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PENSIONS

Pensions

Unfunded pension liabilities are the dark cloud on the horizon of state budgets; a cloud totaling $4.1 trillion dollars for state-administered public pension plans, as SBS reported this year. Though they represent unavoidable fiscal debt, pension liabilities often slip under the radar when states tally up their spending, thanks to their status as "future payments" and accounting games. Aggressive pension reform is urgently needed in almost every state.

A recent group of studies by the GAO and Fed show how dire the situation really is.  Read about them here.

Courts are weighing in on what pension reform is feasible. Check out our monthly pension litigation update here.

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    • HEADLINES: Rhode Island

      Rhode Island's Winding Road to Serious Pension Reform

      Governing | by Charles Chieppo | March 6, 2014

      Under the settlement, individuals who retired before June 30, 2012, would get a one-time 2 percent COLA. Going forward, COLAs would be awarded every fourth year (instead of every fifth under the original legislation) until state pensions are 80 percent funded.

    • HEADLINES: Illinois

      Chicago credit rating takes major hit

      The Chicago Tribune | by Hal Dardick | March 5, 2014

      Chicago's financial standing took a hit Tuesday when a major bond rating agency once again downgraded the city's credit worthiness because of a huge government worker pension shortfall and the overall amount of money it owes.

    • HEADLINES: Florida

      Weatherford's base shows up to give him boost before pension battle

      The Miami Herald | by Michael van Sickler | March 4, 2014

      Pushing pension reform has been no easy task for Florida House Speaker Will Weatherford in the last two years, yet Weatherford persists, listing it at the top of his legislative agenda for this year's session, which begins Tuesday.

    • HEADLINES: Oklahoma

      Oklahoma House wants to link state pension overhaul, pay increases

      The Tulsa World | by Randy Ellis | March 3, 2014

      Members of the state House of Representatives would like a commitment from the governor and Senate to fund targeted pay increases this year before signing off on a pension overhaul bill, said state Rep. Leslie Osborn.

    • HEADLINES

      Buffett Says Pension Tapeworm Means Decade of Bad News

      Bloomberg News | by Noah Buhayar and Zachary Tracer | March 3, 2014

      "Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford," Buffett said. "Unfortunately, pension mathematics today remain a mystery to most Americans."

    • HEADLINES: Louisiana

      Louisiana retirement legislation focuses on cost-of-living increases, alternative debt reduction methods

      The Times Picayune | by Lauren McGaughy | February 28, 2014

      Louisiana lawmakers are seeking alternative methods to pay down state pension debt this year, by filing legislation ahead of the 2014 session to raise the retirement age for new hires and even tax marijuana if it should ever be legalized.

    • HEADLINES

      Study rates public pension overhauls in other states

      Sacramento Bee - State Worker | by Jon Ortiz | February 27, 2014

      Public pension-change efforts in states that have rolled back benefits share some common characteristics, according to a paper issued today by the influential Brookings Institution in Washington, D.C.

    • HEADLINES: Maryland

      Franchot, Kopp fight transfer of pension money

      The Baltimore Sun | by Michael Dresser | February 27, 2014

      Maryland State Treasurer Nancy K. Kopp and Comptroller Peter Franchot warned senators Wednesday that Gov. Martin O'Malley's proposal to divert $100 million a year from the state pension fund to next year's budget threatens the long-term health of the retirement system.

    • HEADLINES: New Jersey

      Christie proposes $34.4B budget, warns of looming pension costs

      Philly.com | by Maddie Hanna and Andrew Seidman | February 26, 2014

      Touting "an era of fiscal restraint" while warning that soaring pension costs would demand changes, Gov. Christie on Tuesday proposed a $34.4 billion budget for next year without pitching the income-tax cut he has long sought.

    • HEADLINES

      Public Pension Tabs Multiply as States Defer Costs and Hard Choices

      The New York Times | by Rick Lyman and Mary Williams Walsh | February 25, 2014

      More than 40 states have taken steps in recent years to rein in mounting public employee pension costs that threaten to strangle government services. But none have come close to closing their pension gaps quickly enough to keep pace with a rapidly aging - and retiring - public work force.


