State Pension Update February 21, 2012
The Williams Report Pensions February 21, 2012
This week's update since the February 13 report:
Illinois: Washington Park, Illinois pension fund goes bust. This is an Illinois suburb of St. Louis about a firefighter who has not received his $1,500 monthly retirement check for the past seven months. Mayor James Jones acknowledges that the city put its money into the system, but that "may not have been enough" and the firefighters "are stuck."
New Jersey: Tax cut imperiled by rise in debt, pension costs. Businessweek. Feb. 17, 2012.
New York: A report issued today by my organization, the Empire Center for New York State Policy, highlights the benefits of a popular optional defined-contribution retirement program initiated almost 50 years ago by the State University of New York and subsequently emulated by the City University of New York. The SUNY and CUNY plans differ from a typical 401(k) in several key respects -- most important, in their focus on accumulating savings through annuity contracts, which mimic a traditional pension by promising a stream of post-retirement income through a private insurer. Annuities are designed to protect against the risk that retirees will outlive their savings. That's why the Obama administration has been seeking to encourage use of annuities in 401(k)s. While employees in a defined-contribution plan don't have the taxpayer-guaranteed security of a traditional pension, they have a benefit they can take elsewhere. Participants in the SUNY and CUNY plans fully "vest" in their plans after just one year. The vesting period for traditional pensions is 10 years, which Cuomo's plan would increase to 12. Newsday.com. Feb. 15, 2012.
Rhode Island: Cranston to be focus of National Task Force. RI Center for Freedom & Prosperity. Feb. 13, 2012.
Virginia: Governor McDonnell has proposed pumping a record $2.2 billion into the state retirement system for state and local employees over the next two years. House and Senate leaders support that but object to some changes he has made for retiree benefits. Adopting the advice of state auditors, McDonnell also proposed capping cost-of-living increases to retirees at 3 percent, deferring cost-of-living benefits for early retirees and basing compensation on the past five years' salary instead of the past three. The House adopted all of those changes but rejected another, to increase employee contributions to the pension system to 6 percent from 5 percent. The Senate rejected all of them, seeking instead to save with more sweeping changes to retirement benefits plan than McDonnell has proposed. The Senate wants to spend $45 million to help local governments pay for their share of big increases in contributions to the teacher retirement plan, while the House increased that by $15 million. washingtonpost.com. February 19,.2012.
General Motors: General Motors on Sept. 30 will freeze the defined benefit pension plans of all salaried workers (about 19,000 workers) hired before 2001. Effective Oct. 1, those salaried workers will be moved to an existing 401(k) plan for salaried employees. Salaried workers (about 10,000 workers) hired after Jan. 1, 2001 are already in a defined contribution plan. In place of the DB contribution, GM plans to contribute 6% of base pay and bonus for the salaried employees hired before Jan. 1, 1993, and 4% for the other salaried employees. The salaried employees already participating in the 401(k) plan receive a GM matching contribution of up to 4% of pay.As of Sept. 30, GM's U.S. salaried DB plan had $32.8 billion in assets and $34.1 billion in liabilities, while its U.S. hourly DB plan had $60.2 billion in assets and $68.8 billion in liabilities. The hourly DB plan is unchanged.
States where pension reform action is expected shortly:
- Alabama: Speaker wants changes to state retirement systems.
- California: Governor and legislative leaders pledge action in 2012 session.
- Idaho: Legislature expected to act on judicial pensions.
- New Hampshire: Pension proposals expected to be finalized by December 1 and voted on in the 2012 session.
- New York: Gov. Cuomo says "curbing public pensions will be" his top goal in 2012.
- South Carolina: Legislators and governor agree reforming pensions is a top priority for the 2012 legislative session.
- Virginia: Governor McDonnell in his state-of-the-state said "We must reform our pension system now, so that it will be there for the hundreds of thousands of Virginians depending on it."
- Wyoming: Some Wyoming legislators have faced reality and a bill is heading to the Wyoming legislature to reform the Wyoming bureaucrat pension plan before the state has the same problems now sinking Illinois.
Lawmakers in 9 states-Idaho, Iowa, Illinois, Kansas, Kentucky, Minnesota, Missouri, New Jersey and South Carolina-are advancing legislation to scale back their own pensions by closing loopholes and lucrative retirement plans that have let thousands of former lawmakers earn more in retirement than while in office. USA Today. February 7, 2012.
