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Newspaper: Pennsylvania Pension Funding and Shale Tax Shouldn’t Be Linked

Last week, a Pennsylvania lawmaker proposed levying a shale tax of 3.5 percent on the state’s frackers. The revenues – estimated to be $400 million annually – would then go to paying down the Public School Employees’ Retirement System’s (PSERS) unfunded liabilities.

One Pennsylvania newspaper agrees that paying down pension liabilities should be a top priority. But it disagrees that a shale tax is the way to do it.

From the Pittsburgh Tribune Review editorial board:

The GOP-controlled state Legislature must make Pennsylvania’s biggest financial woe — $50-billion-plus in unfunded pension liabilities — its top 2015 priority. And it must do so without linking pension reform to Democrat Gov.-elect Tom Wolf’s proposed natural gas severance tax.

Incoming Senate Majority Leader Jake Corman, R-Centre, during a Pennsylvania Manufacturers Association forum at the Pennsylvania Society gathering in New York earlier this month, said he’s willing to consider the severance tax if Wolf will negotiate on pensions. Going beyond compromise, that sets up GOP lawmakers to capitulate to Wolf’s taxing agenda.

Allegheny Institute scholar Frank Gamrat reminds that the extraction tax would have to compensate for the state-mandated elimination of the impact fee, a levy that has brought counties and municipalities nearly $130 million over the last three years. And for the tax to yield the Wolf-estimated $1 billion-plus at current gas prices, “production would have to rise by more than 50 percent.” It’s a quite iffy proposition given current market trends.

A too-high severance tax “could have adverse consequences for Pennsylvania,” says Gamrat. GOP leaders must take heed when he urges that the Legislature not spend “a great deal of (its) time and political capital” on a severance tax and focus instead on “pension reform” to address “the principal cause of the commonwealth’s budget problem.”

The Public School Employees’ Retirement System was 63.8 percent funded as of June 30, 2014.

Video: Update on Illinois Pension Lawsuit

Here’s a discussion with attorney Aaron Maduff, who is representing the State Universities Annuitants Association in their lawsuit against Illinois’ pension reform law. Maduff gives us a recap and update on the high-profile pension lawsuit, and an idea of what we can expect in the coming months.

Florida Town Negotiates Pension Changes With Police Force

The Florida town of Delray Beach this week negotiated a series of pension changes with its police force; the town eliminated early retirement for new hires and lowered the multiplier used to calculate pension benefits for new and current employees.

Un-vested employees also won’t be able to use overtime to boost their pension benefits.

In return, employees will see higher salaries.

From Boca:

Delray Beach successfully completed the city’s push for pension reform this week when the Police Benevolent Association ratified a three-year contract that will save the city $21.3 million in pension contributions over 30 years.

The vote by the police department’s officers and sergeants was overwhelming. Ninety-two approved ratification while just 11 opposed it. The contract will be retroactive until Oct. 1, the start of Delray’s budget year.

For pensions, the contract divides the officers and sergeants into four tiers. Tier 1 includes all employees with at least 20 years of service and all retirees. Their pension benefits won’t change.

Tier 2 includes those with between 10 and 20 years of employment. The “multiplier” used to calculate their benefits will drop from 3.5 percent to 3 percent, and their starting benefit will be limited to $108,000, which is still generous. The lower multiplier also will apply to those in Tier 3—employees with fewer than 10 years of service, meaning they are not yet vested. For new hires—Tier 4—the multiplier will be 2.75 percent, and early retirement will be eliminated.

Not surprisingly, the contract favors seniority, which is typical with most union deals. For all but the new hires, vested officers and sergeants will get at least a 1 percent annual cost-of-living increase in their pensions. That is a perk almost no private-sector employees enjoy.

Still, the contract does a lot for pension sustainability. New hires and those not vested won’t be able to use overtime in calculating pension benefits. Delray Beach should insist on continuing that change in future contract negotiations. New hires won’t get early retirement, and their benefit will be limited to roughly two-thirds of their final average salary.

