New Jersey Pension Funding Drops 20 Points As New Accounting Rules Kick In

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The funding status of New Jersey’s pension system dropped 20 points this week as the state’s Treasury Department began measuring funding using new accounting rules.

From Reuters:

In a document released on Tuesday after a bond sale, the state revealed that one of its five main pension funds will have insufficient assets to cover projected benefit payments within 10 years.

Under new pension accounting standards, issued by the Government Accounting Standards Board (GASB), the New Jersey system’s overall funded level stands at 44 percent for fiscal 2014, compared to the 63 percent previously determined by standard actuarial methods. Eighty percent or more is generally considered healthy.

[…]

New Jersey Treasury Department spokesman Christopher Santarelli said in a statement that the retirement system had current assets of about $40 billion.

But he added that the new pension reporting system, based on actual contributions, “underscores the urgent need for additional, aggressive reform of a pension and health benefits system that if fully funded would eat up 20 percent of New Jersey’s budget.”

[…]

The GASB rules measure a retirement system’s net position as a percentage of total pension liability.

The net position uses market asset values instead of actuarial ones. In the case of more poorly funded systems such as New Jersey’s, it also uses lower discount rates that make the liabilities appear much higher.

Fitch said the funding drop “wasn’t a surprise”, but that pensions remain a serious problem. From Fitch:

The significantly weaker pension figures released by the state of New Jersey today in a supplemental bond sale disclosure are not a surprise, in Fitch’s view. The state is the first to disclose materially weaker pension metrics following its conversion to new accounting requirements under GASB statement 67.

[…]

For more than a decade, the state has severely underfunded the actuarially calculated contributions needed to progress toward full actuarial funding, even following extensive plan reforms, and the state cut its already insufficient contributions for fiscal years 2014 and 2015 to address unexpected structural budget weakness. The governor has convened a special pension taskforce to propose options for additional pension reform and is expected to make a proposal to the legislature in early 2015. Fitch’s Negative Outlook at the current rating level reflects the concern that state corrective action to address its budgetary and pension challenges will be difficult to achieve and sustain over time, particularly given its narrow liquidity, limited fiscal flexibility, and the risk that litigation may defer or dilute pension reforms.

Fitch continues to believe that the new GASB pension standards represent a step forward in improving pension transparency. For example, the requirement to calculate total pension liabilities under the more conservative entry age normal cost method, rather than the multiple options allowable under the old standards, will increase the comparability of governments’ pension liabilities. Although most large public plans already used entry age normal, New Jersey did not, and the materially higher total pension liabilities that it disclosed under the GASB 67 standard reflect in part this switch.

Read Fitch’s full statement here.

Auditors Asking Questions About “Illegal” Pension Benefits at Pennsylvania Fund

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Pennsylvania’s top auditor claims that the city of Carbondale boosted pension benefits for certain top cops close to retirement, an action that–due to the nature of the benefit increases–violated state law.

In Pennsylvania, pension benefits can only equal up to 50 percent of a worker’s final year salary. But the city offered to sweeten benefits for four city police officers, who are now earning benefits equal to 65 percent of their final salary.

The auditor says those benefits are a clear breach of state law, but the city says it avoided breaking the law by using a loophole of sorts. From the Times-Tribune:

Last year, Mayor Justin Taylor and city solicitor Frank Ruggiero said the higher benefits were legal because the 15 percent extra for the three officers and 10 percent additional for the disabled officer come from the city’s annual budget rather than the police pension fund. Mr. Taylor said the city would save almost $550,000 during the next four years by replacing the officers with lower-paid full- and part-time officers.

The additional benefits are costing the city an extra $2,326 a month, the auditor general says, or $27,912 a year.

Mr. Taylor said city officials still think they’re right and don’t plan to stop making the payments. The city is weighing its options and might appeal the findings because of a fundamental disagreement over the nature of the payments, which are retirement incentives not pension payments, the mayor said.

“We’ve been disagreeing from day one,” he said.

Auditors informed the city of their concerns back in February. The auditors say the city told them they would respond in 10 days. But the city never called them back.

Now, auditors are threatening punishment. Specifically, they are prepared to withhold all state contributions to the pension fund.

Susan Woods, a spokeswoman for the auditor general, said it may not come to that, but auditors are prepared to take action.

“It hasn’t risen to that level,” she told the Time-Tribune. “If they continue to do this, we do have the ability to withhold.”

Auditors took issue with other areas of the city’s handling of pensions, as well. From the Times-Tribune:

The auditor general also criticized other areas in the city’s pension funds:

  • The city’s provision of cost-of-living increases in pension benefits for firefighters who retired as of Jan. 1, 1993. These firefighters receive a 2.5 percent raise in benefits on the third anniversary of their retirement and every year after that, but the auditor general says the maximum pension should be only 50 percent of the highest salary of an active firefighter.