Checklist of State DB, DC, and other Retirement Plans. NCSL. January 2012.
Arnold Foundation releases paper on "Creating a new Public Pension System."
The National Association of State Budget Officers has released a short paper "A State Budgeting Perspective on Public Pensions" that puts the fiscal issues surrounding public pensions into perspective with state budget issues.
Examining the Constitutionality of State Pension Schemes. State Budget Solutions. January 27, 2012.
The final version of the NCSL summary of state pension legislation in 2011 is now online:
Average investment returns in 2011 for pension funds in major markets globally were anemic at best, ranging between -3% and 3%, according to estimates by consultants and global custodians. Pionline.com. January 23, 2012.
Taxpayers -through government and public workers - pumped $25 billion into the top 100 pension funds in the three months ending September 30 according to the latest report. Those fund managers paid out $52 billion and lost $199 billion in market value. Franklin Center.
Public workers pay to add work time, costing state pensions. USA Today. December 28, 2011.
Pension plans look toward rate of return. Stateline.org. December 22, 2011.
States expand lucrative pensions. USA Today. December 9, 2011
Laura & John Arnold Foundation release policy solution paper. "Creating a New Public Pension System."
Accounting elites stymie public pension reform. Washingtonexaminer.com. November 6, 2011.
South Carolina: Lawmakers take on pension reform; $13 billion in debt. Wbtv.com. December 10, 2011.
2011 Legislative changes include:
- INCREASING EMPLOYEE CONTRIBUTIONS. Sixteen legislatures increased employee contribution amounts this year, and nine did so last year. The increases apply to all current employees in 18 states and only to new employees in seven states. In nine of these states, contributions by employers were reduced, reflecting a trend toward equalizing employee and employer retirement contributions.
- CHANGING ELIGIBILITY RULES. Twenty-three legislatures have increased age and service requirements for retirement for state employees, teachers or both in the past two years. In most states, the new rules apply only to people hired after the effective date of the legislation. Most of the changes move the age of retirement closer to 65 and increase the amount of service credits required to retire early. Twelve states have also increased minimum eligibility requirements, called vesting, by three to four years.
- MODIFYING HOW BENEFITS ARE CALCULATED. This year, five states-Florida, Hawaii, Maryland, Montana and Vermont-have lengthened the time period for figuring average salaries, upon which benefits are based. Eight states-California, Iowa, Illinois, Louisiana, Michigan, New Jersey, Utah and Virginia-made similar changes last year. In most cases, the change was from a person's highest 36 months to the highest 60 months. Florida changed its provision from the highest five years to the highest eight. All these changes apply only to people hired after the effective date of the legislation.
- REVISING AUTOMATIC BENEFIT INCREASES. Seventeen states have reduced their automatic cost-of-living adjustments in the past two years. Six of the nine legislatures that made changes this year will apply the new rules to future retirees, while the other three decided to apply the changes to current employees as well. NCSL. State Legislatures. September 2011. page 7
National Conference on Public Retirement Systems opened their new website and released their report on "The Secure Choice Pension: A Way Forward for Retirement Security in the Private Sector." September 2011. Find the National Conference of State Legislators (NCSL)- Summary of pension and retirement plan enactments in 2011 State Legislators here.
The GASB's proposed new pension rules can be found here.
Information by State:
House Speaker Mike Hubbard said Friday taxpayers can't continue to support an investment strategy that cost the state $1 billion last year for public employees' retirement benefits and matching contributions. After several years of spectacular growth - assets grew from $500 million in 1973 to about $24 billion today - Retirement Systems of Alabama has endured sharp investing losses in recent years, requiring the state to make up the difference. Al.com. January 15, 2012.
Speaker wants changes to state retirement systems. Al.com. January 15, 2012.
The House of Representatives has passed H. B. 414 which would increase employee contribution rates for members of Alabama public retirement systems, including general public employees of state and local governments, teachers, higher education members, justices and judges and law enforcement and protective professions. The bill would increase general employees' and teachers' contribution rates from the present rate of 5 percent by one percentage point on May 1, 2011, and by two additional steps to 7.5 percent on October 1, 2012. Increases for other classes are similar. The bill provides that the governing boards of the state retirement plans are to adjust employer contribution rates to reflect actuarial savings from the employee contribution increases and any other benefit obligation changes enacted in the 2011 regular session of the Legislature, probably a reference to the Legislature's previous closure of the state deferred retirement option plan. Source: Alabama Legislature, HB 414. NCSL.org. April 30, 2011.
