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Reform Measure Aimed at CalPERS Could Appear on California Ballot by 2016

Back in November, Pension360 covered former San Jose Mayor Chuck Reed’s intention to keep pushing for pension reform even after leaving office.

According to a Reuters report, he’s following through: Reed, along with a coalition of business leaders and politicians, is launching a push to get a pension reform measure on the statewide ballot.

Details are sparse on what exactly the measure would look like.

But it’s likely the measure would aim to make it easier for cities to cut pension payments to CalPERS, or reduce the cost of leaving the fund entirely.

New Legislation Seeks to Roll Back Pension Contributions For Federal Workers

A federal lawmaker, Rep. Donna Edwards, re-introduced a bill on Thursday that would lower the amount that federal workers must pay towards their pension each paycheck.

In 2014, newly hired federal workers saw their pension contribution rates jump percent higher than their predecessors.

Federal employees hired after January 1, 2014 must contribute 4.4 percent of their paychecks to the Federal Employees Retirement System (FERS).

Workers hired in 2013 only pay 3.1 percent, while workers hired before 2013 only pay 0.8 percent.

The bill would roll back contribution rates for those hired in 2013 or later.

The bill is supported and sponsored by a cohort of lawmakers: Reps. Matt Cartwright, D-PA; Gerald E. Connolly, D-VA; Elijah E. Cummings, D-MD; Keith Ellison, D-MN; Marcy Kaptur, D-OH; Stephen F. Lynch, D-MA; Betty McCollum, D-MN; Grace F. Napolitano, D-CA; Eleanor Holmes Norton, D-DC; and Charles Rangel, D-NY.

Worker advocacy groups have called for a roll-back, saying the higher rates put too much strain on workers. From the Federal Times:

For example, A Border Patrol agent hired today at a starting salary of about $48,000 a year will pay $1,700 more for his or her pension each year than someone in the exact same job and location hired in 2012 or before, according to the American Federation of Government Employees.

“While these higher retirement contributions were sold as a way to fund temporary increases in unemployment insurance and to pay for the stimulus that got the nation out of the great recession, Congress made them permanent,” Cox said, AFGE president J. David Cox said in a statement. “These higher retirement contributions make it more challenging for agencies to recruit and retain new employees,” he added.

Federal employees have already contributed $120 billion toward deficit reduction efforts and the bill would help roll back the trend of cutting federal worker salaries and benefits, said Richard Thissen, the president of the National Active and Retired Federal Employees association.

Overall the pension contribution increases will amount to a $21 billion loss in take-home pay for federal employees over a 10-year-period, Beaudoin said.

Read the text of the original bill here. A full text of the re-introduced bill is not yet available online.

Photo by Bob Jagendorf via FLickr CC License

Former NJ Official: Christie Used Misdirection on Pension Payments in State of State Address

During his State of the State address last month, New Jersey Gov. Chris Christie made a few remarks defending himself against accusations of short-changing the state’s pension system.

He claimed that he had contributed more to the pension system than any governor in New Jersey history.

That’s not a false statement. But it also doesn’t tell the full story.

Edward Buttimore, formerly of the state’s Attorney General’s Office, penned a column on Tuesday explaining the misdirection.

Buttimore writes:

When Gov. Chris Christie praised himself during the State of the State address for making the largest contributions to the State pension funds of any governor in New Jersey history, that statement was true, but not accurate.

While Gov. Christie has contributed $2.9 billion (if he makes the reduced $681 million payment for FY2015), what he fails to be clear about is that he will have skipped $14.9 billion in required pension payments during the past five years as Governor, according to his own Pension & Health Benefit Study Commission’s Status Report.

Former Gov. Corzine made $2.1 billion in pension payments while skipping an additional $6.4 billion required from 2007 to 2010.

In fact, Gov. Christie’s $14.9 billion skipped pension payments eclipses the $12.8 billion combined missed payments of his five predecessors over a 15-year period from 1996 to 2010. That was a pretty important fact that he omitted from his State of the State address.