This criticism was actually a repeat of criticism in an earlier audit.

City officials told auditors they were unable to change the provision through bargaining with the firefighters’ union.

  • The city’s failure to calculate and contribute the interest on its late 2011 minimum pension payments and did not pay its 2012 and 2013 payments. In response to the criticism, the city contributed more than $666,000 to cover the payments and interest.

The Pennsylvania Commonwealth Court ruled in 2001 that cities must abide by the benefit limits imposed by state law.

Colorado Supreme Court Won’t Hear Lawsuit Seeking Release of Pension Data

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Colorado Treasurer Walker Stapleton has for years pushed the state toward initiatives designed to improve the health of its pension system, and open pension data was a big part of Stapleton’s plans.

Back in 2011, Stapleton filed a lawsuit seeking the release of retirement benefit data for Colorado’s highest-earning pensioners. But the state’s pension fund, the Public Employees Retirement Association (PERA), said the information was confidential and refused to release it.

Since then, two lower courts have sided with the pension system on the issue. Stapleton appealed the rulings all the way to the state Supreme Court—but the Court announced today that they wouldn’t be hearing his case. From the Associated Press:

The Colorado Supreme Court has decided not to hear a lawsuit from state Treasurer Walker Stapleton seeking information about employee benefits in the state’s pension system.

Stapleton, a Republican, has sought non-identifying information about the top 20 percent of the pension’s beneficiaries and their annual retirement benefit. He says the information would help him to assess the health of the state pension’s program and how to keep it solvent.

Neither Stapleton nor the Court have released statements addressing the turn of events.

Last year, Stapleton convinced the Board of the PERA to lower its assumed rate of return from 8 percent to 7.5 percent. The Denver Post:

Colorado’s Public Employees’ Retirement Association voted 8-7 to lower its expected rate of return on investments to 7.5 percent, down from 8 percent.

State Treasurer Walker Stapleton has urged the board for three years to lower its rate of return, warning of an eventual collapse and bailout of the pension system for 300,000 teachers and state workers.

[The] vote means the pension fund’s unfunded liability will increase by about $6 billion to $29 billion, Stapleton estimated.

“In the short term, that’s not a good thing,” Stapleton said. “But it makes it all the more imperative that we find a way come together … and commit ourselves to fixing this problem sooner rather than later.”

The vote was a shift in philosophy from three years ago, when the board voted 10-5 to keep its rate of return at 8 percent.

The rate is used to predict investment growth over the next 30 years. Numerous economists have suggested a realistic expectation is 6.5 percent to 7.5 percent for state funds nationwide.

PERA’s average actual rate of return over the last decade has been over 8 percent. But over a different ten-year period—2001 through 2011—it returned only 3 percent annually on average.

Photo: “Denver capitol” by Hustvedt – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

New Transparency Requirements For Colorado Schools Will Shed Light On Pension Costs

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Colorado is known for its Rocky Mountains. But the state’s rocky pension funding situation is well known, too, and lawmakers spent a chunk of the last legislative session trying to smooth out that area.

Colorado recently passed House Bill 14-1292, also called the “Student Success Act.” Most of the law deals with increasing state funding for public schools.

But a small portion of the law imposes stringent, all-encompassing financial reporting and transparency requirements on all public schools. Schools will have to report salary schedules, financial audits, and investment performance reports, among other things.

(The suggested template for all schools to follow can be seen at the bottom of this post.)

Many lawmakers are hoping that new transparency standards help shed light on the state’s pensions funding and cost issues.

Colorado’s largest pension system, the Public Employees’ Retirement Association, was only 63.25 percent funded as of 2013.

There are five sub-sets in the system; of all the sub-sets, the “school division”—the division that caters to almost all the state’s public school employees—is by far the largest. It’s also one of the unhealthiest parts of the system, as it only has enough assets to cover 62 percent of its liabilities.

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Credit: Ballotpedia

 

Critics of the state say that part of the reason for the underfunding issues is that Colorado has been paying less and less of its Actuarially Required Contribution (ARC).

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Credit: Ballotpedia

But others say that school districts themselves could be to blame for some of the underfunding, as teacher pensions are too high. Transparency standards, they say, would shed light on those issues and make them available to remedy.

