Montreal Unions Will Fight “Unjust” Pension Reform Bill

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A union coalition representing 65,000 workers has announced workers may strike for 24 hours in protest of the proposed pension reforms contained in Bill 3. Additionally, the union spokesman said a legal challenge could be in the works.

Bill 3 would increase pension contributions and eliminate COLAs for many workers.

More from the Montreal Gazette:

A coalition representing municipal workers across Quebec said it will continue to fight the government’s “profoundly unjust” municipal pension reform despite amendments introduced this week by Municipal Affairs Minister Pierre Moreau.

“Our people are more determined than ever,” Marc Ranger, spokesperson for the Coalition syndicale pour la libre négociation, told a press conference Friday morning at the Crémazie Blvd. E. headquarters of the Quebec Federation of Labour.

Ranger said some unions that are part of the coalition representing 65,000 firefighters, police officers, transport workers and blue- and white-collars will hold a 24-hour strike to protest Bill 3 but did not announce the date or details. However, workers providing essential services, like police and firefighters, do not have the right to strike.

Ranger promised that despite members’ anger, unions will act within the law, noting that the coalition’s mass demonstration in Montreal two weeks ago was lawful and orderly.

Ranger also said the union intends to launch a court challenge against the bill, which he called unconstitutional.

Lawmakers toned down Bill 3 this week after massive protests. Originally, the proposal would have frozen COLAs for 20,000 workers. Now, current retirees will not have their COLAs frozen.

Chicago’s Pension Hole Gets Deeper

Rahm Emanuel Oval Office Barack Obama

A new report from the watchdog group Civic Federation reveals that Chicago’s unfunded pension obligations have tripled since 2003 and now stand at $37 billion.

Details from the report, summarized by the Chicago Sun-Times:

The report found the gap between current assets of the ten funds and pensions promised to retirees had risen to $37.3 billion.

The 10 funds had an average funding level of 45.5 percent in 2012, down from 74.5 percent a decade ago.

The firefighters pension fund is in the worst shape, with assets to cover just 24.4 percent of future liabilities. The CTA pension fund is in the best financial condition at 59 percent.

Government employees did their part by contributing the required portion of their paychecks to their future pensions. But the government contribution fell nearly $2 billion short of the $2.8 billion required to cover costs and reduce a portion of unfunded liabilities over a 30-year time frame, the report concludes.

Investment income didn’t help. And the future outlook is bleak, thanks to a “declining ratio” of active employees to beneficiaries.

In 2012, the 10 funds had 1.11 active employees for every retiree, down from a 1.55 ratio a decade ago. The police, laborers, Metropolitan Water Reclamation District, Forest Preserve and CTA funds all had more beneficiaries than active employees in 2012.

Counting statewide funds, the pension liability amounts to $19,579 for every Chicago resident.

Chicago is required by law to make a $550 million contribution in 2016 to two police and fire pension funds. Mayor Rahm Emanuel presumably needs to raise that money through various taxes. But he has repeatedly promised not to raise property taxes, and more recently said he won’t raise gas or sales taxes, either. From the Sun-Times:

Mayor Rahm Emanuel on Wednesday ruled out pre-election increases in property, sales or gasoline taxes but pointedly refused to say whether he would steer clear of any other taxes, fines or fees.

“We’ve balanced three budgets in a row holding the line on property, sales and gas taxes and finding efficiencies and reforms in the system. . . . We eliminated the per-employee head tax . . . and we put money back in the rainy day fund,” the mayor said.

“On my fourth budget, we will hold the line on property, sales and gas taxes and put money back in the rainy day fund and continue to look at the system as a whole to find efficiencies and reforms and things that were duplicative where you could do better.”

This past summer, Chicago hiked its telephone tax by 56 percent.


Photo: Pete Souza [Public domain], via Wikimedia Commons

Christie Administration Says 2011 Pension Reform Law Was Unconstitutional

Chris Christie

Chris Christie’s lawyers submitted a court filing yesterday urging a judge to dismiss lawsuits from unions alleging that Christie broke the law when he reduced the state’s pension payments earlier this year.

Christie himself signed a law in 2011 mandating that the state make payments into the pension system. But now, Christie’s lawyers have said that the 2011 reform law was unconstitutional to begin with. From the Asbury Park Press:

In a 122-page court filing submitted Tuesday, in response to four lawsuits filed by unions objecting to the reduced $681 million contribution that’s in this year’s budget, Christie’s lawyers argue, in essence, that one of the key concessions the governor made to get Democrats on board with his signature legislative achievement isn’t legal.

Democrats such as Senate President Stephen Sweeney have said the portions of the 2011 pension reforms that made retirement-system contributions a contractual obligation and gave unions the right to sue if they weren’t made were an important provision they wanted in exchange for agreeing to increase workers’ contributions for pensions and health care.

In the court filing, Christie’s administration says three separate sections of the state constitution — the debt limitation clause, the approprations clause and a governor’s veto power — overrule the pension reform’s effort to mandate pension contributions as a contractual right.

The court filing says the final word about appropriations rests with a governor, not lawmakers or judges, unless the state’s voters approve of such a change in a November referendum. As such, the state asks a judge to dismiss the unions’ lawsuits.

“Plaintiffs ask New Jersey to keep a commitment that the state was constitutionally incapable of making. The constitution forbids the Legislature from placing an unwilling populace in an eternal fiscal stranglehold. The Legislature may not incur long-term financial obligations that create an enforceable right to an appropriation without first obtaining permission from the citizenry whose budgetary options, preferences and needs will thereafter be constrained.”

Read the entire court filing here.

Russia Diverts Pension Contributions To Plug Other Budget Holes

CREDIT: Natalia Mikhaylenko, RBTH

For the second straight year, Russia has decided to freeze its contributions to its pension funds and instead use the money to plug budget holes elsewhere.

Russia says the money will be used for more pressing needs elsewhere in the budget. But critics claim the action could be a costly one. Russia Beyond The Headlines reports:

For the second year in a row, the Russian government has decided to freeze the portion of pension contributions allocated for investment.

Contributions for 2013, amounting to some 550 billion rubles ($15.2 billion), have already been frozen, with the government intending to do the same with a further 700 billion rubles’ worth of pension savings for 2014.

The move, which the Ministry of Labor and Social Protection says is necessary in order to finance current pension payments, will leave major Russian companies without investment and will force banks to raise interest rates.

The negative effects are already being felt by ordinary Russians: At the end of last year, minimal interest rates for individuals started at 8 percent, whereas in 2014 loans have become 2 percent more expensive, with interest rates starting at 10 percent.

This year’s situation will be further exacerbated by the departure of foreign investors, Baranov adds.

“This will result in the cost of loans and debt refinancing growing in 2015 for banks and corporations, for the federal and regional finance ministries. It is hard to estimate the exact figure that they will have to pay extra, but it will be comparable with the amount of frozen funds, i.e. the very same 700 billion rubles or maybe even more,” Baranov says, predicting the potential consequences.

Russia’s pension funding is experiencing turbulence due to a demographic shift that has more people retiring and less people contributing to the system. From RBTH:

Sergei Khestanov, an economist for the ALOR Group, explains that the deficit in the Pension Fund has occurred because of the country’s demographic decline. The population is aging, and while 20-30 years ago there were 6 workers to one pensioner, now there are fewer than two, and their contributions do not cover current needs.

That demographic shift won’t be reversing itself anytime soon. So while the pension freeze helps plug current shortfalls, it only exacerbates future problems.

Reuters reported earlier this month that there was “deep disagreement” among Russian officials regarding the contribution freeze.

For Chicago, Property Taxes Still A No-Go As City Turns Elsewhere to Fix Pension Pains

Source: The Chicago Tribune and Morningstar

In Chicago, property taxes are among the most politically unpalatable ideas one can bring to the table.

But Illinois law requires the city to dramatically increase its payments to its two major pension funds to the tune of $500 million by 2016. In the past, the city has levied property taxes a year or two in advance of the payments in order to fund the required contribution.

One glance at Chicago mayor Rahm Emanuel’s actions of late, however, confirms that property taxes remain off the table. Tasked with improving the fiscal health of the city’s pension systems, Emanuel is exhausting all his policy options—without turning to property tax increases.

From the Chicago Tribune:

Since taking office in 2011, Emanuel has cut the size of the city workforce, reduced health care costs and found other efficiencies, like organizing garbage collection by grids rather than a ward-by-ward basis.

The mayor also has increased a host of fees, fines and taxes. He’s held the line on property tax hikes at City Hall, though Chicago Public Schools has increased them under his tenure. Some revenues, like real estate property taxes, sales taxes and income taxes, have rebounded slightly as the economy has slowly improved.

Emanuel previously declined to identify any way to come up with additional city revenue for the city worker and laborers funds until he had worked out an overall pension change plan this spring that lowered annual cost-of-living increases for retirees and boosted employee pension contributions. He’s taking the same approach to police and fire pensions by declining to discuss additional revenue before an overall pension change plan is worked out.