Unions challenge state on retirement contributions. Arizona City Independent. July 20, 2011.
Governor Brewer signed Senate Bill 1609 which limits abuses such as "double-dipping" when retirees go back to their same jobs while receiving a pension. It also requires current employees to contribute more to their own retirements. However, the real risk is in the nature of pension systems themselves. Benefits guaranteed at future taxpayers' expense have to be funded even when economic times are bad. Benefits that are granted to retirees when economic times are good and pension funds' portfolios are flush cannot be rolled back when portfolios collapse with the pop of an economic bubble. One way to see how Arizona's pension systems stack up is to compare them to a private employer's 401(k) contributions to employees. The average private employer's contribution to an employee's 401(k) is 3 percent of salary. Taxpayers are currently contributing about 9.8 percent of state government employees' salaries to their pensions, amounting to $173.6 million per year. If the public contribution fell to 3 percent of government employees' salaries, the annual contribution would be $53.1 million, saving $120.5 million, or more than 10 percent of Arizona's projected $1.1 billion budget shortfall for 2012. But the current level of public funding of pension plans is likely to remain the same into the foreseeable future as pension fund portfolios are rebuilt to make the systems financially sound. Goldwater Institute. April 27, 2011, and Arizona Republic. May 11, 2011.
Senate President Pro Tem Steinberg said he is committed to passing pension reform before the budget is adopted. TheSacramentoBee.com. Feb. 9, 2012.
Governor releases his pension plan to Legislature. It includes ending traditional pensions for state and local government employees hired July 1, 2013, and later. Employers would be offered "hybrid" plans that combine a smaller guaranteed payout with a more volatile 401(k)-type component. Other provisions include requiring that government workers pay at least half their pension costs, stripping pensions from felons whose crimes are job-related, ending additional service credit purchases, banning employers and employees from skipping contributions and basing benefits on a three-year average of workers' pay. Sacbee.com February 3, 2012.
California State Teachers' Retirement system lowers its assumed rate of return to 7.5 percent from the current target of 7.75 percent. This would add $5.9 billion to the $56 billion unfunded pension liability.. Bloomberg.com. Jan.30, 2012.
Senate President Pro Tem Darrell Steinberg said Thursday that the Legislature will consider some sort of pension reform bill this session, and he didn't rule out sending a hybrid plan for new hires to Gov. Jerry Brown for a signature. Sacbee.com. January 27, 2012.
Californians, both those in government and those outside of it, support changing public employee pensions, according to a new poll. 64% of government employees favor a defined contribution system for new employees! Sacbee.com. December 12, 2011.
California could cut pension spending with hybrid system, report finds Californiahealthline.org. August 15, 2011. http://www.californiahealthline.org/articles/2011/8/15/calif-could-cut-pension-spending-with-hybrid-system-report-finds.aspx . Hybrid pension plans would save billions. The Sacramento Bee. August 12, 2011.
SB 12-084, Financial disclosure/transparency of government worker pensions.
Judge tosses lawsuit challenging 2010 Legislation that lowered cost of living increases. ""While plaintiffs unarguably have a contractual right to their PERA pension itself," Hyatt wrote, "they do not have a contractual right to the specific COLA formula in place at their respective retirement, for life without change." Denverpost.com. June 29, 2011.
Governor Hickenlooper signed the budget compromise bill on May 6 to help cover a $1 billion state budget shortfall. Colorado.gov. May 6, 2011. Final compromise included diverting tobacco funds to any health care program (SJR 11-009) increasing employee contributions to pensions by 2.5 percent and decreasing employer contributions by 2.5%. UCdenver.edu. May 9, 2011.
Gov. Malloy plans to pump more money annually into the underfunded pension fund. Malloy says the various moves would save taxpayers nearly $6 billion over the next 20 years, but the legislature's nonpartisan fiscal office said recently that one of Malloy's calculations on pensions was wrong by $3.1 billion over 20 years. courant.com. February, 8, 2012.
Gov. Daniel Malloy on Monday called for pumping up payments into the State Employees Retirement System, one of the nation's most under-funded public pension funds. The governor's plan attempts to address one of Connecticut's most dire long-term fiscal problems: a $10 billion pension fund that has less than half the funds it needs to pay retirees, and a payment plan that calls for decades of annual contributions of about $1 billion that balloon to $4.5 billion a year by 2032. Malloy proposed increasing the state's annual contributions by about $123 million a year to about $1.059 billion, fully funding the pension system in 20 years. WSJ. Jan. 25, 2012.
Gov. talked about increased retirement age to saving $300 million over the biennium. Source: Office of the Governor, Governor Daniel P. Malloy's Fiscal Year 2012-2013 Budget Address
Gov. Jack Markell signed into law a bipartisan effort to reign in some of the state's fastest growing expenses - the state's share of employee and retiree pension and health care costs. The bill will save taxpayers over $130 million in the next five years and over $480 million in the next 15 years. By focusing on reducing the costs associated with future state employees, the savings will continue to grow over time. NewarkPost.com. May 3, 2011.
Under the plan, state employees hired after Jan. 1, 2012, will have to contribute 5 percent of their pay toward the pension fund, up from the current 3 percent contribution. Newly hired employees will be required to have 10 years of service in order to qualify into the plan, up from the current five-year requirement. Also, the retirement age will be increased from 62 with five years of service to 65 with 10 years of service under the proposal, and the monthly penalty used to determine early retirement pensions would double. Delawareonline.com. March 30, 2011.
Governor to propose reforms to state pension plan. WOKV.com. December 23, 2011.
School districts already are reaping the benefits of the 2011 pension reform --School districts have savings of $819.4 million and counties $597.2 million. Orlando Sentinel.com. October 8, 2011.
Florida educators union sue over 3 percent state pension requirement. NorthEscambia.com. June 20, 2011.
Effective July 1, 2009, newly hired State employees (and those who opted to switch) were enrolled into a new plan that depends more on defined contribution plans (I.e. 401k and 457) as opposed to the traditional defined benefit plans (pensions). Senatepress.net.
House Bill 1038 (to Governor on May 17, 2011) makes numerous changes in the provisions of Hawaii retirement plans. The bill:
- Increases the member's contribution rates for employees who become members of classes A, B, or H after June 30, 2012;
- Increases the period of years for calculating the average final compensation for employees who become members of classes A, B, C, or H after June 30, 2012;
- Increases the vesting period for employees who become members of class H after June 30, 2012;
- Increases the employer contribution rates for public safety related employees and other employees in classes A and B beginning in fiscal year 2012-2013;
- Reduces the percentage of regular interest credited to the retirement accounts of employees who becomes members of classes A, B, or H after June 30, 2011;
- Increases the age and service requirements for employees who become members of classes A, B, or H after June 30, 2012; and
Authorizes the Board of Trustees of the Employees' Retirement System to establish the investment yield rate for the entire system after June 30, 2011. NCSL. April 30, 2011.
Act 29 of 2011 (House Bill 1035) prohibits any retirement benefit enhancements, including any reduction of retirement age, until the actuarial value of the system's assets is 100% of its actuarial accrued liability.
Legislature expected to act on judicial pensions. KPVI.com. December 26, 2011.
Judges' hefty pensions under fire. Idahostatesman.com. December 27, 2011.
Judge upholds law curbing teachers' bargaining rights. The Idaho Education Association, which represents 12,000 teachers, filed the lawsuit and argued the law retroactively eliminated an existing retirement benefit by voiding an early retirement incentive for some educators. The Judge agreed with the teachers union that the law, which was passed by the Republican-led legislature in March, caused "substantial" contractual impairments. But the judge, siding with the state in a ruling handed down on September 29 and made public on September 30, said the constitution allows such actions when they serve a key public purpose. The state had a significant and legitimate public purpose in imposing the regulation, which "relates to matters of efficiency and accountability within Idaho's public school system," Judge Hansen wrote in the decision. Reuters.com. September 30, 2011.
Illinois has an unfunded pension liability - how much the state owes in payouts compared with the fiscal resources on hand - of $85 million. The state is expected to put $5.3 billion into the state's pension system for this coming fiscal year, about $1.1 billion more than the most recent payment. "We're in a crisis. I really don't think we have a choice (about pension reform) anymore," Illinois House Minority Leader Tom Cross, R-Oswego, said in a news conference this month. Cross and House Speaker Michael Madigan, D-Chicago, outlined a plan last spring that creates different levels of pension benefits for state employees. Employees would keep their current pensions, but they would have to pay more. Or workers could participate in a 401(k)-style pension that wouldn't offer the same level of benefits, but would be less expensive. Cross said he would push this plan again this spring. Quiet on the issue until recently, Quinn earlier this month said pension reform would be a major priority of his administration this spring. TheTelegraph.com. Jan. 22, 2012.
Governor Quinn says he will push for major pension reform this year to boost credit rating. Chicago Tribune. January 11, 2012.
Governor signs pension reform into law. Public employees can no longer rely on some loopholes to inflate their state benefits, including one that allowed two union officials to qualify for teachers' retirement perks after a single day in the classroom. The law, which takes effect immediately, also aims to end the practice of double dipping. In some cases -- most notably in the Chicago area -- employees took leaves of absence from city jobs, took full-time union jobs, then collected pensions from both. Chicagotribune.com. January 5, 2012.
Illinois passes bill targeting pension flaws that allowed government union officials to secure inflated pensions for themselves. Stltoday.com. November 30, 2011.
Retirement systems experts project Illinois will have to come up with $1 billion more for pensions next year for a total of $5.9 billion. Chicagotribune.com. November 18, 2011.
Public Law No. 22-2011 (Senate Bill 524) establishes a defined contribution (DC) plan as an option for new state employees. A state employee who does not elect to become a member of the DC plan becomes a member of the Public Employees' Retirement Fund (PERF). The bill requires the PERF Board of Trustees to establish the same investment options for the DC plan that are available for the investment of a PERF member's annuity savings account. It provides that a member's contribution to the Plan is 3% of the member's compensation and is paid by the state on behalf of the member. It also provides that the state's employer contribution rate for the Plan is equal to the state's employer contribution rate for PERF. It also provides that the amount credited from the employer's contribution rate to the member's account shall not be greater than the normal cost of PERF with any amount not credited to the member's account applied to PERF's unfunded accrued liability. The bill establishes a minimum state employer contribution of 3% of plan members' compensation. The bill establishes a five-year vesting schedule for employer contributions, and requires a member who terminates state employment before the member is fully vested to forfeit amounts that are not vested. It establishes provisions for the withdrawal of amounts in member accounts. The bill also authorizes rollover contributions to the plan. Source: Senate Bill 524. NCSL. April 30, 2011.
Unfunded pension liability grows to $5.7 billoin. Iowapolitics.com. February 7, 2012.
Gov. Brownback signed pension reform legislation. The new law raises the state's annual contribution by about $15 million in July 2013, according to KPERS and legislative researchers. The increase will continue to ramp until July 2017, and phasing into to $95 million, according to new estimates assuming a growing employee payroll. The law also directs the state to identify surplus real estate and sell it when possible, with 80 percent of the money raised going to close the KPERS funding gap. Teachers and government workers also face making concessions, starting in 2014. Most would be forced to choose between paying a higher percentage of their salaries into KPERS or seeing their future benefits cuts. Others, hired after June 2009, would be forced to choose between different cuts in future benefits. LJWorld.com. May 25, 2011.
Gov. Bobby Jindal on Jan. 25 proposed pension reforms that would create a cash-balance plan for new state employees and merge two of the state's pension plans. Jindal cited the state pension plans' $18.5 billion in unfunded actuarial liabilities and the cost to taxpayers of "nearly $2 billion" in 2011 as reasons for the reform. Among his proposals: creating a new cash-balance plan for all new state employees and merging the $12.8 billion Louisiana Teachers' Retirement System and the $1.4 billion Louisiana School Employees' Retirement System, both of Baton Rouge, "to streamline administrative and overhead costs while taking advantage of economies of scale" because both systems cater to school employees. Pionline.com. February 6, 2012.
Gov. Bobby Jindal rolled out a proposal Wednesday for a massive overhaul of state employee pension systems that would move some new workers to a 401(k)-style plan, increase the retirement age for some existing employees and require increased contributions from some in the existing systems. The centerpiece of the proposal, which aims at closing an $18.5 billion gap between the amount of money in the system and the funds needed to pay promised benefits, is a "cash-balance plan" that places new hires in a system where their retirement is largely determined by the performance of invested contributions. Nola.com. January 25, 2012.
