CalPERS Board President Feckner Re-Elected to 11th Term

board room chair

The president of CalPERS’ board of administration, Rob Feckner, has been reelected to his 11th term. The term is one year long.

The board held the vote on Tuesday.

Feckner has sat on the board since 1999.

More from the LA Times:

During his long tenure, Feckner has steered CalPERS away from sometimes strident, anti-corporate activism; backed a campaign that successfully defeated a 2005 initiative that would have reduced some pension benefits; and helped the nearly $300-billion fund recover billions of dollars in losses from the recession of 2008-09 and its aftermath.

He also worked to clean house and overhaul policies in the wake of a 2009 bribery and corruption scandal that resulted in federal criminal charges being filed against two former CalPERS officials, a board member and chief executive.

“In the past few years, we have many accomplishments to be proud of,” Feckner said in a statement released by CalPERS, “but there’s still much more to do to ensure we provide secure retirement and health benefits to California’s hard-working public employees.”

Among those challenges is a potential 2016 proposed ballot measure that would allow cities and local governments to cut pension benefits for current employees. The board is expected to oppose such a measure.

Another development from Tuesday’s meeting: the board elected Henry Jones to the vice president position. He is replacing Priya Mathur, who was stripped of that position after repeated violations of financial reporting laws.

New Hampshire Supreme Court Upholds Benefit Changes

gavel

The New Hampshire Supreme Court has upheld several changes key to the state’s pension reforms passed since 2011.

At issue were the definitions of a cost-of-living adjustment and “earned compensation”.

State lawmakers altered the definitions of those terms as part of pension reforms, and the court has now upheld the new definitions.

The court ruling, coupled with a related ruling by the court last month, has big implications for New Hampshire pensions.

The biggest is that public worker pensions aren’t contractually protected from being altered – regardless of whether that alteration comes from raising employee contributions or outright benefit changes.

More from the Associated Press:

The New Hampshire Supreme Court has upheld some legislative reforms to the state retirement system, a month after upholding key provisions.

The court on Friday upheld changes to the definitions of “earned compensation” and Cost of Living Adjustments. It ruled the changes didn’t retroactively reduce pension benefits earned before a law was passed, and that employees don’t have a contractual guarantee that the terms of the plans will never change.

The ruling addressed a lawsuit by the American Federation of Teachers.

State Sen. Jeb Bradley of Wolfeboro said the decision clarifies the Legislature may adjust future pension benefits to safeguard the system.

The New Hampshire Retirement Security Coalition made up of teachers, police and firefighters, said it “unfortunately allows public employers to renege on their promise of security in retirement.”

The state Supreme Court ruled last month that employee contributions to the pension system can legally be increased, even for vested workers.

 

Photo by Joe Gratz via Flickr CC License

Kansas Gov. Proposes Issuing $1.5 Billion in Bonds for Pension Funding

Kansas seal

Kansas Gov. Sam Brownback, looking for ways to improve state pension funding after he cut $60 million from Kansas’ annual contribution, is now proposing issuing $1.5 billion of bonds to help cover the pension shortfall.

From Chron.com:

Gov. Sam Brownback is proposing that Kansas issue $1.5 billion in bonds and lengthen its schedule for closing a long-term funding gap to lower annual costs tied to pensions for teachers and government workers.

The Republican governor outlined the measures Friday. Brownback described escalating annual public pension costs as a long-term concern.

The state has committed to additional spending to bolster the long-term financial health of the Kansas Public Employees Retirement System. Benefits are only 60 percent funded through 2033, but the commitments would help close the $9.8 billion shortfall by then.

Brownback proposed extending the payoff period to 2043.

The bond funding would go to the Kansas Public Employees Retirement System (PERS).

The success of the plan depends on pension investment returns exceeding annual bond payments.

The state’s Budget Director, Shawn Sullivan, says he’s confident that will happen.

 

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State Lawyers File Arguments in Illinois Pension Lawsuit

Illinois

Illinois Attorney General Lisa Madigan filed the state’s argument in favor of the sweeping pension law on Monday. Illinois is arguing that pension protections are not absolute, and the law doesn’t violate the state’s constitution.

From the Chicago Tribune:

Lawyers for the state argued that the government’s so-called emergency police powers — the ability to take action to ensure the functions of government — trump the protections of the pension clause.

State lawyers said the ability to fund necessary government services, as well as to continue paying out pensions, has been severely hampered by paying an increasing amount of the state’s checking account to fund the pension systems.

“According to the circuit court’s holding, for example, faced with an epidemic requiring the state to purchase and distribute vaccines or other costly medication, the state could not even temporarily reduce pension benefits to cover those costs,” lawyers for the state argued.