Just as important, the contract achieves the city commission’s goal of focusing more on pay for police officers when they are working. The annual starting salary will be $48,000 in the first year of the contract. The officers and sergeants will get an immediate raise to compensate for the previous three years, when salaries were frozen. There will be a merit system for raises.

In an email, Mayor Cary Glickstein said, “We achieved our objectives of substantive pension reform, with benefit reductions of over $21 million and re-establishing taxpayer control of the board that manages the pension fund’s assets, while providing substantial wage increases required to attract and retain the best law enforcement personnel in South Florida.”

Delray Beach’s City Manager, Don Cooper, is expected to attempt to negotiate a similar contract with the city’s firefighters.

Photo by pshab via Flickr CC License

Florida Pension Changes May Unravel As Board Debates Reforms

The Jacksonville City Council and Mayor Alvin Brown spent most of the summer months debating and constructing a pension reform measure that aimed to improve the funding of the city’s Police and Fire Pension Fund.

The Council approved the measure earlier this month. Now, the measure sits in front of the Police and Fire Pension Board, which will vote on it by January 15.

There’s no guarantee the board will approve the measure. From the Florida Times-Union:

It’s always been expected that changes to the 3 percent COLA and the guaranteed 8.4 percent return on DROP accounts for current employees were going to be stumbling blocks.

But the benefit changes for new hires hadn’t caused much of a stir until the board met last week to review the agreement.

Board members Richard Tuten and Larry Schmitt, representing the firefighters and police, said the changes are hard to swallow and will make it difficult to recruit good people needed to protect the city.

A third member of the board, former Sheriff Nat Glover, said he is uncomfortable with the changes and also concerned about the safety of the city.

Walt Bussells, the board’s chairman, said if a vote were taken, it would be 3-2 against.

“If we did do that, it kills the whole deal,” he said.

[…]

Tuten was the most vocal in his criticism of the changes for new hires and current employees.

He offered what he said was a string of broken promises and fear of more changes by politicians that “we can’t trust any farther than we can throw them.”

“If we are going to get keistered here, let’s go to court right now,” he said. “That’s what I get from my members.”

The measure calls for benefit changes for new police and fire hires, as well as COLA changes for current employees. In return, the city would pay an additional $40 million a year into the Police and Fire fund for the next 10 years.

Photo by pshab via Flickr CC License

Kansas Lawmakers React to Governor’s Plan to Cut State Pension Contribution

Earlier this month, Kansas Gov. Sam Brownback announced his plan to cut the state’s annual pension payment by around $60 million and use the money to plug budget shortfalls elsewhere.

Several prominent lawmakers have now given their reactions to the proposal. From Salina.com:

[Steven] Johnson, R-Assaria, who is chairman of the House Pensions and Benefits Committee, was “not happy” with Tuesday’s proposal by Gov. Sam Brownback to cut the state’s pension contribution this year by $40 million as part of a plan to close a $280 million shortfall in the state budget.

And he’s not alone, even among Republicans.

“There’s no easy solution,” Johnson said Wednesday, “but I’m not happy with what they’re doing with KPERS.”

[…]

Late Wednesday afternoon, Kansas Treasurer Ron Estes, who campaigned with Brownback across the state just before the November election, released a statement critical of the planned KPERS cuts.

“While I understand the need to re-balance the budget in light of unexpected shortfalls, the decision to delay state contributions to our underfunded pension system is disappointing,” Estes wrote in the statement. “By delaying action now, we run the risk of KPERS consuming an even larger amount of our state’s budget at the expense of other vital state services to Kansans in the future.”

Senate Vice President Jeff King, R-Independence, who led KPERS reform in the Senate, said, “Over the last four years, Kansas has become the model for responsible pension reform. We inherited a pension system that was going broke and returned it to fiscal health. By raiding the KPERS fund instead of continuing prudent reform, Gov. Brownback is threatening to undo all of the hard-fought gains that we have made.”

