pension reform | Pension360

LIVESTREAM: Illinois Supreme Court – Pension Arguments

UPDATE [3:30 PM CST]: The arguments have concluded, but you can still watch the full proceedings by clicking the video above, or by clicking here.

The action begins at around the 15:00 mark of the video.

Texas Bill Seeks to Boost Employee, Employer Pension Contributions

The Texas House of Representatives unveiled a bill on Tuesday aimed at shoring up the funding status of its pension system.

The reforms specifically target members of the Employees Retirement System (ERS), which is 76 percent funded.

The bill would boost contributions to the System for both employees and employers.

More details from the Texas Tribune:

The roughly $440 million proposal would increase how much the state and its workers contribute to the Employees Retirement System pension fund, which currently holds just 76 cents for every dollar it promises retired workers.

Employees — who gave the plan mixed reviews — would get across-the-board pay raises to ease the strain.

“This is a balanced proposal to assure that neither the state employees nor our taxpayers are expected to fix the problem on their own,” said Rep. Dan Flynn, R-Van, who chairs the House Pensions Committee.

Under the plan, employees and the state would each boost their contributions to the fund to 9.5 percent of payroll by 2017 – 2 percent more than what each would chip in otherwise. Meanwhile, workers would see a 2.5 percent pay boost.

ERS is Texas’ second-largest pension system, with 230,000 members.

ERS Executive Director Ann Bishop testified in front of state lawmakers late last year and warned that pension liabilities, if not dealt with, could hurt the state’s credit rating soon.

How Would Illinois’ Supreme Court Pension Ruling Affect Public Schools?

Arguments will soon be underway in the lawsuit challenging the constitutionality of Illinois’ 2013 pension overhaul.

Many observers expect the state Supreme Court to uphold the opinions of lower courts and rule the pension law unconstitutional.

If the law were overturned, what would it mean for Chicago Public Schools?

In a column in the Chicago Tribune over the weekend, Chicago Board of Education president David Vitale talked about the implications of such a ruling for Chicago’s schools.

Vitale writes:

You may not realize that if the Supreme Court upholds the lower court’s approach, it will have a significant impact on Chicago Public Schools and the nearly 400,000 students we serve. These consequences are potentially catastrophic, and even under a best-case scenario, would still cripple CPS’ ability to fulfill its obligation to educate these students, many of whom are from disadvantaged backgrounds or in need of special education services. The fact is, CPS does not have the resources to both shoulder the entire burden of saving the pensions and serving its students.

In the absence of changes to pension funding, CPS will be forced to decide between funding the pensions of retired employees and funding the education of Chicago students.

[…]

CPS’ projected deficit for next year is $1.1 billion, and pension costs account for approximately $700 million of that amount. While pension reform alone will not eliminate that huge deficit, it is an essential component of any solution. Without pension reform, there simply will be no alternative to implementing even deeper, more painful cuts that will directly affect the classroom; we have exhausted all other alternatives. To put these cuts into perspective, each $100 million spent on pensions translates into 1,000 fewer teachers. And a smaller number of teachers translates directly into larger class sizes and less attention and fewer educational opportunities for students.

Over the weekend, Moody’s downgraded Chicago Public School’s credit rating to Baa3, one notch above junk. The agency cited pension costs as a major driver of the downgrade.

Pennsylvania Gov. Budget Proposal: Overhaul Pension Investment Strategy and Cut Fees, Managers

Pennsylvania Gov. Tom Wolf released his first budget proposal last week, and there were several items of interest related to pensions.

On Wednesday, Pension360 covered Wolf’s proposal for issuing $3 billion in pension bonds to attempt to shore up the funding of the state’s two major pension systems.

But Wolf is also proposing an overhaul of the systems’ investment strategy.

Specifically, Wolf is calling for the systems to take a more passive approach to investing and to cut down the fees it pays to managers.

The proposal was short on specifics but called for the funds to “prudently maximize future investment returns through cost effective investment strategies.”

Union Leaders React to Christie Reform Proposals

Last week, New Jersey Gov. Chris Christie unveiled a series of pension proposals that include freezing the current pension system for active employees and shifting them into a hybrid cash balance plan.

Throughout the week, union leaders publicly expressed their thoughts on the proposals.

Public safety unions weighed in, from NJ.com:

Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association, noted that as his union is funded by municipalities, it is in far better financial shape than those funds that have been shorted by the state through the years and his members should not face higher costs and lower benefits.

“To propose solutions to further reduce employee benefits essentially ignores the math of (Police and Firemen’s Retirement System),” Colligan said, adding that the plan “punishes nearly 40,000 law enforcement officers and firefighters who have no part to play in the state’s underfunded pension plans.

His derision was echoed by Edward Donnelly, president of the New Jersey Firefighters Mutual Benevolent Association.

“We have seen the results of Christie’s previous ‘reforms’, increased obligations to our members, while New Jersey taxpayer’s burden continues to be even greater,” said Donnelly. “Instead of more deceptive back-room deals, now is the time for us to stand together to bring about meaningful changes that save our pension system without further burdening taxpayers.”

Other unions officials spoke out, as well:

NJEA president Wendell Steinhauer claimed the teacher’s union was “deeply disappointed” that Christie “overstated the nature of the understanding” reached with the governor’s commission after months of talks.

“The pension plan’s long-term problem has always been the state refusing to put the money in,” said Hetty Rosenstein, New Jersey state director of the Communication Workers of America, “Now, here we go again.” The New Jersey chapter of the CWA represents some 40,000 state workers, as well as 15,000 county and municipal workers.

Read more about Christie’s pension proposals here.

Chicago Slapped With Credit Downgrade; Moody’s Cites Pension Liabilities As City Flirts With Junk Status

Credit rating agency Moody’s hit Chicago with a credit downgrade on Friday, cutting the city’s rating to Baa2 – two steps above junk bond status.

Notably, Moody’s indicated that the city could face future downgrades even if its 2014 pension reforms withstand legal challenges.

Pension360 has covered the city’s ballooning pension payments, which could exceed $1.5 billion annually by 2019.

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

New Jersey Lawmakers Warn of “Devastating” Budget Cuts in Wake of Court Pension Decision

A New Jersey Superior Court judge ruled this week that the state acted illegally when it cut its contribution to the state pension system in 2014.

If the state’s appeal of the ruling fails, it will have to come up with an additional $1.57 billion in 2015 in order to make its full payment to the pension system.

That money isn’t yet budgeted for – which means lawmakers will soon need to rearrange some items in the general budget to make space.

Lawmakers reacted this week to that steep price tag, warning of cuts that would come as a result. From NJ.com:

“The impact on programs at the end of the year would be devastating,” state Assembly Majority Leader Lou Greenwald (D-Camden) said. “The reality is we have to either make draconian cuts and make the payment…”

[…]

Assemblyman John Wisniewski (D-Middlesex) said Christie created the problem with his “duplicitous assessment of how to handle our pension obligations,” which included touting his 2011 overhaul of the pension system and telling workers that it saved their pensions, and then arguing in court that his own law was unconstitutional.

“He has an obligation to come up with a solution, since he is the one who came up with a solution that put us in this predicament in the first place,” said Wisniewski,

Assembly Minority Leader Jon Bramnick (R-Union), however, said it’s up to the Legislature to figure out what to cut now.

“All budgets are prepared by the Legislature,” he said. “So the court is saying to the Legislature you have to put this much money in the pension fund. So I’m assuming the governor will ask the legislature to come up with the program cuts that would be needed to find $1.6 billion.”

While the Legislature must pass budgets, it’s Christie who first proposes them.

Assemblyman Jay Webber (R-Morris), a member of the budget committee, said the payment Judge Jacobson ordered is about 5 percent of the budget.

“We have to be able to find it. And I think the other thing it emphasizes is we need a new round of reforms to our pension system,” Webber said. “We need to change those promises for new employees and employees who are far enough out from retirement that they can plan their retirements accordingly.”

The lawmaker reactions came before details emerged about Christie’s new pension reform proposals.

The savings realized through the proposals, if enacted, could make the cutting process easier for lawmakers.

Photo credit: “New Jersey State House” by Marion Touvel – http://en.wikipedia.org/wiki/Image:New_Jersey_State_House.jpg. Licensed under Public domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:New_Jersey_State_House.jpg#mediaviewer/File:New_Jersey_State_House.jpg

Chicago Pension Lawsuits Put on Hold Pending Supreme Court Ruling

Two lawsuits, both challenging the legality of recent pension reforms enacted by Chicago, have been put on hold until the Illinois Supreme Court rules on the state’s pension overhaul.

The plaintiffs filed the motion to put the lawsuit on pause, and it was approved on Thursday.

Illinois Gov. Rauner Would Fine Schools For “Spiking” Pensions

Illinois public schools that hand out late-career pay raises could be subject to heightened penalties under the Rauner administration.

Gov. Bruce Rauner this week laid out a series of pension-related measures as part of his budget proposal; among them was the idea of levying a penalty on schools that give late-career raises to teachers.

Illinois already penalizes schools for handing out such raises if they exceed 6 percent. Under Rauner’s proposal, schools would be penalized for any such raise that exceeds the cost of inflation, which is a much lower threshold.