 judges who were appointed in 2012 are covered by the pension system’s rules in place before the 2013 changes.

“Many such judges are employed in the same courthouses as (the six judges who sued),” the suit said. “(The state has) permitted such appointed judges to participate in (the pension system) under the terms in effect prior to (the Public Employees Pension Reform Act) effective date, but have denied such rights to elected judges.”

Over the summer, California lawmakers passed an amendment to the Pension Reform Act to clarify that the law didn’t apply to judges elected prior to 2013. But Gov. Jerry Brown vetoed that change.

Photo by Joe Gratz via Flickr CC License

Improving CalSTRS Funding Comes at Cost for School Districts

California lawmakers acted earlier this year to improve the funding status of CalSTRS.

That means higher payments from school districts – and recent budget forecasts are forcing schools to examine how these payments will strain their budgets.

From the San Diego Union Tribune:

A state-mandated sched-ule for replenishing California’s cash-strapped teachers’ retirement fund means school districts will see their pension contributions triple by 2021 and remain high for decades, according to budget forecasts released this month by several local districts.

Administrators say they’re at a loss for how they’ll come up with the cash, which for some districts could be tens of millions per year. The forecasts come just six months after a legislative deal was struck by Sacramento lawmakers to recover billions of dollars for the California State Teachers’ Retirement System, or CalSTRS.

[…]

Administrators said that in the coming fiscal year, they may be faced with tough decisions to cut instructional programs, cut professional development or delay technology infrastructure improvements at the expense of paying their share of unfunded pension liabilities — totaling $74 billion statewide.

Officials in districts throughout California are talking about forming a coalition to explore ways to fix the teacher retirement system without cutting into their own school programs.

As the pension contributions grow, “the things you want and need for educational purposes will take a second seat to funding this retirement system, or paying for utility bills,” said Gary Hamels, assistant superintendent in charge of business services with San Marcos Unified School District.

“It’s going to hit the fan because you’ll have to make a decision — I have to pay this so you can’t buy that,” Hamels said. “We’ll have a situation where there’s demand for some academic improvement but this is where the money is going first.”

The business model to get CalSTRS on solid footing is based on economic assumptions that will force each of the area school districts to cough up tens of millions of additional dollars for decades to come, said Lora Duzyk, assistant superintendent in charge of business services for San Diego County’s Office of Education. Teachers also will see their CalSTRS contributions rise, though not as fast as school districts.

“I think you will hear moaning and gnashing of teeth from all kinds of people,” Duzyk said. “The money to pay for this are new costs that come right off the top of anything you get (from the state).”

Details on the repayment schedule are outlined in a school funding law passed in June by California’s legislature, and signed by Gov. Jerry Brown, a Democrat who marched into office in 2011 vowing to pull the state out of its budget crisis.

CalSTRS was 66.9 percent funded as of June 30, 2013.

Photo by Stephen Curtin

University of California Considers Raising Tuition As Pension Liabilities Mount

The University of California is considering a plan that would raise tuition by 5 percent each of the next five years.

If the plan is approved, the extra revenue will go, in part, towards paying down billions in unfunded liabilities associated with the University’s pension plan.

From the Sacramento Bee:

When the University of California Board of Regents on Wednesday debates a plan to raise tuition by up to 5 percent annually over each of the next five years, they will focus on how the revenue could benefit the university’s academic mission: expanded course offerings, more support services, 5,000 more slots for California students.

But UC officials say the system also needs the money to help rescue its pension fund – neglected for two decades and facing $7.2 billion in unfunded liabilities – and to cover the growing cost of retiree health benefits.

“They’re going to have to ramp up contributions considerably over the next few years in order to maintain the financial health of the system,” said Adam Tatum, a retirement systems specialist at California Common Sense, a nonpartisan policy research organization. “What is certain is that the UC needs more money to pay off these unfunded liabilities – if not now, then in the future. That’s inevitable.”

This year, UC will pay about $1.3 billion to the pension fund, about 5 percent of its overall operating budget.

The University has asked the state to cover a portion of the school’s payments into the system. But California hasn’t taken the school up on their offer. From the Bee:

UC officials want the state’s general fund to pick up nearly a third of the payment, which would cover the university’s portion of pension contributions for faculty and other employees who are paid from state funds.

“Frankly, if the state were to pay that, we would not be proposing a tuition increase,” said Nathan Brostrom, UC’s chief financial officer. “That is money that could go to other resources.”

UC notes that the state covers the costs of employer pension contributions to CalPERS for other state agencies, including California State University. “This is money we’re paying out of our own resources that the state is providing to every other state agency,” Brostrom said. “It’s just a matter of equity. Why do they not take any action to help us with it?”

Gov. Jerry Brown’s administration maintains that UC, with a good deal of governing autonomy and its own retirement system, should cover the costs. H.D. Palmer, spokesman for the Department of Finance, said the state’s taxpayers aren’t obligated to help UC cover its liabilities. He said the state has increased UC’s general fund allocation so the university could determine its own fiscal priorities.

“They have an independent system,” Palmer said. “We don’t have any input on the structure of the system. We don’t have any input on the level of benefits.”

The UC Retirement Plan is 76 percent funded.

17 States Considering State-Run Retirement Plans Aimed at Private Sector Workers

Many private-sector workers don’t have access to retirement plans through their employers, and states across the country are now trying to solve that issue. The trend has flown under the radar, but well over a dozen states are in the process of setting up (or brainstorming) a state-run retirement plan that caters to private-sector employees.

From Benefits Pro:

According to the Pension Rights Center’s website, 17 states are at some stage of legislating state-administered plans that hope to deliver retirement plan access to the country’s smallest employers.

Among them, Maryland, Connecticut and Illinois have either set up a commission to study creation of statewide retirement programs or taken early steps to create such programs.

Nebraska has held hearings examining the state of its private-sector employees’ retirement readiness. Indiana is moving forward, too, as are Arizona, Colorado, Minnesota, Ohio, Oregon and Vermont.

More specifics on a few of the initiatives from Benefits Pro:

In Connecticut, a panel is evaluating whether state-run automatic individual retirement accounts or other retirement programs could help increase savings. The panel is expected to issue an interim report by May.

In Illinois, legislation has been introduced that would require employers who have 25 or more employees but don’t offer a retirement plan to automatically enroll workers in a Roth IRA with a 3 percent payroll deduction.

In Maryland, a retirement program task force was established after a lawmaker wrote a bill requiring employers with at least five employees who don’t offer a retirement plan to establish an automatic 3 percent payroll deduction into a retirement plan.

California, as usual, was among the first states to have begin implementing the idea of a state-sponsored retirement plan for private sector workers. In 2012, Jerry Brown passed the Secure Choice Retirement Savings Trust Act, which eventually will require all business with over five employees to enroll their employees in the state plan.

Fitch Weighs In On New CalPERS Compensation Rules

This week, CalPERS approved 99 types of additional income that workers can include in their pension calculations.

The change will increase the pensions of many workers in the CalPERS system, and the fund has already drawn flak from California Governor Jerry Brown.

Now, the credit rating agency Fitch is in on the game, too. Fitch says the changes will increase pension liabilities and present additional costs to the state. From Fitch:

The expanded definition of pensionable compensation exposes public employers to higher pension liabilities and contribution expenses, and appears to be a step backward from recent reforms. The Public Employees’ Pension Reform Act of 2013 (PEPRA) narrowed the definition of pensionable compensation for public employees in an effort to address “pension spiking,” the inflation of base pay for purposes of pension benefit calculations. This decision expands the definition of pensionable compensation, in apparent conflict with PEPRA, and will increase pension costs for public employers if implemented.