Colorado public school officials are not keen on the new reporting standards. From ChalkBeat:

A wide variety of district officials interviewed by Chalkbeat raised four main concerns about the law:

Implementation – District officials generally agree that compliance will be relatively painless for large districts but presents a greater challenge to some medium-sized and small districts. “It is going to be a lot of work for a lot of people. It depends on how big you are and how many people you have working for you,” Gustafson said.

Comparability – Even with the requirement for greater uniformity, some district officials wonder if district and school data will be fully comparable. They raise the question of likely district differences in how they account for costs borne by multiple schools – things like the salaries of special education teachers, psychologists and other staff who split their time among buildings.

Use & Misuse – District officials say they support transparency as an ideal but are openly skeptical that new financial data will see much use by the public.

“Who’s going to actually look at this website?” asked Tracy John, business manager of the 606-student Peyton School District northeast of Colorado Springs.

Anecdotally, districts say there’s little public use of financial information currently available online. “I don’t receive very many calls about transparency,” said Guy Bellville, chief financial official of the Cherry Creek Schools.

And districts are nervous that advocacy groups will use school-level financial data for their own ends, ignoring the context and nuances of why districts spend money as they do.

“Rather than build confidence in school budgeting decisions, it is more likely to provide ammunition to public education detractors who have no interest in learning the deeper context or complexity that comes with school budgeting,” argues Jason Glass, superintendent of the Eagle County Schools.

Impact on student achievement – “Tell me how this is going to impact student achievement,” Gustafson said. “This is a distraction that takes away from student achievement.” Said Boulder’s Sutter, “I’m fairly certain there are no studies about how one more accountant in the district office is going to affect outcomes.”

Below, you can see the template school districts are being asked to use to comply with the new reporting standards.

[iframe src=”<p  style=” margin: 12px auto 6px auto; font-family: Helvetica,Arial,Sans-serif; font-style: normal; font-variant: normal; font-weight: normal; font-size: 14px; line-height: normal; font-size-adjust: none; font-stretch: normal; -x-system-font: none; display: block;”>   <a title=”View Colorado Schools Transparency Template on Scribd” href=”http://www.scribd.com/doc/236632574/Colorado-Schools-Transparency-Template”  style=”text-decoration: underline;” >Colorado Schools Transparency Template</a></p><iframe class=”scribd_iframe_embed” src=”//www.scribd.com/embeds/236632574/content?start_page=1&view_mode=scroll&show_recommendations=true” data-auto-height=”false” data-aspect-ratio=”undefined” scrolling=”no” id=”doc_62987″ width=”100%” height=”600″ frameborder=”0″></iframe>”]

 

Photo by TaxRebate.org.uk

Why Did Ontario Lawmakers Wait So Long to Release A Report Critical of Its Pension Systems?

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There’s been much concern in Ontario about the sustainability of its public pension systems, particularly in the electricity sector. Ontario Auditor General Bonnie Lysyk warned in 2013 that electricity sector pensions were unsustainable and quite possibly too generous.

Union leaders, taxpayers and other concerned parties agreed that the systems deserved a closer looking-at.

So, last December, Ontario lawmakers appointed Jim Leech—former head of the Ontario Teachers’ Pension Plan—to examine the pension systems inside and out to produce a report and make recommendations to improve their sustainability and affordability.

On March 18, 2014, the report was delivered to Ontario lawmakers. But not to the public.

For over four months it didn’t see the light of day. But last Friday, August 1, the report was finally released to the public. And it was highly critical of the sustainability and cost of the electricity sector’s public pension plans.

[The entire report can be read at the bottom of this page.]

From the Toronto Star:

As reported by the Star’s Rob Ferguson, the 45-pagestudy by former Ontario Teachers’ Pension Plan head Jim Leech finds that Ontario taxpayers contribute $5 for every $1 employees are putting into their pension plans at Hydro One.

Ontario Power Generation isn’t much better, with employees contributing just 24 per cent of contributions compared to 76 per cent by the publicly owned utility.

Meanwhile, compared to other public-sector plans, the ones at Ontario’s four electricity agencies are “generous, expensive and inflexible,” Leech wrote.

What’s more, the study found all four pension plans “are far from sustainable.” Wrote Leech: “Should plans go further into deficit, the sponsors and, ultimately, ratepayers will be required to pay even larger contributions.”

The report has already accomplished part of its purpose: get the government thinking about ways to make these systems more sustainable and less costly.

But new questions are being raised about the transparency issues surrounding the report’s release. Although lawmakers saw the report in March, the public had to wait. Why was it allowed to gather dust for nearly five months?

Other stakeholders are wondering the same thing. Some reactions, as reported by The Star:

“This is awfully suspect,” said Progressive Conservative MPP Vic Fedeli, his party’s finance critic, questioning Wynne’s oft-stated goal of running an “open and transparent” government.