For the last three years Gov. Christie has traveled the country congratulating himself for his 2011 bipartisan pension reforms, including prominently mentioning it during his keynote address for Mitt Romney at the 2012 Republican National Convention. He then he failed to follow through on making the required payments.

Read the entire piece here.

Photo by Bob Jagendorf from Manalapan, NJ, USA (NJ Governor Chris Christie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Rhode Island Pension Payments to Total Over $400 Million in FY 2016, 2017 As New Contribution Rates Approved

Rhode Island’s Retirement Board approved employer contribution rates for fiscal years 2016 and 2017 on Wednesday.

Total state and local pension payments are projected to top $400 million in those years, just as they did in 2015.

From the Providence Journal:

New contribution rates approved by the state Retirement Board on Wednesday will require state and local payments into the pension fund of a projected $171.2 million for state employees, and $237.3 million for teachers during the budget year that begins on July 1, 2016.

At those projected payment levels, state and local taxpayers will pay a total of $408.5 million in fiscal year 2017, compared with a potential $411.6 million during the budget year beginning July 1, 2015, according to information the state’s actuary provided the Retirement Board chaired by General Treasurer and Governor-elect Gina Raimondo.

[…]

While most state employees are now required to contribute 3.75 percent of their pay toward their reduced defined-benefit pensions, the actuaries recommended the state share go from 23.65 percent of payroll to 23.78 percent come July 1, 2016.

And while teachers also contribute 3.75 percent of their pay, the state — and the communities that employ them — would pay 22.76 percent of payroll, compared with 23.14 percent a year earlier. (The drop is a result of a lowering of earlier projections of potential teacher salaries.)

The net result: the required contribution to teachers’ pensions will drop from a projected $241,742,873 in the new budget year that begins on July 1, to $237,251,068 the following year, while rising for state employees from a projected $169,811,685 to $171,169,925.

Rhode Island’s pension system for general state employees was 57 percent funded as of June 30. The teachers’ system was 59.6 percent funded as of June 30.

Photo credit: “Flag-map of Rhode Island” by Darwinek – self-made using Image:Flag of Rhode Island.svg and Image:USA Rhode Island location map.svg. Licensed under CC BY-SA 3.0 via Wikimedia Commons

Illinois Asks Supreme Court to Fast-Track Pension Reform Hearing

Illinois’ Attorney General on Thursday requested that the state supreme court hold hearings on the state’s pension reform law as soon as January and no later than March.

From Reuters:

Attorney General Lisa Madigan filed a motion to accelerate the state’s appeal of a Nov. 21 Sangamon County Circuit Court judge’s ruling that the law aimed at easing Illinois’ huge pension burden violated protections in the state constitution for public worker retirement benefits.

“A prompt resolution of those issues is critical because the state must either implement the act, or in the alternative, significantly reduce spending and/or raise taxes,” the motion stated.

At stake is an approximately $1 billion cut in Illinois’ contribution to four of its pension systems in fiscal 2016 under the law. Republican Governor-elect Bruce Rauner, who takes office next month, has a Feb. 18 deadline to present a budget to the Democrat-controlled legislature, which has until May 31 to pass the spending plan with simple majority votes. A three-fifths majority vote on bills would be needed after that date to have a budget in place by July 1, the start of fiscal 2016.

[…]

The reform law was enacted in December 2013 to help save Illinois’ sinking finances. It reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits salaries on which pensions are based. Employees contribute 1 percent less of their salaries toward pensions, while contributions from the state, which has skipped or skimped on its pension payments over the years, are enforceable through the Illinois Supreme Court.

Illinois had $104 billion of unfunded pension liabilities at the end of fiscal year 2014.

San Bernardino Sets Aside $10.6 Million To Repay CalPERS

When San Bernardino went bankrupt, it stopped paying its creditors, including its biggest one: CalPERS.

It suspended pension payments to the country’s biggest retirement system for a full year – those payments totaled $13.6 million.

