Tag: pension reform

Emanuel Confident Pension Plan Will Survive Lawsuit

Rahm Emanuel

Four unions on Tuesday filed a lawsuit challenging Chicago Mayor Rahm Emanuel’s plan to increase pension contributions for city employees and reduce COLAs.

But Emanuel said Thursday he thinks the plan will pass legal muster, in part because he worked with dozens of unions to formulate it.

From the Chicago Sun-Times:

Two days after four unions followed through on their threat to challenge the mayor’s plan, citing the same constitutional guarantee at the core of the state case, Emanuel argued that he had no choice but to raise employee contributions by 29 percent and sharply reduce cost-of-living benefits.

“We have to do the tough things, the necessary things so people can know that they’re gonna have a retirement, which they didn’t know before because we weren’t doing and they weren’t doing the tough, necessary things to get the pension systems right,” the mayor said.

“We are both preserving and protecting the pension and doing it in a responsible way that brings both reform and revenue together to solve the problem . . . They’re challenging it, but I know we took on the challenge of under-funded pensions and addressed it head-on in a responsible way.”

Emanuel has argued repeatedly that the Chicago pension reform bill is different from the state legislation because the city changes were negotiated with and agreed to by city unions.

On Thursday, he hammered away at that point.

“Twenty-eight of 31 unions agreed to work with us . . . and 11 of them stood up and said they don’t agree with the lawsuit,” the mayor said.

“I think we were actually preserving [their pensions]. And I know the union leaders who worked with us agree because that’s why they agreed to it.”

The four unions that filed the lawsuit: Teamsters Local 700, AFSCME Council 31, the Chicago Teachers Union, and the Illinois Nurses Association.

 

Photo by Pete Souza

Fitch: Lawsuit Against Chicago Pension Cuts Expected; Emblematic of Reform Difficulty

chicago

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.

In a newly released commentary, rating agency Fitch says the lawsuit was expected. But it also demonstrates the difficulty of making changes to pension benefits in a state that protects them fiercely.

From Fitch:

Tuesday’s legal challenge to Chicago’s recent pension reform plan was expected and underscores the difficulty the city faces in its efforts to put its pension plans on firmer footing. Illinois affords particularly strong legal protection to pension benefits.

If the litigation succeeds and changes to the cost of living adjustments (COLAs) and employee contributions are struck down (and no replacement legislation is passed), the city would likely revert back to the lower, statutorily based payments, as annual payments on an actuarially sound basis would rise dramatically. These increases would occur in the context of a statutorily required $538 million increase in contributions for the city’s other two pension systems (police and fire) in 2016. The city has not yet said how the increased pension costs will be accommodated, but Fitch Ratings believes they threaten to crowd out other governmental priorities and remain a formidable challenge to the city’s financial equilibrium.

The city benefits from a strong local economy and enjoys broad home rule authority to raise revenues. However, increasing pension costs are a common problem among Chicago-area governments and funding these increases will likely place a considerable stacked burden on the area’s resource base.

[…]

If the new plan is upheld, it would require significant payment increases from the city, approximately half of which are expected to be funded by increased property taxes and half by budgetary savings. The city plans to gradually increase its revenues for pension payments, which may include property taxes, by $50 million (approximately 6%) annually for five years before reaching the target increment of $250 million in the fifth year.

According to Fitch, Chicago’s pension plans carry a collective funding ratio of 35 percent.

 

Photo by bitsorf via Flickr CC LIcense

Kansas Treasurer Considers Pension Obligation Bonds Amidst State Plans to Cut Annual Pension Payment

Kansas Seal

Kansas Gov. Sam Brownback announced plans this week to cut nearly $60 million from the state’s annual pension contribution and use the money to plug budget holes elsewhere.

In light of that news, Kansas Treasurer Ron Estes is considering issuing bonds to help fund the state’s pension system.

From Bloomberg:

Brownback, a Republican who starts his second term in January, last week proposed shortchanging the state’s pension contributions by $58 million to close a $280 million budget hole caused in part by tax cuts the governor championed. Kansas, with the fifth-weakest pension system among U.S. states, had its issuer ratings downgraded by Standard & Poor’s and Moody’s Investors Service this year.

To close a $7.35 billion funding shortfall, the state needs to keep commitments that were part of a 2012 pension overhaul, said Estes, a Republican who also won re-election last month. The plan called for more funding from the state, including revenue from casinos it owns, and raised the amount employees pay.

“We need to keep working on our pension reforms passed two years ago or we’ll fall further behind,” Estes said in an interview from Topeka.

Kansas can take advantage of interest rates close to five-decade lows to raise cash, increase the funding level and create fixed payments, Estes said. The state issued $500 million of pension bonds in 2004; a proposal to sell another round stalled in the legislature last year.

[…]

The [Kansas PERS] system supports issuing bonds or any measure that boosts its funding, said Kristen Basso, a spokeswoman.

“Pension bonds would reduce our unfunded liability and improve our funded ratio,” she said in an e-mail.

But the bonds aren’t a problem-free solution. From Bloomberg:

The debt, which is typically taxable, carries risk. The strategy is to invest the proceeds, usually in stocks, and earn more than it costs to repay bond investors. The approach can backfire if issuers borrow when equities are at historic highs, said Jean-Pierre Aubry, assistant director of state and local research at the Center for Retirement Research at Boston College. The S&P 500 Index this week posted its best two-day gain in more than three years.

“There are instances where they can work, but they can be risky financial tools for cash-strapped borrowers,” Aubry said in a phone interview. “They’re gambling on the market and should be undertaken by those with the appetite for the risk and the ability to absorb the risk.”

Kansas’ state pension systems were collectively 56.4 percent funded as of 2013.

 

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

Think Tank: New Jersey Pension Benefits Aren’t That Lucrative

New Jersey State House

One of the criticisms leveled at New Jersey and its underfunded pension system – and one of the main justifications used to cuts in worker benefits – is that New Jersey’s public employees receive more generous pension benefits than their peers in other states.

But a left-leaning think tank released a report Wednesday that cast doubt on the generosity of New Jersey’s pension benefits relative to other states.

From NJ.com:

New Jersey’s public employee pension plans ranked among the least generous of top public pension plans in the country, according to a report released today.

The study shows New Jersey’s pensions are more modest than 94 of the country’s 100 largest plans.

[…]

The study considered whether pension plans protect retirees from rising inflation, how benefits are calculated and how much employees contribute to their plans.

New Jersey fell in the bottom half in all three fields, which Stephen Herzenberg, the Executive Director of the Keystone Research Center, who authored the report, called the three most important dimensions of generosity.

[…]

Workers kick in 6.93 percent of their pay — and that number is rising — while employees contribute less in more than half of the other systems, according to the findings.

New Jersey’s retirees do not receive yearly cost-of-living adjustments to offset inflation, unlike 69 other plans included in the study that offer some protection from inflation. Retirees are suing to restore the cost-of-living increases that Gov. Chris Christie suspended as part of a 2011 pension reform package.

The state’s formula for calculating pension payments also uses a low multiplier — 1.67 percent ­— that lands it in the bottom quarter of plans.

The report notes that Garden State workers also receive some of the lowest pension benefits, but those were not factored into the rankings.

On average, pension benefits are $26,000 a year. Local government employees receive less on average, $16,000, while teachers receive more, $40,000. State employees collect $25,000.

Read the full think tank report here.

 

Photo: “New Jersey State House” by Marion Touvel. Licensed under Public domain via Wikimedia Commons

Many Rhode Island Retirees To See COLAs Unfrozen in 2015

Rhode IslandOne of the pillars of Rhode Island’s sweeping 2011 pension reform law was the suspension of annual cost-of-living-adjustments for retirees.

According to the Civic Federation, the reform law mandated:

Automatic annual increase in pensions benefits (COLA) is suspended until state employees, teachers, nurses, correctional, officers, judges, and state police plans’ funding level calculated together exceeds 80 percent; interim increases will be paid at 5-year intervals, based on investment returns.

The interim annual increase and all future annual increases will be applied only to the first $25,000 of income (indexed) and based on investment returns.

But in 2015, for the first time in years, many municipal retirees are will receive a COLA. The raise will be to the tune of 2.73 percent.

The increase was triggered by funding improvements that moved many pension systems over the 80 percent funding threshold required for members to receive COLAs. From the Providence Journal:

Good news for many Rhode Island municipal retirees: they will see a 2.73 percent increase in their pension benefits starting next year.

[…]

59 of the 113 municipal plans in the state-run Municipal Employees Retirement System are healthy enough now (at least 80 percent properly funded) that their members will see the COLA next year on the first $25,000 of their pension benefit, reported the state Retirement Board on Wednesday.

The COLAs were approved by the board as it accepted its annual valuation reports for the MERS plans and the Employees Retirement System of Rhode Island, the major retirement plan for state employees and teachers.

Those valuations reports showed that the state’s overall investments earned 8.23 percent last year on a five-year “smoothed” basis, outperforming the state’s 7.5 percent assumed rate of return.