“There was ample opportunity to release this document with good public scrutiny. What are they hiding? What didn’t they want us to know?”

Also:

“Why now, why not before the election so people would have known what’s happening?” said Plamen Petkov, whose lobby group opposes the ORPP as too expensive.

“We’re very worried to see government agencies where employees are paying only 20 cents on the dollar for their pensions when taxpayers pay the other 80 cents. No wonder the government itself expects electricity prices to go up 42 per cent over the next five years,” he told the Star.

“It’s really disappointing. We recommend the government clean its own house first before they ask employers to contribute $3.5 billion a year to the Ontario Retirement Pension Plan.”

Government officials said they originally planned to release the report on May 1, when Ontario’s new budget was passed. But the budget wasn’t passed, and that led to new elections being held.

The report was held as elections played out. The results of those elections weren’t confirmed until June 24th. Still, the report remained in the hands of the government for another 5 weeks afterward.

Here is the report, which can also be found on Ministry of Finance website.

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Photo: “Ontario-flag-contour” by Qyd. Licensed under Public domain via Wikimedia Commons

Taking Stock of Where Rhode Island’s Candidates for Governor Stand On the Release of Pension Hedge Fund Records

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Last month, current Rhode Island Treasurer Gina Raimondo (Democrat) denied the Providence Journal access to records relating to the state pension fund’s hedge fund investments.

The newspaper appealed, but that appeal was denied as well.

In a letter written by Raimondo at the time of the denial, she justified her actions with the following logic (the entire letter can be read at the bottom of this post):

For democracy to work, the public, often through the press, needs oversight over how government is acting on its behalf. At the same time, the government, to fulfill its obligations to the public, needs to be able to function effectively, which often requires a measure of confidentiality, particularly when contracting with private sector entities. Over the years, the law has determined how to balance these two requirements, and the actions of Treasury were consistent with that balance.

With elections only a few months away, and Raimondo in the midst of a bid for governorship of the state, Raimondo’s opponents have seized the opportunity to pounce on her decision to deny access to the hedge fund records.

Providence Mayor Angel Taveras (Democrat), who is now running for governor of the state, had this to say:

“Apparently, the treasurer is more concerned about hedge funds being able to keep their talent than taxpayers knowing how their money is being spent,” Taveras’ spokeswoman Dawn Bergantino said. “The treasurer should be looking out for our interests, not Wall Street and hedge fund billionaires.”

Allan Fung (Republican) is currently the mayor of Cranston, Rhode Island. But he’s in the running for governor of the state as well, so he put his thoughts on the table:

“There is a dramatic difference between what is required legally and what is necessary to do the right thing,” Fung said. “Current and retired state employees depend on the strength of the pension fund for their retirement security, and all Rhode Islanders face the risk of higher taxpayer contributions if these investments come up short. We all face tremendous risk and we deserve to know the basis for these investments.”

According to the latest polls, Taveras is currently up on Raimondo, garnering 33.4 percent of the vote to Raimondo’s 29 percent. Clay Pell remains a distant third with 11.5 percent of the vote.

Credit: Wikipedia

Raimondo’s position has notably diminished since she chose to withhold the hedge fund records. Although she is drawing in the same percentage of votes, the issue may have swayed undecided voters to side with Taveras.

On the Republican side, the latest poll has Ken Block maintaining a healthy lead over rival Allan Fung.

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Credit: Wikipedia

And, as promised, here is the letter that Raimondo wrote when she denied the Providence Journal access to the state pension fund’s hedge fund records.

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Photo by: By Jim Jones (Own work) via Wikimedia Commons

Nevada PERS to Release Member Data After Years-Long Legal Fight

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A three-year legal battle concluded this week when the Nevada Public Employment Retirement System (NVPERS) agreed to release extensive data on its members, including benefits, in compliance with a state Supreme Court order from April.

The data to be released, according to a NVPERS notice (also embedded at the bottom of this post):

-Date of hire

-Date of termination

-Date of retirement

-Retirement option

-Employer name

-Contributions to system

-Service credit

-Beneficiary information

-Gross benefit amount

-Base retirement amount

-Adjustments to base

-Post retirement increase amount

-Retirement stop date and reason

-Marital status

-Fund status

-Gender

The court order forces a stark change in policy for a retirement system that had kept a notoriously tight grasp on its member and retiree records since the 1970s.

But a state Supreme Court order—an order issued last December but not clarified until this month—made it clear that, while individual retiree records will remain confidential, any reports based on that data produced by NVPERS are not confidential. In the words of the court:

Where information is contained in a medium separate from the individuals’ files, including in administrative reports generate from data contained in individuals’ files, such reports or other media is not confidential merely because the same information is also contained in individuals’ files.