Now, the debts have come due: San Bernardino will set aside $10.6 million from its budget this fiscal year to pay back CalPERS.

From Reuters:

Bankrupt San Bernardino has begun repaying millions in arrears to the California Public Employees’ Retirement System (Calpers) in a deal that has ended an acrimonious relationship between the California city and its biggest creditor.

San Bernardino has set aside $10.6 million in its current budget, which has yet to be published, to pay an unnamed creditor. A senior city source, speaking on the condition of anonymity because details of the Calpers deal are subject to a judicial gag order, confirmed that creditor is Calpers.

San Bernardino suspended the payment of debts to all creditors when it declared bankruptcy. Its decision to strike a deal with Calpers first, and begin paying arrears before a bankruptcy exit plan could be formulated, shows the reluctance of California cities to take on the pension giant, which insists that it must always be paid in full, even in a bankruptcy.

The city declared bankruptcy in August 2012 and suspended its employer payments to Calpers for an entire year after entering Chapter 9 protection, running up principal arrears of $13.5 million, according to Calpers.

San Bernardino began monthly payments of between $600,000 and $700,000 to Calpers in July, according to the source. A second official, budget officer for the city Dixon Mutadzakupa, confirmed that arrears payments to Calpers had begun.

It wasn’t clear whether the city was only on the hook for $10.6 million. If that were the case, San Bernardino would only be paying CalPERS 80 percent of what it owes.

It’s also possible the city could pay the remaining $3 million during the next fiscal year.

Arizona City On Hook For $16 Million of Additional Pension Payments in 2015, New Calculations Reveal

Tucson’s 2015 payment to its pension systems will likely be much higher than city officials initially thought—new calculations by Arizona pension officials indicate Tucson may be on the hook for an additional $16 million.

The city thought its 2015 payment to the public safety pension system would total around $46 million. But after recent calculations, the payment will likely be upwards of $62 million.

Reported by the Arizona Daily Star:

Tucson could pay up to $16 million more for its police and fire pensions next fiscal year, according to a newly released state pension board report.

The ballooning costs are mostly the result of a recent Arizona Supreme Court decision overturning a 2011 state law intended to keep pension costs down.

The decision means Tucson could pay about $62 million for its public-safety pensions next year.

Back in February, the court ordered the Public Safety Personnel Retirement System to reimburse retirees $40 million for past cost-of-living increases and to shift $335 million to a reserve fund to cover future cost-of-living increases.

After the ruling, the state pension board had to calculate how much of a dent the court order would put in each city’s retirement funds.

It released its calculations earlier this week.

For Tucson, it drops its police and fire pensions under 40 percent funded through the plan’s investments, according to PSPRS documents.

That means taxpayers are on the hook for $763 million in unfunded pension obligations owed to existing and future public safety retirees. The two pensions hovered around 50 percent funded last year.

As a result, Tucson will likely pay over 60 cents on every dollar of salary for police and fire personnel toward pensions.

Tucson’s payments to its pension systems in 2015 are expected to total around $100 million.

Does Investment Return Affect Pension Costs?

Does Investment Return Affect Pension Costs? Larry Bader, who worked as an actuary for 20 years before moving to Wall Street, tackled that question in the latest issue of the Financial Analysts Journal.

An excerpt of his answer:

Answer: It doesn’t.

Yes, a higher return on plan assets reduces the funding requirements for the pension plan and the expense that the sponsor must report. But the plan’s true economic cost is independent of the investment performance of the plan assets.

To see why this is so, suppose that you establish a fund to pay for your child’s college education and I do the same for my child. We make equal contributions to our respective funds, and we both face the same tuition payments. But being a smarter, bolder, or luckier investor, you grow your college fund to twice the size of mine. Can we now say that your child’s education costs less than my child’s education? Surely not. Our tuition payments are the same; it’s just that you have a larger education fund available to help pay your child’s tuition.

Or think of it this way: Suppose that your college education fund performed miserably and a similar fund that you had set up to buy a small vacation home struck it rich. Would you now say that college tuition has become very expensive but vacation homes very cheap? Can you now afford to buy a vacation mansion — or private island — but not to send your child to college? Behavioral economics suggests that you might think along those lines, but common sense says, “Get over it.”

Similarly, a higher pension fund return does not lower the economic cost of the plan. The economic cost reflects solely the amount and timing of the pension payments, which are unaffected by the size or growth of the assets.

To read the full answer, click here.

Would An Elected Comptroller Ease New Jersey’s Pension Pain?

Fixing New Jersey’s pension system has been the talk of the state lately, and as far as ideas go, all the usual suspects have been proposed: cutting benefits, making full actuarial contributions, transferring new hires into a 401(k)-style plan, etc.

One idea that is rarely discussed is the creation of a model similar to New York: the appointment of a comptroller to oversee and have authority over the pension system.

Under this model, the comptroller would take significant authority out of the governor’s hands regarding pension matters.

This hypothetical comptroller, if he wished, could have overridden Chris Christie’s decision to cut the state’s pension payments. More analysis from NJ Spotlight:

While New Jersey governors and legislatures have been cutting, skipping, or underfunding pension payments for the past 20 years, New York does not have a similar pension crisis because its elected state comptroller has the power not only to set the actuarially required pension payment each year, but also to require Albany’s governor and Legislature to fully fund it, according to a senior Moody’s Investors Service analyst.

New York State Comptroller Thomas DiNapoli is required to calculate the state’s pension payment by October 15 to give the governor’s office and legislative branch sufficient time to include his calculation in the budget for the fiscal year that begins the following June 30. That amount is then required to be paid into the state’s pension systems on or before March 1 — three months before the end of the fiscal year.

“In New York, the state comptroller is responsible for the entire pension system,” Robert Kurtter, Moody’s Managing Director for U.S. Public Finance, explained at a forum on pension funding at Kean University last week. “The comptroller’s power to require full pension funding has been litigated and upheld by New York’s highest Court of Appeals.

“The New York Legislature tried to underfund the actuarially required contribution, but couldn’t,” Kurtter said. “It’s a two-edged sword for New York. Their unfunded liability is low, but they don’t have a choice, even when revenues are down.”

The soundness of New York’s pension system is one of the principal reasons that the state enjoys a AA1 bond rating from Moody’s — one of 30 states in the top two rating categories — while Illinois and New Jersey are the nation’s fiscal basket cases, the only two states with lower-tier single-A bond ratings. While New York was upgraded this year, New Jersey’s bond rating has been downgraded a record eight times under Gov. Chris Christie.

But creating a comptroller position and giving it authority is a politically tricky process – because it involves not only amending the constitution, but also taking away significant power from the state’s governor. From NJ Spotlight:

New Jersey’s governor has more power over state spending than any other governor. New Jersey’s governor has unilateral authority to determine the revenue projections that determine the size of the budget — which Christie has consistently overestimated, as previous governors have when it met their political needs.

New Jersey’s governor also has the ability to make midyear budget cuts without seeking legislative approval — as Christie did when he retroactively changed the pension formula in March and cut $900 million in Fiscal Year 2014 pension payments in May.

Adding an elected state comptroller or state treasurer or establishing an ironclad requirement that the state make its actuarially required contributions to the pension system annually would require a constitutional amendment. The Democratic-controlled Legislature would need the governor’s signature to pass a new law, but not to put a constitutional amendment on the ballot — a strategy it used to bypass Christie on the minimum wage last year and on guaranteed funding for open space this fall.

Last spring, Christie cut $2.4 billion in payments to the pension system and diverted it to help balance the state’s general budget.

Video: Funding Shortfalls and the Politics of Pensions

Here’s a short segment that dives into public pensions with Adrian Moore, vice president of policy at the Reason Foundation.

The video touches on assumed rates of return, New Jersey’s funding shortfall and the politics of pension payments.

The Reason Foundation is a libertarian-leaning think tank based in California.

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