“Nor, in a period of prolonged deflation … could the state reduce pension benefits even if the corresponding rise in benefits caused by 3 percent annually compounded COLAs caused every dollar of state revenue to be spent on pension benefits,” the state filing said.

Meanwhile, business leaders and legal experts who support Illinois’ pension reform law also filed briefs with the Supreme Court Monday arguing in favor of the constitutionality of the law.

Nine briefs were filed in total in support of the state, including one from the city of Chicago.

More from Reuters:

Illinois is getting support from its biggest city, business leaders and legal experts in its quest to defend the constitutionality of a 2013 law aimed at easing the state’s huge public pension burden.

The city of Chicago, social service providers and professors specializing in constitutional and contract law were among the parties that filed nine so-called amicus briefs with the Illinois Supreme Court by a Monday deadline.

The briefs backed the state’s appeal of a Nov. 21 court ruling that found the 2013 law violated a provision in the Illinois Constitution preventing retirement benefits for public workers from being impaired or diminished.

[…]

Illinois says it is required to maintain its sovereignty by the U.S. Constitution and that its police powers allow it to reduce retirement benefits to deal with the state’s fiscal emergency. Those arguments were echoed in briefs filed on Monday by legal experts and business group the Civic Committee of the Commercial Club of Chicago.

Chicago contended in its support brief that its efforts to rein in pension costs would be threatened if the court were to reject the state’s police powers argument.

The city, which is defending a 2014 law aimed at boosting funding for two of its four retirement systems from a union-backed constitutional challenge in Cook County Circuit Court, said it has a vital interest in the state’s case.

“Failure to achieve reform for the Chicago funds would have a devastating impact on Chicago’s economy and its delivery of essential services, as well as on the retirement security of current and former employees,” Chicago’s filing stated.

The Chicago Public Schools, the nation’s third largest school system, also backed the state’s position, as did Chicago’s transit authority and park district.

Illinois is shouldering over $100 billion of unfunded pension liabilities. The state has the worst credit rating of any state in the country.

Five Councilmen Withdraw Support For Bill to Boost Disability Pension of NYC Cops

NYPD

Last week, Pension360 reported on the re-emergence of a New York City Council resolution that would boost police disability benefits.

At the time, a majority of councilmembers were on board with the resolution.

But between last week and now, things have changed: this week, five councilmembers withdrew their support for the measure.

A few of them said they changed their mind after they were asked to reconsider their stance by Council Speaker Melissa Mark-Viverito.

Details from Capital New York:

Five members of the City Council are withdrawing their support for a resolution that would boost disability pension benefits for New York City police officers and firefighters.

The five offered varying reasons for removing their names from the resolution, which is a priority for the Patrolmen’s Benevolent Association, the union that’s been at odds with Mayor Bill de Blasio and Council Speaker Melissa Mark-Viverito.

Several Council members said they changed their minds after Mark-Viverito and her staff asked them to reconsider. Eric Koch, a spokesman for Mark-Viverito, denied the Speaker made any such calls, but did not dispute that her staff had reached out to members.

The list of council members who changed their minds:

Councilman Vincent Gentile of Brooklyn had signed onto the proposal last week, but withdrew his support over a “procedural issue,” his spokesman said.

[…]

The other members who backed away from the resolution are: Danny Dromm of Queens and Robert Cornegy of Brooklyn, both of whom did not respond to repeated requests for comment; Donovan Richards of Queens, who declined comment; and Daneek Miller of Queens.

The measure would boost police disability pensions by altering the tier system that dictates benefits. Crain’s explains:

[The measure] would increase disability pensions for police hired after July 2009. It has been introduced annually in response to Mr. Paterson’s veto of a bill to move newly hired officers to the more generous Tier II pension from Tier III.

Members of Tier III work for 22 years, instead of 20, to collect full-service pensions. Their disability benefits are 44% of their last three years of salary with an offset for Social Security benefits, instead of 75% of the final year’s salary with no offset.

Mayor Bill de Blasio has come out against the measure, and Council Speaker Melissa Mark-Viverito is undecided.

 

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San Bernardino Sued By Creditor For Favoring Pension System During Bankruptcy

California flag

The bankrupt city of San Bernardino, California has been sued by one of its bondholders for favoring pensioners over creditors during its bankruptcy.

San Bernardino has largely kept up with its payments to CalPERS. But the lawsuit claims the city has not extended equal favor to its bondholders.

From BusinessWeek:

Pension-bond holder Erste Europaische Pfandbrief- und Kommunalkreditbank AG sued San Bernardino yesterday in federal bankruptcy court in Riverside, California, claiming equal status with Calpers. The company, which holds about $50 million in pension obligation bonds, didn’t name Calpers in the suit.

“Any payment of the Calpers pension obligation portion requires equivalent payment of the bondholder pension obligation portion,” the company, a unit of Frankfurt-based Commerzbank AG (CBK), said in the filing.