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    • POLICY BRIEF: Alaska, Arizona, Hawaii, Illinois, Louisiana, Michigan, New York

      Constitutional Public Pension Guarantees: Unfair, Unaffordable, and Bad Policy

      The Manhattan Institute | by Stephen D. Eide | August 22, 2013

       

      Seven states have specific clauses in their constitutions that protect public employee pensions: Alaska, Arizona, Hawaii, Illinois, Louisiana, Michigan, and New York. These seven states hold 20 percent of state governments' total pension debt, and many billions more in local pension debt. These states should amend their constitutions to remove language guaranteeing pension benefits for public workers.

    • RESEARCH

      The Funding of State and Local Pensions: 2012–2016

      The Center for State and Local Government Excellence | by Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Madeline Medenica | June 27, 2013

      Despite a rising stock market, the rebound in tax revenues, and increased employee contributions, the funded status of state and local pensions in 2012 declined slightly.

    • RESEARCH

      Public Sector Pension Reform: Addressing Pressing Fiscal Realities from a Long-Term Perspective

      TIAA-CREF Institute | by Thomas L. Gais and Paul J. Yakoboski | June 17, 2013

      There are persistent fiscal and demographic challenges in most states. The public sector workforce is aging as the baby boom cohort moves towards and into traditional retirement ages. Budgetary pressures at the state and local level make it difficult to increase plan funding and maintain the size of the public sector workforce.

    • RESEARCH: Delaware

      Delaware’s Public Employees’ Retirement System: A Complete and Transparent Accounting

      The Mercatus Center | by Eileen Norcross | March 21, 2013

      To be fully funded, Delaware must increase its annual contribution to the pension system based on a market valuation of plan liabilities. This paper analyzes Delaware’s pension system on a fair-market or government- guaranteed basis, with reference to the average US Treasury rate on 10- and 20-year bonds in June 2012. A discussion of the discrepancy between current government accounting conventions and the fair-market value approach and the implications for plan management follows.

    • RESEARCH

      2013 Report on State Retirement Systems: Funding Levels and Asset Allocation

      Wilshire Consulting | by Julia Bonafede | February 27, 2013

      Wilshire Consulting estimates that the ratio of pension assets-to-liabilities, or funding ratio, for all 134 state pension plans was 73% in 2012, down from an estimated 77% in 2011. This deterioration in funding ratio was fueled by global stock market volatility in the twelve months ending June 30, 2012. Growth in fund assets could not keep up with growth in plan liabilities over fiscal 2012.

    • RESEARCH

      Forecasting the Recovery from the Great Recession: Is This Time Different?

      The National Bureau of Economic Research | by Kathryn Dominguez & Matthew Shapiro | February 4, 2013

      Was the slow recovery of the U.S. economy from the trough of the Great Recession anticipated? 

    • RESEARCH

      On Financing Retirement with an Aging Population

      The National Bureau of Economic Research | by Ellen McGrattan & Edward Prescott | February 4, 2013

      Alternative views on the problem the United States is facing: financing retirement consumption as its population ages.

    • RESEARCH

      Pension Markets in Focus: Pension fund assets hit record USD 20.1 trillion in 2011 but investment performance weakens

      The Organisation for Economic Co-operation and Development | by André Laboul | September 27, 2012

      Recent years have witnessed intense pension reform efforts in countries around the globe, often involving an increased use of funded pension programmes managed by the private sector. These funded arrangements are likely to play an increasingly important role in delivering retirement income in many countries and privately managed pension assets will play an increasing role in financial markets, notably as a source of long-term savings.

      Published annually since 2005 by the The Organisation for Economic Co-operation and Development  (OECD) Directorate for Financial and Enterprise Affairs, Pension Markets in Focus provides accurate, comprehensive, comparable and up-to-date statistics to help policy makers, regulators and market participants measure, compare and evaluate programme developments and country experiences globally.

       

       

    • RESEARCH

      The Revenue Demands of Public Employee Pension Promises

      by Robert Novy-Marx and Joshua Rauh | September 16, 2012

      Calculation of the increases in contributions required to achieve full funding of state and local pension
      systems in the U.S. over 30 years. Without policy changes, contributions must increase by a factor of 2.5, reaching 14.1% of the total own-revenue generated by state and local governments.
      This represents a tax increase of $1,385 per household per year.

    • RESEARCH: New York

      Iceberg Ahead

      Empire Center for New York State Policy | by E.J. McMahon | September 5, 2012

      New York taxpayers spend billions of dollars a year on health insurance coverage for retired state and local government employees, many of whom are too young to be eligible for Medicare. But the mounting "pay-as-you-go" bill for retiree healthcare is just the tip of a much larger iceberg. Thanks to a new government accounting standard, the true cost of this long-term entitlement is finally emerging from the depths of state and local finances.