The magnitude of impact from this decision is not yet clear, but it raises more questions about the sustainability of California’s pension reform efforts, which continue to face legal and institutional challenges. Particularly worrisome to Fitch is the absence of detailed information on the analysis of its projected costs. The decision has been sharply criticized by Gov. Jerry Brown, who cited its conflicts with recent state legislation intended to reduce pension costs. City-led pension reform efforts in San Diego and San Jose remain mired in litigation while this CalPERS decision appears to open up a new front for challenging reform efforts.

Gov. Brown was actually open to most of the 99 “special pay items”. But he adamantly opposed the measures that contradicted the reform law Brown passed in 2012.

“Today Calpers got it wrong,” Brown said in a statement on Wednesday. “This vote undermines the pension reforms enacted just two years ago. I’ve asked my staff to determine what actions can be taken to protect the integrity of the Public Employees’ Pension Reform Act.”

California Governor Calls Out CalPERS On Pension Tweak

Today CalPERS approved 99 types of “special pay”, or additional income that can be included in calculating a worker’s pension.

California Governor Jerry Brown was receptive to most of the “special pay” items—except for one. But it was enough to compel him to send a letter to CalPERS urging the board not to approve the pending changes.

At issue is a section of the CalPERS proposal that allows pension benefits to be increased based on temporary pay increases and ad hoc payments.

That contradicts a section of Jerry Brown’s 2012 reform law which states that pension benefits can only be based on “normal monthly pay”, and not “short-term” pay increases. From Reuters:

Although Calpers approved 99 types of extra pay that can be factored in to a worker’s income when calculating their pension, Brown only objected to one of those: allowing temporary upgrade pay to be counted as permanent, pensionable income.

Brown, a Democrat, sent a letter to Calpers last week asking them not to allow temporary upgrade pay to count toward pensions.

On Wednesday, the Calpers board rejected Brown’s opposition and voted to pass all 99 pay provisions, including that temporary pay hikes can be factored into a final pension.

“Today Calpers got it wrong,” Brown said in a statement. “This vote undermines the pension reforms enacted just two years ago. I’ve asked my staff to determine what actions can be taken to protect the integrity of the Public Employees’ Pension Reform Act.”

Read the full letter below, courtesy of the Sacramento Bee:

[A quick PSA, in case you don’t live in California: Edmund is the legal first name of Gov. Jerry Brown.]

CalPERS Responds To Criticism Of Plan To Boost Pensions

CalPERS is holding a hearing today seeking public comment on a set of potential rules that would open the door for many workers to increase their pensions.

The rules would introduce 98 new forms of “pensionable compensation”, or income that is counted when calculating a worker’s ultimate pension benefit.

But many interested parties didn’t wait until the hearing to voice their opinions. California Gov. Jerry Brown was among the first to voice his displeasure at the potential rules, as they contradict certain sections of the reform law he passed in 2012.

“This disregards the rule that pensions will be based on normal monthly pay and not on short-term, ad hoc pay increases,” Brown wrote in a letter to the CalPERS board. “I urge the board to vote against these regulations and instead request a new draft that excludes temporary pay upgrades from employee pension calculations.”

Other big players weighed in as well. Jon Ortiz writes:

Public pension-change advocates, including Democratic San Jose Mayor Chuck Reed, say the proposal is another sign that the union-dominated CalPERS board “is doing what they can to resist reforms. … They’re in favor of anything that expands benefits.”

Elk Grove City Manager Laura Gill said including temporary upgrade pay “really does invite spiking” and threatens to erode savings from pension changes the Sacramento suburb has enacted the past couple of years, such as city employees paying their share of pension costs.

If such practices became standard, “it would put us backward from all the work we’ve done to have a sustainable and sound pension system,” Gill said.

Unions responded as well, but they were receptive to CalPERS’ plan. From the Sacramento Bee:

Mike Durant, president of the union-backed Peace Officers Research Association of California, dismissed those kinds of concerns. If a city or the state needs pension relief, he said, “they can bargain it.”

Instead, he said, government employers expect CalPERS to save them from themselves.

“They want to put it on the backs of someone else to make those decisions rather than making it themselves,” he said.