Cities often issue bonds to raise money to bolster their pension obligations. In San Bernardino’s case, the money was used to fill a hole in its pension fund, which is administered by Calpers. The city also makes regular payments on behalf of its employees to Calpers, which in turn pays retired city workers.

[…]

The lead bankruptcy attorney for the city, Paul Glassman, referred questions to San Bernardino’s elected city attorney, Gary Saenz, who didn’t immediately respond to an e-mailed request for comment on the suit.

San Bernardino filed bankruptcy in 2012. Although it stopped paying CalPERS for a period of a few months, it has since resumed payments so that no pension benefits would be cut as part of its bankruptcy.

Cincinnati Strikes Pension Deal; City to Pay More, Retiree Benefits Reduced

After nearly a year of negotiations, Cincinnati and its public workers have reached an agreement that aims to increase the sustainability of the city’s pension system.

The city will contribute significantly more money to the pension system. In exchange, retirees will not see a cost-of-living adjustment for the next three years and will see smaller COLAs in the years after.

The terms of the agreement, from the Cincinnati Enquirer:

Under the agreement, the city will:

* Contribute $38 million to the pension system next year. The city will do that over the next seven years by borrowing against future revenue.

* Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

* Make a larger contribution to the pension starting in July 2016 – 16.25 percent of the annual operating budget compared to 14 percent – and continuing for 30 years.

Employees will:

* Take a three-year cost of living adjustment holiday.

* After that, the cost of living adjustment for both current retirees and active employees will go to 3 percent simple interest. Most current retirees receive an increase that is “compounded,” meaning the previous year’s increase is included in the following year’s calculation. Current employees already have a 3 percent simple COLA in place when they retire. The total cost of the cut was unclear Tuesday night, but can be projected. It is a significant amount.

More background and reaction from the city and unions, from the Cincinnati Enquirer:

Nobody walked away happy – not city officials, not current workers and not retirees – but everyone agreed it was a fair compromise.

The agreement ensures pension benefits will be sustained for current and future retirees and shores up the city’s financial position for years to come.

“I want to thank all of the parties for coming to the table and hammering out a compromise,” Cranley said. “It’s been a rough road and no party got everything they wanted. This settlement requires some sacrifice on all sides, but it will help strengthen the city’s financial health and ensures the pension system will still be there for everyone in it.”

The deal averts cuts to basic services for all Cincinnati residents.

Cranley, flanked by city union leaders and other top city officials, announced the agreement on the steps of the University Club at 10:45 p.m. Tuesday. All parties had been inside, negotiating since 1 p.m.

“We’re elated,” said Pete McClendon, the former president of AFSCME who is now the president of the Cincinnati AFL-CIO (of which AFSCME is a part). “The agreement stabilizes benefits … in a way that is fiscally responsible. We look forward to a workforce that can retire with dignity.”

The city’s unfunded pension liabilities hover near $862 million.

Illinois Gov. Signs Law Allowing Felons To Be Stripped of Pensions

Illinois capitol

Illinois Gov. Pat Quinn has signed into law a measure that allows the Illinois Attorney General to strip pension benefits from public officials who have been convicted of felonies related to their job.

The bill was passed unanimously by the state Senate earlier this month.

From the Associated Press:

A new state law will make it tougher for felons to receive a public pension.

Gov. Pat Quinn signed legislation Monday giving Illinois’ attorney general more power to stop pension payments to convicted felons.

[…]

The Illinois Supreme Court in July upheld a lower court ruling that Attorney General Lisa Madigan couldn’t challenge a Chicago police pension board decision allowing Burge to keep his taxpayer-supported pension.

State Sen. Kwame Raoul is a Chicago Democrat. He says it’s “unconscionable” that Burge receives a pension and the law allows “taxpayers a way to fight back.”

The bill came about after former Chicago policeman Jon Burge was allowed to keep his pension even after being convicted of a serious felony. From the Sun-Times:

In July, the Illinois Supreme Court ruled a Cook County court was correct in not allowing Madigan to intervene in a police pension matter. The decision allowed disgraced former Chicago Police Cmdr. Jon Burge, who was convicted in 2010 for lying about the torture of police suspects, to keep his public pension of about $54,000 a year.

The police pension board deadlocked 4-4 on a motion to strip Burge of his pension. Some argued his conviction was not related to his police work, since he was convicted on perjury and obstruction of justice from a civil suit filed after he left the force.

Under the law, the state attorney general will be able to petition the court to strip pension benefits from public officials. Previously, the attorney general wasn’t allowed to intervene in the decision, which was left to pension boards.

 

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Do Pension Plans Give Retirees a False Sense of Retirement Security?

broken piggy bank over pile of one dollar bills

At one time, pensions were seen as the safest, most secure stream of retirement income. But the security of pension benefits is no longer rock-solid. That raises the question: do pensions give retirees a false sense of retirement security?