That means NVPERS now must turn over what it calls its “actuarial feed”, or the detailed reports—containing substantial amounts of member data—it gives to its actuarial consultants. The consultants use the data to determine benefits and make projections.

More on the “actuarial feed” from WatchdogWire:

The agency described the “actuarial data feed,” which now is to be made public, as “an extensive report always thought to be confidential between the System and our actuarial consultant protected through a confidentiality agreement which has now been determined in part to be public information.”

Geoffrey Lawrence, director of research and legislative affairs at the Nevada Policy Research Institute, said the data-feed information is vital if researchers are “to build a clear understanding about how public pension liabilities have accrued in Nevada.

Under Nevada public records law, personal information remains confidential. Thus, PERS emphasized, it “will NOT release any Social Security numbers, contact information (addresses, phone numbers, or email addresses), bank information, or minor child information.”

This legal fight began in 2011, when the Reno Gazette-Journal filed a public records request asking NVPERS to release data on its members, including benefit payments and work history.

NVPERS denied that request, a move consistent with the System’s long-standing interpretation of the Nevada Public Records Act—the interpretation being that all individual member and retiree records are confidential.

The Gazette-Journal subsequently filed a petition to bring the case in front of a District Court. The court eventually ruled that NVPERS did indeed have to turn over the names of its retirees and the benefits they receive, among other data.

NVPERS appealed that decision all the way to the state Supreme Court, which issued its ruling in December. But NVPERS requested another hearing, held in April, to have the court clarify exactly what records it wanted NVPERS to disclose.

The results of that hearing were released just this month.

The data to be released by NVPERS can eventually be found on Transparent Nevada.

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Photo by Bruce Fingerhood via Flickr CC License

Rhode Island Denies Newspaper Access to Records of Hedge Fund Investments by Pension System

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When the Providence Journal initially asked to see records relating to hedge fund investments by Rhode Island’s pension system, they were surprised that their request was promptly granted.

But they soon found out why: the documents were heavily redacted, and much of the information journalists were looking for—manager compensation, as well as risk and investment strategies of the funds—was blacked out.

So the newspaper filed a complaint against the Attorney General’s office in hopes of receiving access to the full, uncensored documents. The request was denied Thursday. From the Providence Journal:

Attorney General Peter Kilmartin’s office has ruled against The Providence Journal in a long-running dispute over records related to the state pension system’s investment in hedge funds.

The Journal initially sought the records from General Treasurer Gina Raimondo’s office. After that office provided heavily redacted documents, the newspaper appealed to Kilmartin’s office.

Assistant Attorney Gen. Michael Field, in a decision released last week, rejected The Journal’s appeal, which focused on a section of the state’s Access to Public Records law that says records presented and discussed at a public meeting are always public.

Field hung his decision, in large part, on an interpretation of “the plain language and meaning of the word ‘submitted.’”

The ruling stems from a complaint The Journal filed after Raimondo’s office refused to make public, in full, the “due diligence reports” that the state’s investment adviser, Cliffwater LLC, prepared prior to the state’s investment in three hedge funds: Third Point Partners, Elliott Associates and Mason Capital.

The Providence Journal claims that the documents should legally be available under the state’s Access to Public Records Act. That law states that records presented and discussed at public meetings are available to the public upon request. The Journal claims that the documents were discussed at an open meeting of the State Investment Commission. More from the Providence Journal:

The complaint stemmed from an April 14, 2013, request by then-Journal reporter Michael Stanton to the treasurer’s office for investment and due-diligence reports that Cliffwater prepared and presented to the State Investment Commission, chaired by Raimondo, on 19 hedge funds.

He also requested a copy of the PowerPoint presentation that the Point Judith Venture Fund II, created by a firm cofounded by Raimondo before she took office, presented to the investment commission in the lead-up to a $5-million state investment.

The Journal argued that: “All of the documents Stanton requested were presented in full at public meetings of the [State Investment Commission] and are referenced in meeting minutes and tape recordings.”

Raimondo’s office provided heavily redacted copies of the records, asserting that the redacted portions of the records contained information deemed confidential, [proprietary] and/or trade secrets.”

The Journal released a statement that said the media, as well as citizens, have “a vital interest in knowing how the pension fund investments made by the [State Investment Commission] are performing and what those investments cost. Without access to specific information about the performance and fees of hedge funds, which make up nearly 15 percent of the portfolio, neither The Journal nor the public can evaluate those investments.”

 

Photo by JohnnyMrNinja via Flickr CC License