The state’s Senate Minority Leader also weighed in. From the Topeka Capital-Journal:

Senate Minority Leader Anthony Hensley, D-Topeka, rejected the idea Brownback is protecting education funding by cutting KPERS instead. The governor has previously counted KPERS contributions when touting a high level of education spending under his administration. During the campaign, Brownback highlighted an overall increase of $270 million in education funding since 2011, a figure that included KPERS contributions.

“I would argue then, using his logic, that he’s actually cutting education,” Hensley said. “It’s so inconsistent, or downright contradictory, to make that kind of argument.”

Kansas PERS manages over $14 billion in assets.

Photo credit: “Seal of Kansas” by [[User:Sagredo| – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons

China to Overhaul Pension System; Government Employees to Contribute More

China is planning a major overhaul of its pension system after complaints of unfair wealth distribution and favoritism towards government employees.

Reported by Bloomberg:

China will abolish a dual-track pension system that favors government employees and discriminates against others to create a fairer retirement-savings system.

Under existing rules, about 37 million employees with government agencies, communist organs and public institutions don’t have to contribute anything to their pension savings, with the government paying pensions of about 90 percent of their pre-retirement salaries. Those employed by businesses from banks to bakeries must contribute 8 percent of their salary to pension accounts, on top of 20 percent of their wages that’s paid by employers to a pooled pension fund. On average, private retirees end up with 40 percent of their working pay.

As the system has increasingly become a source of resentment among the public, Vice Premier Ma Kai said yesterday that the State Council and the ruling Politburo have agreed to implement a “unified” pension system, and government employees will have to contribute to their own pension accounts, the official Xinhua News Agency reported.

The report didn’t provide a timetable for the reforms.

Approximately 338 million people are covered by China’s pension system.

Photo by Jonathan Kos-Read via Flickr CC License

Unions Approve Omaha Pension Reforms

A third union has approved a contract with the city of Omaha, Nebraska that features major pension changes.

Among the changes: new employees will be shifted into a cash balance plan and the full retirement age will be raised. In exchange, Omaha will increase its payments into the city’s pension fund and employees will receive a raise.

From NBC Omaha:

Monday, Omaha Mayor Jean Stothert’s office announced a third and final civilian union in contract negotiations has approved an offer which includes changing to a cash balance pension plan for new employees.

A news release from the office says the offer “solves the underfunded pension liability and achieves unprecedented pension reform.”

CMPTEC members were the last union group to accept an offer changing from defined benefits to a cash balance plan. The change only impacts new employees hired after January 1st.

The unions include CMPTEC, Local 251 and the Functional Employees Group. A fourth group, AEC, is not represented by a bargaining unit, but it will receive the same benefits.

Each group’s agreement allows current employees to remain in the existing pension plan with reduced benefits and an extension to the number of years required to achieve normal retirement.

In return, the City agreed to increase contributions to the pension fund by 7% over the five-year agreement, give employees a 9% raise over the five-year period, and a 1% one-time “lump sum supplement” for 2013 when wage freezes were enacted.

“I am grateful to the membership, the union negotiators and our negotiating team led by Mark McQueen and Steve Kerrigan for agreements that are good for our employees and the taxpayers,” said Mayor Jean Stothert.

The Personnel Board has already approved the Local 251 agreement. In January, they will meet to approve the other two. The City Council must also approve the contracts.

The contracts run through 2017.

Several Jacksonville Council Members Support Investigation into Pension System

Earlier this month, Florida state Rep. Janet Adkins sent a letter to Gov. Rick Scott calling for an investigation into the Jacksonville Police and Fire Pension Fund – specifically, the “questionable practices and possible mismanagement” of its DROP fund.

Now, several members of the Jacksonville City Council say would support such an investigation and are planning on writing to Gov. Scott as well.

From the Florida Times-Union:

Councilman Bill Gulliford said he sent Scott a letter last week asking him to take a “hard look” into the pension fund’s practices. Councilman Bill Bishop and Council President Clay Yarborough said they plan to send letters to Scott, as well.

[…]

In October, the Times-Union reported how the pension fund ignored findings by the City Council Auditor’s Office and city lawyers that the pension fund incorrectly applied regulations for participation in DROP. The Times-Union found that three individuals who entered DROP will collectively receive about $1.8 million more than they would under strict interpretation of the code.

“You have members of the public and taxpayers asking leaders how they can get away with this,” Yarborough said. “I don’t have a good answer for them.”

When asked Monday what they thought of Adkin’s call for a state investigation, many council members said they supported the idea.

“I think it’s a worthwhile exercise,” said Councilman John Crescimbeni. “I think the taxpayers have a right to know whether there’s any waste or fraud.”

Other council members say they don’t support an investigation, or remained non-committal:

Councilman Jim Love said a state investigation may be “overkill”, while Councilman Richard Clark said it would serve as a distraction to the city’s attempt at pension reform.

“It puts a bad taste in my mouth,” Clark said. “I don’t know what it solves by accusing them of something. We need to solve our pension issues. We need to solve them in a fashion that’s constructive.”

Councilwoman Denise Lee said she didn’t “really have an opinion on it,” and Councilman Robin Lumb said he had no comment.

Mayor Alvin Brown’s office didn’t respond to a message seeking comment.

The Jacksonville Police and Fire Pension Fund is currently deciding whether to approve the city’s pension reform measure, which was passed by the City Council earlier this month.

Photo by pshab via Flickr CC License

Jacksonville Pension Reform Bill, Approved by Council, Could Still Stall

The Jacksonville City Council approved the city’s long-debated reform plan last month, which increase future employees contributions to the city’s Police and Fire Pension Fund, as well as boost the city’s payments by $40 million annually.

But now the proposal is awaiting approval from the Police and Fire Pension Fund, and one big question remains: how will the city pay for its higher payments? From News4Jax.com:

The Police and Fire Pension Fund met Monday to look at the city’s proposal to deal with the $1.7 billion pension deficit and the members are stuck on a major issue: how the city will pay for it.

The Jacksonville City Council approved a plan without designating a funding source and gave the pension board a little more than a month to approve or reject it.

The pension board is debating several issues again, including whether new members should carry the brunt of reform.

Under the plan approved by the council, future police and firefighters would undergo significant changes in the way their retirement is funded. They would pay more and the city would pay more into the retirement fund to bring it in line.

The pension board previously agreed to those changes in the plan, but now it might change its stance.

The board will reportedly meet again on Jan. 5 to vote on the reform measure.

Photo by pshab via Flickr CC License

Kansas Seeks to Study Pension Privatization

Kansas Gov. Sam Brownback’s team is reportedly exploring options to improve the long-term sustainability of the state’s pension systems.

One option on the table: privatization.

From the Associated Press:

Two top aides to Republican Gov. Sam Brownback proposed Friday that Kansas study privatizing the pension system for teachers and government workers.

Budget Director Shawn Sullivan and Secretary of Administration Jim Clark told a joint legislative committee on pensions that “reform options” for bolstering the public pension system’s long-term health should be examined. Their list included converting pension benefits into annuities managed by a private insurer.

“It’s an idea worth pursuing,” Sullivan said after presenting the proposal to lawmakers.

The committee urged Brownback’s aides to gather more information about private companies’ experiences with such moves and present it once legislators open their next annual session Jan. 12.

[…]

Clark said with converting pension obligations into annuities, a private company assumes the long-term financial risks for a fee, while the state can provide competitive benefits at a lower cost.

At least one lawmaker and one union leader weighed in on the idea. Reported by AP:

Rep. Steve Johnson, an Assaria Republican, said the idea has merit, but, “I am not optimistic that there would be a buyer of that liability at a lower cost.”

And Rebecca Proctor, interim executive director of the largest union for Kansas government employees, said private companies’ need for profits would compete with the pension system’s drive “to generate benefits for employees.”

“Any time you put a profit motive in a state service, it’s a problem,” she said.

Last week, Gov. Brownback proposed cutting the state’s pension payment by $41 million to plug budget holes elsewhere.

Photo credit: “Seal of Kansas” by [[User:Sagredo|. Licensed under Public Domain via Wikimedia Commons

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