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    • SOLUTIONS: Kentucky

      Future Shock Solutions

      The Bluegrass Institute | by Lowell Reese | April 8, 2013

      The goal is to enact systemic change and create a climate for long-term solvency for Kentucky's public pensions. This requires changing the very structure of the system while providing the minimum amount of one-time immediate funding to stave off bankruptcy in the state employees’ fund. Steps also must be taken to set in place policies that will enable the commonwealth to avoid such pension crises in the future.

    • SOLUTIONS

      Why government employee collective bargaining laws must be reformed now

      State Budget Solutions | by Bob Williams | December 5, 2012

      There are three important lessons from the Wisconsin collective bargaining battles over the past eighteen months:

      1. The power of the government-sector unions and their impact on elections is greatly overestimated. With the November 2012 victory for  Senate Republicans to regain control of the Wisconsin Senate,  government employee union  suffered their sixth  major defeat since March 2011.

      2. When given a choice, government employees will quit their union in large numbers.

      3. Government employees' salaries and benefits, particularly pensions, are financially unsustainable in most states and collective bargaining reform is needed.

    • SOLUTIONS

      How to Prevent Future Pension Crises

      by Cory Eucalitto | November 1, 2012

      The time for state and local governments to offer defined contribution retirement plans that protect both taxpayer dollars and public employee retirement security is now.

    • SOLUTIONS: California

      Reform Before Revenue: How to Fix California's Retiree Health-Care Problem

      The Manhattan Institute | by Stephen D. Eide | October 31, 2012

      This paper examines the ongoing fiscal crisis caused by health-care plans for retirees (known as "other post-employment benefits," or OPEB) in one of the hardest-hit states, California, and outlines necessary reforms that should come before tax increases or cuts to government services.

    • SOLUTIONS: California

      Rising Pension Costs Threaten Cities’ Ability to Provide Services

      Hoover Institution of Stanford University | by Chuck Reed | October 16, 2012

      In June 2012, nearly 70% of San Jose voters approved "Measure B" - a set of pension reforms that the City Council placed on the ballot after more than 8 months of negotiations with our employee unions.

    • SOLUTIONS: North Carolina

      Reforms Needed for North Carolina's Ailing Pension System

      Civitas Institute | by Brian Balfour | September 12, 2012

      In numerous measurable ways, North Carolina's pension benefits are more generous than those offered in the private sector and most other states. Financial and demographic trends point toward rapidly increasing obligations in the near- and long-term future. Sensible reforms that bring North Carolina's pension benefits more on par with those of other states and the private sector are needed to avoid a massive taxpayer bailout of the pension fund.

    • SOLUTIONS

      Solutions to the public pension crisis

      State Budget Solutions | by Bob Williams | August 1, 2012

      Public pensions at the state and municipal levels are unsustainable in their current form.  State Budget Solutions' recent study by Andrew Biggs found that public pensions are underfunded by $4.6 trilion. Here we offer solutions to the pension crisis

    • SOLUTIONS: Maine

      Unfunded Government Employee Pension Liabilities Reform

      The State of Maine | December 7, 2011

      Proposal for reforming Maine's pension plans, including freezing pensions for three years (2011 - 2013), identical to the state employee salary freeze, and ensuring reasonable increases in pensions after that, close to the historical norm of 2.8% annually, based on CPI (inflation), but capped at 2% (currently capped at 4%).

    • SOLUTIONS

      Creating a New Public Pension System

      The Laura and John Arnold Foundation | by Josh B. McGee, Ph.D. | December 5, 2011

      Sound pension reform meets four general criteria: (1) establish transparency with respect to the true cost of the benefits promised to public employees; (2) mandate that the pension plan sponsor pay the full cost of accrued benefits each year; (3) mandate that the pension plan sponsor pay down the unfunded accrued liability over a reasonable time horizon and (4) improve the generational equity, portability and security of benefits for public employees.

    • SOLUTIONS: Virginia

      Pension Plan Reform in Virginia

      The Thomas Jefferson Institute for Public Policy | by Robert C. Carlson | December 2, 2011

      Paper suggesting Virginia move toward a combined retirement program that includes partially a defined benefits program and added to this should be a defined contributions program. Such a balanced system would make the Commonwealth’s costs lower and more predictable while providing attractive benefits to employees.


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