Pension360 covered earlier this week a hike in telephone fees that will net the city $50 million this year and next.

Still, Chicago’s budget gap is projected to be around $297 million in 2015. With the $500+ million pension payment looming as well, the pressure is mounting and Chicago officials may have to make some politically unpopular decisions.

City officials can still change their minds and hike property taxes—but the deadline to do so is last Tuesday of December 2015.

Christie Says New Pension Reform Plan Coming

Back in 2011, New Jersey Gov. Chris Christie signed into law a pension reform measure designed to eventually fix the funding status of the state’s ailing pension funds.

A big part of that law was ensuring that the state gradually began making bigger annual payments to the System. But that part of the plan hasn’t worked out, as Christie decided this year to take the funds meant for the pension system and allocate them toward balancing the budget—a balanced budget is mandated by the New Jersey constitution.

The move was highly publicized and highly scrutinized. But Christie now says he is drawing up a new proposal for pension reform in New Jersey, and he is putting on a series of town hall meetings to introduce the plan. From NJ Advance Media:

Gov. Chris Christie came to the Jersey Shore today to kick off his “no pain, no gain” summer tour to introduce a pension reform proposal, but details of a plan were scant.

The governor promised to unveil a proposal by the end of the summer to tackle the state’s economic woes, promising that unless the Democratic-controlled state Legislature enact reforms, New Jersey is headed toward bankruptcy.

“We have to pare back benefits, that’s what we have to do,” Christie declared in Long Beach.

“You cannot raise taxes enough in New Jersey to pay for the pension hole that’s been dug over the period of time that these exorbitant benefits that have been promised to people,” he said. “No on in public office, believe me, myself included, wants to come out here and say ‘I have to pare back in public benefits.’”

Christie has said a specific plan is on its way — but it won’t be unveiled yet.

When pressed by a resident at the shore town hall to discuss his plan, Christie said his office is “looking at a bunch of different options right now,” but added it won’t be ready to be rolled out until the end of the summer.

“There are going to be some really difficult things,” he said. “There’s not a lot of places left to do things except to look at a whole different variety of ways to reduce benefits or to increase contributions by employees.”

Raising the retirement age again is also on the table for consideration, Christie said.

“But even then, the bottom line is that there will be a reduction in benefits, he said. “It’s the only way to do this.”

It appears that details won’t be disclosed for the time being. The one detail that Christie seemed comfortable revealing was that New Jersey pensioners will be looking at smaller benefits moving forward. But come September, it will be interesting to see what Christie’s proposal consists of.

Kentucky Ends Contract With Non-Profit Looking to Get Out of State Pension System


Last month, a judge ruled that Kentucky-based non-profit Seven Counties Services could legally remove itself from the state’s pension system. But lawmakers aren’t happy with the pension obligations—allegedly to the tune of $90 million—that the organization is leaving behind.

Seven Counties, a group that provides fostering and other family services, filed for bankruptcy in 2013, and as part of the proceedings they were hoping to get out of Kentucky’s pension system to avoid increasing contributions. The judge allowed the maneuver.

But now, angry lawmakers seem to not want the organization in the state at all. They chose not to renew Seven Counties’ contract with the state. From the Courier-Journal:

Prompted by angry legislators, state officials agreed Friday to jettison a $3.7 million contract with Seven Counties Services as the agency continues efforts to exit Kentucky’s underfunded pension system.

The contract provided family preservation services in the Louisville area, using in-home counselors to help families in crisis with the aim of keeping children at home or reuniting them with parents.

It will remain effective through Oct. 31 as families and children are transitioned, and officials “will move with all due haste” to execute a contract with a new provider, according to a letter from the Cabinet for Health and Family Services.

Seven Counties has provided the services for decades, and warned that cancelling the contract would harm at-risk children and around 300 families that participate in the program.

But last week, the Government Contract Review Committee rejected a proposal to renew the deal for two more years after lawmakers cited concerns over Seven Counties’ high-profile bankruptcy case.

Lawmakers are concerned that if the Seven Counties ruling stands, other state agencies will rush to get out of the state’s pension system. That would mean less contributions coming into the system.

From WFPL:

The state would have to cover $2.5 billion in unpaid pension obligations, Kentucky Retirement Systems executive director Bill Thielen said.

“The actuaries have determined it would increase the contribution rate over a 20 year period, it would ratchet up a little bit each year over 20 years about 6.5 percent, which would amount to about $2.4 billion of additional moneys over the 20 year period that would have to be picked up by the remaining employers in the system,” Thielen said.

In that vein, the contract non-renewal sets a precedent for other groups looking to follow in Seven Counties’ footsteps: if you leave the pension system, you leave the state too.

CalPERS Sends Message to Cities: Pay Up


In 2012, the city of San Bernardino, California made an unprecedented move: bankrupt and financially handcuffed, the town defied pension juggernaut CalPERS and simply stopped paying its contributions to the system. It has since resumed making those payments, but the fight is far from over. Now, CalPERS wants the city to pay back the payments it missed:

At issue is the $17 million in back payments and penalties that San Bernardino failed to make between declaring bankruptcy in August 2012 and resuming payments in July. Calpers has maintained that it is owed in full. But now in bankruptcy negotiations, the city is hoping to pay only a fraction of that, arguing that the city’s creditors must all share in the bankruptcy pain. The amount may be small, given the system’s assets, but if San Bernardino gets a reduction, the precedent could be huge, opening the door to other struggling municipalities using bankruptcy law to justify delaying or withholding payments to the pension system.

“This city has taken on the 800-pound gorilla, which is Calpers,” said Ron Oliner, a lawyer for the San Bernardino Police Officers Association, which represents the city’s uniformed officers. “Everyone in California is watching San Bernardino, and everybody in the nation is watching California.”

Calpers has for many years resisted all efforts to allow cities, for whatever reason, to stop making their required payments. (Federal law allows bankrupt companies to slow them greatly.) While agreeing that “significant progress has been made in the mediation,” Rosanna Westmoreland, external communications manager for Calpers, said the pension system’s hands were largely tied by statutes mandating that all the pension system’s participants make their full contributions on time and that no workers’ benefits be reduced. “It is the law,” she said.

The problem is that it remains unclear whether, in cases like this, federal bankruptcy law trumps state pension laws. A federal judge hearing the Detroit bankruptcy case ruled, for instance, that federal laws took precedence in that case, so the benefits of city workers in Detroit could be reduced in defiance of state law. But Calpers has insisted that this does not apply to the situation in California, an assertion that may be tested in court, if the mediation provides no solution.

Even before a recent wave of municipal bankruptcies hit California, the California Public Employees’ Retirement System, known as Calpers, had also insisted that under state law, no local government or public agency could reduce the benefits of current workers or retirees.

Cutting pension costs have proved difficult in California. That’s due to the so-called “California Rule”, which prohibits the rollback of pension benefits, even on a go-forward basis. Economist Sasha Volokh explains:

Most states are free to alter public employee pensions, as long as they do so on a purely prospective basis. For instance, a state can reduce cost-of-living adjustments (COLAs), say from 3% to 2%, as long as the amount accrued so far is still subject to the old COLA. But the rule is otherwise in California: California courts have held that ‘upon acceptance of public employment [one] acquire[s] a vested right to a pension based on the system then in effect.
In California, when a public employee begins work, he not only acquires a right to the pension accumulated so far—presumably zero on the first day, and increasing as he works longer—but also the right to continue to earn a pension on terms that are at least as generous as the ones then in effect, for as long as he works. And if pension rules become more generous in the future, then those more generous terms are the ones that are protected. Any changes to these rules must be reasonable, meaning that they ‘must bear some material relation to the theory of a pension system and its successful operation,’ and any disadvantages to the employees ‘should be accompanied by comparable new advantages.’ This is the ‘California rule.

Cities have tried to roll back their pension obligations. San Jose was one such city; earlier this year, it passed a plan forcing employees to pay more towards pensions. But the courts responded with a resounding “you can’t do that”. Volokh, for one, doesn’t like the economics behind that ruling.

When pensions are given special protection that’s unavailable for other job characteristics, the mix of wages and pensions is distorted relative to what it would otherwise be (given collective bargaining, tax policy, employee time and risk preferences, and other factors). If market or fiscal pressures mean government compensation must become less generous, it’s salaries and other benefits that must take the hit, even if some employees would prefer to take some of the blow in terms of decreased pension benefits. Those with shorter life expectancies — men, the less-educated, the poor, minorities, and those in bad health — suffer the most from policies that protect pensions at the expense of current salaries. Some of the pain will also fall on taxpayers, and some of that pain may result in trimming state government services (e.g., police, fire, garbage collection, DMV, schools). The California rule thus makes reductions in government compensation either more painful for employees or more expensive to taxpayers than they would be if pension terms could adjust together with salaries and other benefits.

Anyhow, CalPERS is setting a precedent with its action towards San Bernardino. It’s a precedent that indicates, bankrupt or not, cities still owe CalPERS its money.


Photo by Pete Zarria via Flickr CC

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