annual pension contributions

New Orleans Can Sue Pension Board for Mismanagement, Says High Court

In 2014, New Orleans argued before a circuit court that it shouldn’t have to pay down the debt of its Firefighters’ pension fund, because the shortfall was caused by bad investments.

The circuit court rejected that argument.

But now, the state Supreme Court says the city can indeed sue the pension fund’s board of trustees for mismanagement of the fund.

From NOLA.com:

The high court ruled Friday that Norman Foster, [Mayor] Landrieu’s finance director who also serves as a pension board trustee, can sue his fellow board members for financial mismanagement of the fund. That decision sends the case back to New Orleans’ civil court and allows Foster to draft a new lawsuit. It also tracked closely with the findings of the 4th Circuit Court of Appeal Judge Joy Lobrano, who was the dissenting vote in that 2-1 ruling in September. She had argued that Foster had a responsibility to guard the fund’s finances, and could do so in court.

Several issues, including whether it is too late for a new lawsuit or who should Foster actually sue, will have to be sorted out, said Louis Robein, the pension board’s attorney. The board’s membership has changed since the lawsuit was originally filed, forcing the city to focus on the former board members who oversaw the fund lose a good deal of revenue, including $40.2 million in 2013.

Should Foster follow through, it’s possible his suit could focus on the former board members as those responsible for the fund’s losses, Robein said.

The city is trying to avoid paying a total of $17.5 million to the pension fund.

The court said the shortfall was caused by the city skipping annual contributions, and it ordered the city to pay up. But the city argued that it shouldn’t have to foot the bill because the gap was caused by mismanagement of investments by the board.

Former Jacksonville Mayor Calls for Tax Increase to Fund Pension Reform

Former Jacksonville mayor and current city Chamber president John Delaney said Monday that a tax increase is likely the best way to fund the city’s pension reform measure.

The city has been weighing a pension reform bill for months, and one of the points of debate has been the source of funding for the measure. Current Mayor Alvin Brown’s plan was to team with a public utility company and borrow the money.

But Delaney says a tax increase is more likely.

From the Florida Times-Union:

JAX Chamber Chairman John Delaney said Monday a pension financing plan supported by Mayor Alvin Brown is “not viable” and the solution “probably is going to be a tax increase to solve that problem.”

[…]

In regard to pension reform, Brown favors a plan for the city and JEA to borrow $240 million to more quickly pay down the city’s $1.62 billion debt to the Police and Fire Pension Fund.

JEA would pay off its $120 million in borrowing by getting reductions in the amount it pays in annual contributions to City Hall. The city would repay its $120 million by using savings from its annual pension contributions to the Police and Fire Pension Fund, along with projected growth in tax revenues from an improving economy.

[…]

But Delaney said City Hall already is financially strained in paying the day-to-day costs of city services, so reductions in future JEA revenue would hurt the city. He said the same financial constraints affect the city’s ability to borrow $120 million and repay it.

He said to “dig out of the pension hole, it’s going to take a new independent slug of money, which ultimately probably is going to have to be a tax increase to solve that problem.”

Photo by pshab via Flickr CC License

New Jersey May Be Working Up Proposal to Merge Municipal, State Pensions

The leader of a group that represents New Jersey’s municipalities is warning mayors that state officials may try to merge state and municipal pension systems.

Bill Dressel, the executive director of the New Jersey State League of Municipalities, says the state is working on such a proposal in an attempt to improve the health of the state’s pension system.

New Jersey’s municipal pension systems are in much better shape than the state-level systems.

Judge in New Jersey Pension Trial Calls State Pension Contributions a “False Promise”

The judge presiding over the legal battle between New Jersey and its public workers said last week that the state’s 2011 pension reform law was a “false promise”.

The law required the state to contribute a set amount of money annually to the pension system. But Christie slashed those payments last year.

The judge, Mary Jacobson, wondered why New Jersey included in the reforms the “false promise” of guaranteed pension payments if the state knew it was unconstitutional.

From App.com:

Superior Court Judge Mary Jacobson repeatedly made the point that the Legislature specifically made the pension contributions a contractual right in a law signed by Christie, though the administration’s lawyer said it’s not allowable because lawmakers decide each year what to fund.

“You’re saying that it was known at that time, should have been known at that time, that that was a false promise,” Jacobson said.

“It’s unprecedented because it’s unconstitutional if enforced,” said deputy attorney general Jean Reilly. “It’s not an accident that it’s not in there before. It’s not in there before because it’s not constitutionally permissible to do. … For all future legislatures, it’s merely an exhortation for payment.”

Lawyers for the Communications Workers of America union said Christie and lawmakers locked the obligation into law because pension payments are always the first thing to be cut if money gets tight. They said Christie was required to find the funding to pay for pensions, not skip the obligation.

“It was a political decision not to do that,” said attorney Kenneth Nowak. “Now, the governor may have some agenda as to how he feels about taxes. But he also has a constitutional obligation.”

Christie cut the state’s pension payments in 2014 and 2015 by around $2.5 billion.

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

The Impact of Cincinnati’s Pension Reform Deal

Cincinnati’s pension deal, struck last week, is widely considered to be a true compromise: no one is particularly happy with the outcome and every party made sacrifices as part of the bargain.

But how exactly does the deal affect the benefits of retirees and current employees?

A quick refresher on the main points of the deal, from Cincinatti.com:

* Three-year freeze on any increases to pension benefits for current and future retirees.

* Changes compound increases to a 3 percent simple increase for current and future retirees.

* Creates $200 million in savings in the health care system, and shifts those savings over the pension, which is not as well funded.

* City puts in $38 million this year and then commits to putting in 16.25 percent of payroll (currently $26 million) for each of the next 30 years. About half of that would come from the general fund.

The Cincinnati Enquirer explains the impact on retirees, including a COLA change:

Health benefits will not change for existing retirees under the fund, including a benefit that keeps health care for surviving spouses. But those retirees took perhaps the biggest hit of all the different constituencies at the table.

Most current retirees receive what is called a compound COLA, which calculates the previous years’ raises into a current year’s adjustment. That generous benefit goes away, replaced by a flat 3 percent annually like the current workers will receive. But retirees did get one bonus: That 3 flat percent will be calculated off the current levels, not those at retirement.

In addition, the city is creating its own retiree drug prescription program which it hopes will save $100 million, and is creating a Medical Expense Reimbursement Program (MERP) to pay whatever difference between an alternate plan and the city’s plan. This would be voluntary, however, and retirees can simply stay with the existing city plan.

How the deal affects current employees:

Under the deal, all current workers and retirees won’t get any raises (cost of living adjustments) to their pension payments for three years. For current workers, that means they won’t see any increases for the first four years they are retired. But in return, current employees probably got the best deal of any party to the agreement.

Under changes made in 2011, such adjustments for current workers were capped at 2 percent, but indexed to inflation, meaning in slow economies, only a minimal raise might be on the way. Now, they are guaranteed 3 percent annually for 30 years after the initial three-year holiday.

In addition, some of those workers clawed back a somewhat more generous benefit calculation formula, while older workers hired before 2006 also got the ability to retire after 30 years of service with no age requirements.

So retirees and workers will have to stomach some changes they may not like.

But in exchange, the city has promised to pay around $26 million annually into the pension system over the next 30 years.

Under the deal, the pension system could be fully funded in 10 years.

Photo credit: “Downtown cincinnati 2010 kdh” by kdh – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons