pension benefit cuts

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

Christie Budget Will Contain Pension Cuts; Full Payment Not Yet Figured In Despite Court Ruling

New Jersey Gov. Chris Christie will give his budget address on Tuesday afternoon, and details are already leaking about what it will contain.

The governor’s office says that the budget will contain numerous pension proposals, including some that cut benefits for public workers.

Christie will also announce that he will begin negotiating pension changes with the state’s largest teachers union, the New Jersey Education Association.

One thing the budget won’t contain: the state’s full actuarially required contribution to the pension system. The budget calls for a $1.3 billion payment to the system, which is the largest in state history.

But the payment was supposed to be closer to $3 billion. Christie cut the payment last year by nearly $1.5 billion; a judge ruled yesterday that New Jersey must pay the full contribution, but the state is appealing the ruling.

Illinois Supreme Court Schedules Oral Arguments in Pension Suit

The Illinois Supreme Court announced on Thursday a specific date and time for oral arguments in the state’s high-profile pension lawsuit.

The arguments will be held on March 11 at 2:30 pm, CST, according to the Associated Press.

Unions, retirees and retiree groups are suing the state over a pension overhaul passed in late 2013. The law cuts benefits for many public workers, who are suing the state over the constitutionality of the law.

Cincinnati Mayor: Pension Deal Removes “Dark Cloud” From Over City

Cincinnati Mayor John Cranley took to the newspapers on Thursday to comment on the city’s recently passed pension reform measure.

In a column in the Cincinnati Enquirer, Cranley talks about the effects of the reforms on the city’s pension funding and the compromises made on both sides.

Cranley writes:

The historic agreement reached Dec. 30 among the retirees, unions, active employees and the city – after 10 months of negotiations and a nine-hour marathon session on the final day – will ensure a good pension remains in place for current and future retirees.

Through painful but necessary benefit cuts and increased city contributions, the pension system is now on solid financial footing.

As a result of these actions, by 2016 the pension fund will be 85 percent solvent and rise to 100 percent over the next two decades, which reverses a decadelong trend of worsening solvency. What was an $862 million liability will be reduced to zero; an independent actuary has certified that the math we are using is not fuzzy, but dependable.

This resolution will restore the city’s credit and reputation, and it will allow us to use the restored credit to address other city problems that have been ignored, such as deteriorating roads.

[…]

All parties – the city included – conceded more than they intended to, but it was a rare and wonderful case of shared sacrifice and heeding the “better angels of our nature.”

The Cincinnati Enquirer provides a refresher as to the effects of the reform measure:

Under the pension agreement, the city will:

*Contribute $38 million to the pension system in 2015. The city will pay 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 with 14 percent – and continuing for 30 years.

Employees will:

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

*After three years, both current retirees and active employees will receive an annual cost of living adjustment of 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.

Photo credit: “Downtown cincinnati 2010 kdh” by kdh – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Downtown_cincinnati_2010_kdh.jpg#mediaviewer/File:Downtown_cincinnati_2010_kdh.jpg

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

Where Does Bruce Rauner Stand on Pension Reform?

When talking pensions on the campaign trail early in 2014, Bruce Rauner said that new hires, current workers and retirees all would need to be on the receiving end of pension benefit cuts.

But Rauner has softened that stance in recent months; the Illinois governor now says the benefits accrued by current workers and retirees need to be protected.

From NBC Chicago:

[Rauner remarked] that it’s most important to “protect what is done—don’t change history. Don’t modify or reduce anybody’s pension who has retired, or has paid into a system and they’ve accrued benefits. Those don’t need to change.”

[…]

“What we should change is the future—the future accruals, the future benefits for future work,” he said, according to the Chicago Sun-Times. “That is constitutional. It’s also fair and appropriate for the taxpayers and the workers themselves.”

“Hopefully (the state Supreme Court) will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions,” noted Rauner.

Rauner’s website has also been updated accordingly and clarifies his official stance further. He is still pushing for a switch to a 401(k)-style system, but he wants to keep current retirees insulated from any changes:

We must keep our promise to current retirees, but we put all government workers at risk by continuing to promise a pension no one can afford.

[…]

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.

The change in sentiment is perhaps due to a circuit court ruling late last year that overturned the state’s pension reform law, which made it more unlikely that pension reforms can legally come in the form of benefit cuts for retirees.

The law is currently being heard in the halls of the state Supreme Court.

It could also be that Rauner, since taking office and taking the temperature of fellow lawmakers, is now more in-tune with the political realities of steep pension cuts, and doesn’t see the worth in pushing an unpopular policy if it has little chance of coming to fruition.

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

Pension Shortfalls Felt By Police Departments As Hiring, Retainment Becomes More Difficult for Cities

Pension obligations have strained police departments across the county as they weigh ways to cut costs without hurting the quality of their force.

But sound solutions are hard to come by as benefit cuts make it harder to recruit and retain good officers.

By the same token, mounting pension obligations make it more unlikely cities will spend money on hiring new officers even as department numbers dwindle.

From Bloomberg:

The shortfalls in the 25 largest state and local-government pensions have tripled over the past decade to more than $2 trillion, according to Moody’s Investors Service. Those gaps, which persist even as the stock market reaches record highs, have mayors scrapping plans to increase patrols and reopen precincts as they spend more on retirement instead.

In cities that cut benefits, officers have quit or retired, underscoring the challenge of balancing the promises of the past with the duties of the present.

“The difficulty you run into when you have minimal staffing is there’s less proactive time that an officer can spend on community-oriented policing,” said Brian Marvel, president of the police union in San Diego, where the number of officers has dropped by 200 since 2009. “There are officers out there doing great work every day. They’re just not doing as much of it.”

[…]

The diminished force in San Diego, which has declined to 1,850 sworn officers from 2,050 five years ago, mirrors a national trend: There were about 390,000 police officers nationwide in 2013, down 14 percent from four years earlier, according to the Federal Bureau of Investigation’s most recent figures.

Rebuilding police ranks is crucial to preventing their standing in communities from slipping even more, said George Kelling, a senior fellow at the Manhattan Institute for Policy Research, a New York nonprofit that studies techniques for making police more effective at reducing crime.

“Community policing is very labor intensive, and if you want to get out into the community, you have to have the resources,” said Kelling, who helped develop law-enforcement tactics adopted in New York. “Most cities ought to be viewing policing as an investment rather than a cost.”

San Diego’s police force isn’t only declining in terms of officers employed; the force has become less experienced, as the average officer only has 6 years of police experience, according to Bloomberg.

Photo by www.GlynLowe.com via Flickr CC License

Chart: Reasons For Lack of Retirement Confidence Among Public Workers

Public workers aren’t confident about having enough income and savings to last through retirement. Why? The number one reason is inadequate savings. A significant portion of people (15 percent) are also worried that state and local-level pension reforms will cut into their pension benefits.

Chart credit: Retirement Confidence Survey 2014

Settling Pension Lawsuit Is Top Priority for Raimondo

When Rhode Island Governor-elect Gina Raimondo takes office this month, one of her top priorities will be negotiating a settlement with public employee unions in the lawsuit challenging the state’s 2011 pension changes.

From the Providence Journal:

Days away from taking the oath of office that will make her the first female governor of Rhode Island, Governor-elect Gina Raimondo anticipates that public-employee pensions will be one of the first big items she tackles. Again.

Specifically, she anticipates “early” action to try to forge a settlement in the state’s high-stakes legal fight with its public-employee unions over the 2011 pension overhaul she crafted as state treasurer. “It is a priority,” she said.

[…]

With the state already facing a potential $200-million deficit, she said: “It is in no one’s interest to have a pension system which is unaffordable and unsustainable because, if you do that, a lot of people will get hurt.”

“So I will be reaching out,” she said Wednesday in a brief but wide-ranging interview in which she confirmed her intent to try to reopen the pension talks and, in the interim, ask lawmakers to extend the Feb. 5 deadline for the submission of her first budget proposal.

[…]

“A lot of work and good will went into the terms of the settlement agreement,” said Raimondo, who hopes to revive it. “It gives them peace of mind that their pension will be there … and that it is affordable for the state of Rhode Island.”

Should the state lose the lawsuit, “there would almost certainly be a number of municipal bankruptcies … [and] if we don’t fix the system, eventually you are going to have to go to retired people and cut their pensions … and that would be a terrible thing.”

Raimondo spearheaded the state’s 2011 pension changes, which cut benefits, froze COLAs and raised the retirement age.

Photo by By Jim Jones (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Unions Sue Over Chicago Pension Cuts

Chicago unions and public employees filed a lawsuit Tuesday to block pension changes coming in 2015 that would reduce future COLA increases and require workers to pay more toward their retirement.

From the International Business Times:

The law in question is scheduled to take effect in the new year and will slash pension benefits for workers and retirees in Chicago’s Municipal Employees Annuity and Benefit Fund and Board of Trustees of the Municipal Employee’s Annuity and Benefit Fund, according to the lawsuit.

The lawsuit, filed in Cook County Circuit Court, argued Public Act 98-0641 violates a provision and “straightforward promise” in the Illinois Constitution that forbids the diminishment or impairment of public employee retirement benefits. The lawsuit stated that the pension reform law, which was enacted in June, unlawfully reduces pension benefits for the plaintiffs and all others who chose a public-service career.

“Unless this court strikes down and enjoins implementation of the Act, Plaintiffs and thousands of other current and retired City of Chicago and Chicago Board of Education employees will be harmed and the trust that all Illinois citizens place in the inviolability of their Constitution will be breached,” the lawsuit stated.

The plaintiffs, comprised of 12 current and former workers and four unions, requested the court declare Public Act 98-0641 entirely “unconstitutional, void and unenforceable.” Current retirees will suffer immediately, while the same “injustice” awaits current public workers when they retire, according to the lawsuit.

Chicago Mayor Rahm Emanuel said the law was created with the support of many unions and is both constitutional and necessary to ensure 61,000 city workers and retirees receive pensions. “Without this reform, these two funds will run out of money in just a matter of years, which is why we must defend this law to protect the future of our workers, retirees, and taxpayers,” Emanuel said in a statement.

At the end of 2012, the city’s six pension funds were collectively 50 percent funded.

Photo by bitsorf via Flickr CC LIcense

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