The ERSRI plans are not expected to reach 80 percent funding until around 2031. But since passage of the pension overhaul law, lawmakers approved a provision where some pension increase for those workers could be added every five years if certain investment levels were met.

To see the list of retirement systems receiving COLAs, click here.

 

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

Two Pension Bills Sitting in Pennsylvania Legislature Likely to Resurface In 2015

Pennsylvania

Pennsylvania’s outgoing governor, Tom Corbett, made reforming the state’s pension system his top priority over the last year. But his plan – which would shift new hires into a “hybrid” plan with characteristics of a 401(k) – failed to enthuse most legislators.

Still, two pension bills are still sitting in the legislature, and they are likely to be brought up again in 2015. The first bill mirrors Corbett’s “hybrid idea”. As described by the Scranton Times-Tribune:

The hybrid plan, proposed by state Rep. Seth Grove, R-York, would maintain defined benefit plans for current employees and retirees and shift new hires into a plan that has features similar to 401(k) plans.

The proposal has several provisions to help municipalities reduce pension deficits, including guaranteeing a rate of investment return and allowing any excess earnings to be used to reduce the pension plan’s unfunded liabilities, said Rep. Grove.

[…]

The bill was introduced in the last legislative session, but never made it out of the Local Government Committee. Rep. Grove said he plans to reintroduce the bill in the next session.

The other bill takes a different approach. From the Times-Tribune:

The other bill focuses on reforming Act 111, which requires binding arbitration when a municipality is unable to reach a contract with its police or firefighters unions.

State Rep. Rob Kauffman, R-Chambersburg, introduced a bill last year that would, among other things, require an arbitrator to consider a municipality’s ability to pay when issuing an award. It did not make it out of committee, but is expected to be reintroduced this session, said Rick Schuettler, executive director of the Pennsylvania Municipal League, which supports the legislation.

Municipal officials statewide have long-complained that binding arbitration is stacked in favor of the unions, with arbitrators often issuing excessive awards.

How likely are these bills to gain any traction? The second one has the better chance, because incoming Gov. Tom Wolf is opposed to changing the pension system to a “hybrid” plan.

Unions Sue Over Chicago Pension Cuts

chicago

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

Memphis Council Approves Hybrid Pension Plan; Changes Will Affect Many Current Workers

Memphis City Council

After several meetings worth of debate, the Memphis City Council passed major changes to the city’s pension system on Tuesday – and the changes won’t just affect new hires.

Details of the new hybrid plan, reported by Fox Memphis:

Council passed a hybrid plan that was backed by Councilwoman Wanda Halbert that grandfathers in current employees with 7.5 years of experience, effective July 1, 2016.

This plan was introduced by Councilwoman Halbert, who drew harsh criticism from the crowd despite that her plan was approved.

So what does it mean? New hires and city employees with less than 7.5 years on the job will switch over to a new pension system. It mixes a retirement account with a defined contributions plan. Her plan only introduced two weeks ago after Councilman Myron Lowery introduced his plan that would only apply to new hires.

City employees in the crown expressed their anger over the changes. From Fox Memphis:

Members in the audience, many of them city employees, agreed with Councilman Lowery and blasted Councilwoman Halbert saying she had betrayed the city.

[…]

“This was an embarrassment to the City of Memphis that they make decisions that are that callous with that little bit of research on he table,” ,” said Kathy Hurley of Memphis. “If you just watch the film and see what all went on it’s obvious the right hand doesn’t know what the left hand it doing. It’s sad.”

Labor groups will likely sue over the changes.

Kansas Governor Proposes $40 Million Cut In State Contribution To Pension System

scissors cutting one dollar in half

Kansas Gov. Sam Brownback has proposed a plan that would cut the state’s annual contribution to the Kansas Public Employees Retirement System by $40 million this fiscal year.

The money would be used to plug budget shortfalls elsewhere.

From the Topeka Capital-Journal:

Gov. Sam Brownback defended cutting contributions to state worker retirement plans Wednesday — a necessary step, he argued, to protect education spending — as he called for an overhaul of the state’s school finance formula.

Facing opposition from some quarters of his own party, the governor acknowledged cuts to the Kansas Public Employees Retirement System (KPERS) will slow progress made on the system over the past few years. But he pushed back against critics who had previously predicted financial trouble for the state.

[…]

As part of $280 million in cuts and fund transfers announced Tuesday, Brownback will reduce the KPERS employer contribution level to 9.5 percent, from its current level of more than 12 percent. The administration expects to save $40 million through the reduction.

Several lawmakers expressed their disappointment with 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.”

Kansas PERS manages over $14 billion in assets.

 

Photo by TaxRebate.org.uk via Flickr CC License


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