You can bet CalPERS is listening to all this. And the pension fund responded to the criticisms in a statement sent out to numerous newspapers, including the Daily Bulletin:

CalPERS has approached this issue with full transparency and sought stakeholder input along the way, including employee and employer feedback. The purpose of the public hearing is to seek even greater input on what compensation should and should not be counted toward pensions.

While reasonable people may disagree about what aspects of a public servant’s compensation should count toward a pension, an editorial should stick to the facts and not try to inflame readers with inaccurate terms like pension spiking. Pay for a service is still compensation at the end of the day. Our staff made a recommendation based on a good-faith interpretation of the law. If changes need to be made, we welcome the public’s input.

CalPERS is holding a hearing today to gather the public’s comments on the proposed rules. Once the hearing is wrapped up, the full CalPERS board will vote on the rules, likely on Wednesday.

CalPERS Is Proposing 98 Ways To Boost Member Pensions

CalPERS is drafting new regulation that could boost worker pensions, but critics say the rules would fly in the face of much of Gov. Jerry Brown’s 2012 reform efforts. CalPERS is holding a public hearing on the issue tomorrow (Tuesday August 19) to seek the public’s feedback.

The new regulations could increase pension benefits for many workers by adding 98 new types of “pensionable compensation”—or, in other words, types of pay that can be counted toward pension benefits.

For example, workers would receive pension boosts for holding various professional certifications, for being bilingual or for working at the same job for a long period of time.

[Read the full list of types of pensionable compensation at the bottom of this post].

From a CalPERS press release:

The proposed new regulation is intended to clarify the types of pensionable compensation items that state, public agencies, and school employers report to CalPERS as part of a new member’s retirement benefit. The most common items excluded as pensionable for new PEPRA members are bonuses, uniform allowance, and any ad hoc payments. Members who were hired on or after January 1, 2013 are considered new members under PEPRA.

Compensation that is reportable for classic members is unaffected under the new regulation.

One category of pensionable compensation would be Incentive Pay.

A few other interesting special pay items:

As the CalPERS released indicates, these changes would only apply to new hires. But critics say the new rules would directly undermine California 2012 pension reforms, which also only dealt with new hires. From a LA Daily News editorial:

At issue is what counts as income on which pensions are calculated. The 2012 law was clear: Pensions for new employees should be based on their “normal monthly rate of pay or base pay.” Whereas current employees can boost their pension calculations by also including “special compensation” for “special skills, knowledge, abilities, work assignment, workdays or hours, or other work conditions,” the Legislature didn’t include those sorts of extra pay items for new employees.

The hearing over the draft regulations will be held on Tuesday at 9:30 am pacific time.

It will also be live-streamed at www.calpers.ca.gov.

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Jerry Brown Sends CalPERS Board Back to School

California Gov. Jerry Brown wanted to make sure that the members of the CalPERS board knew what they are doing when making decisions regarding the fund’s nearly $300 billion investment portfolio. Now, Brown can rest assured that the members have spent some time in the classroom, studying up on the topics that are relevant to the governance of the country’s largest public pension fund. That’s because he just signed a bill requiring all board members to receive 24 hours of education on a variety of investment issues every two years.

From the Associated Press:

AB1163 by Assemblyman Marc Levine, D-San Rafael, originally was introduced as a way to meet Brown’s request to “bring financial sophistication” to the California Public Employees’ Retirement System’s 13-member board, which is dominated by public employees and labor union representatives.

Its original language required adding two board members who had financial expertise and did not have a financial interest in the pension system. It also proposed replacing the State Personnel Board representative with the state Director of Finance.

The bill was changed to give board members 24 hours of education every two years, require records of board members’ compliance with education requirements, and provide an annual report on CalPERS’ website.

The topics of the training are varied, but they include fiduciary responsibilities, ethics, pension funding, benefits administration, investment management, actuarial matters, and governance. All great things to learn about when you govern one of the largest pension funds on the planet.

You can read the entire bill here.

Photo by Eric James Sarmiento via Flickr CC License

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