Economist Allison Schrager explores the idea:

Until recently, a pension benefit seemed as good as money in the bank. Companies or governments set aside money for employees’ retirements; the sponsors were on the hook for funding the promised benefits appropriately. In recent years, it has become clear that most pension plans are falling short, but accrued benefits normally aren’t cut unless the plan, or employer, is on the verge of bankruptcy—high-profile examples include airline and steel companies. Public pension benefits appear even safer, because they are guaranteed by state constitutions.

By comparison, 401(k) and other defined contribution plans seem much less reliable. They require employees to decide, individually, to set aside money for retirement and to invest it appropriately over the course of 30 or so years. Research suggests that people are remarkably bad at both: About 20 percent of eligible employees don’t participate in their 401(k) plan. Those who do save too little, and many choose investments that underperform the market, charge high investment fees, or both.

It turns out that pension plan sponsors, and the politicians who oversee them, are just as fallible as workaday employees. We all prefer to spend more today and deal with the future when it comes. Pension plans have done this for years by promising generous benefits without a clear plan to pay for them. When pressed, they may simply raise their performance expectations or choose more risky investments in search of higher returns. Neither is a legitimate solution. In theory, regulators should keep pension plan sponsors in check. In practice, the rules regulators must enforce tend to indulge, or even encourage, risky behavior.

Because pension plans seem so dependable, workers do in fact depend on them and save less outside their plans. According to the 2013 Survey of Consumer Finances, people between ages 55 and 65 with pensions have, on average, $60,000 in financial assets. Households with other kinds of retirement savings accounts have $160,000. It’s true that defined benefit pensions are worth more than the difference, but not if the benefit is cut.

As the new legislation makes clear, pension plans can kick the can down the road for only so long. Defined contribution plans have their problems, but a tremendous effort has been made to educate workers about the importance of participating. (Even if the education campaign has been the product of asset managers who make money when more people participate, it’s still valuable.) Almost half of 401(k) plans now automatically enroll employees, which has increased participation and encouraged investment in low-cost index funds. And now it looks like a generous 401(k) plan with sensible, low-cost investment options may turn out to be less risky than a poorly managed pension plan, not least of all because workers know exactly what the risks are.

Read the entire column here.

 

Photo by http://401kcalculator.org via Flickr CC License

Federal Judge Won’t Issue Ruling in Pension Fight Between City, Public Safety Workers

gavel

A U.S. District Court Judge has declined to issue a ruling in a decade-long dispute between the city of Annapolis and its retired public safety workers.

The dispute, explained by the Capital Gazette:

A federal judge has declined to wade into a 12-year dispute between the City of Annapolis and retired public safety workers over pension benefits.

Senior U.S. District Court Judge for the District of Maryland William M. Nickerson issued an opinion on Tuesday dismissing the city’s claims for declaratory judgment in its case against some 60 retirees. The city filed the federal action in August, after a 10-year old case filed by the retirees against the city was reopened in Anne Arundel Circuit Court.

The city sought to have changes to its retirement program over the past year declared constitutional and consistent with state law. This was after the retirees filed their own motion for declaratory judgment in Anne Arundel Circuit Court in June in light of the changes to the retirement program.

[…]

Former Annapolis police and firefighters are classified under four retirement plans. Individual retirees receive benefits from the plan in place upon their retirement. Two of the plans contain language in the city code tying pension increases to active-duty employee salaries.

“Each retired member’s pension shall be increased by the same percentage as any increase in the pay scale for members of the same rank and years of service who are on active duty,” the code reads.

Retirees sued Annapolis in 2002 seeking retroactive payments dating to 1995. After six years of legal battles, the state’s Court of Appeals ruled in favor of the retirees. The Circuit Court of Anne Arundel County later issued a declaratory judgment for pension increases, despite a premonition from then-Mayor Ellen Moyer that the ruling would bankrupt the city.

The city’s retirement plan liabilities increased by $6.2 million because of the ruling, according to a 2013 report produced for the city.

Annapolis had suspended adjustments to police and fire retiree benefits since 2009. City employees did not receive pay increases during that time period.

In Oct. 2013, the city announced a deal with its four public-sector unions on pay increases. Employees would receive a 10-percent raise over the next three fiscal years. Retirees would receive annual 2-percent increases, regardless of future city pay increases.

“Thus, the Retirees would receive only a 6 percent pension increase while active members would receive a 10 percent increase in pay,” Nickerson’s opinion reads.

The changes funded the retirement plan by 100 percent, according to the city.

The Annapolis City Council says it is deciding how to move forward in light of the ruling.

 

Photo by Joe Gratz via Flickr CC License