From August 1-8, Maine's government pension system lost $891 million in market value. WCSH.com. August 9, 2011.
Pension board votes to maintain 7.75% annual rate of return, Gazette.net. April 29, 2011. House budget would require state employees to pay 7 percent of their salaries instead of 5 percent into their pension plans. Baltimore citybiz.list. March 24, 2011.
House Bill 72, the Budget Reconciliation and Financing Act, included extensive changes to Maryland retirement plans. The bill became law without the governor's signature on April 8, 2011. Baltimore Sun.
Agreement reached on minimum state retirement age of 60. Proponents expect bill to save more than $5 billion over the next 30 years. metrowestdailynews.com. November 15, 2011.
House passed pension reform 151-0. Under the new guidelines, the minimum retirement age for state employees will increase from 55 to 57. Employees that start after January 1, 2012, will have their pension based on an average of 5 years of regular compensation instead of 3. Current employees that receive a promotion are now required to serve in the new role for a year to receive any increased pension rate. The proposal also establishes a minimum pension of $15,000 for state workers who have spent 25 years in state government. Finally, this legislation establishes a commission to study other public employee benefits, pension classification and disability retirements. It is estimated these changes will save the state $6.4 billion. The bill now goes to conference committee for discussion between the House and Senate. Stoughton.patch.com. November 6, 2011.
Senate passed pension reform on Sept.15. The bill would raise the minimum retirement age from 55 to 60 and would raise the retirement age for maximum benefits from 65 to 67. The bill would also base pension benefits on workers' top five years of earnings, rather than the top three years, as is currently the practice. The legislation now heads to the House for a vote. Allegedly the bill will save $5 billion over a 30-year period. Boston.com. September 15, 2011. However, earlier this year the Legislature and Governor agreed to extend the schedule for fully funding the pension system from 2025 to 2040. This save $800 million this year by kicking the can (pension debt) forward but will end up with a potential cost to the state of $30 billon between now and 2040. Boston.com. September 14, 2011. bostonherald.com. September 13, 2011.
Controversial pension tax survives Supreme Court. Detroit Free Press. November 21, 2011.
Pension changes may be a model for struggling states. Bloombergbusinessweek.com. October 11, 2011.
State Legislators Pump UP Pensions In Ways You Can't. USA Today. September 23, 2011.
House passed on April 28, a sweeping eight-bill tax reform package that would fund a $1.8 billion break to businesses while taxing private and public pensions and eliminating most other tax exemptions. Detroit News. April 28, 2011.
Pension commission interim hearings take on big issues in preparation for the 2012 session. Mnfmi.org. November 6,2011.
Judge tosses lawsuit challengng 2010 legislation that lowered cost of living increases. Officials with the Minnesota retirement system said the decrease in the cost-of-living adjustments will reduce projected future benefit costs by $5.9 billion over the next several decades. "Coupled with the beneficial investment gains realized by the pension systems over the last two years, the funding picture for all three systems has improved," representatives for Minnesota's three pension funds said in a statement. WSJ.com. July 1, 2011.
Senate Bill 2439 (signed by the governor March 30, 201), Section 2, changes COLA provisions for people who join the retirement system on or after July 1, 2011. For people who became members of the system before July 1, 2011, the COLA is equal to the sum of 3% for each full fiscal year in retirement before the member reaches age 55, plus 3% compounded for each full fiscal year in retirement after the member reaches age 55. For the new hires on or after July 1, 2011, the COLA will still be 3% but the age at which the compounding begins increases from age 55 to age 60. The effect of this change will be to reduce the cost to the retirement system since the compounding will not begin until the member reaches age 60.
House Bill 122 (to governor April 27) changes various provisions of the Montana Public Employee Retirement System for people hired on or after July 1, 2011. The employee contribution rate for such members will be 7.9% of compensation and will remain at 6.9% for those hired before that date. Source: Montana Legislature, H.B. 122 and Fiscal Note for H.B 122.
Legislative Bill 382 (approved by the governor May 4, 2011) increases employee and employer contribution requirements for the School Employees Retirement System, the State Patrol Retirement System and the Omaha School Employees Retirement System.
Beginning September 1, 2011, the member contribution rate in the School Employees Retirement System increased from 8.28% to 8.88%. Beginning September 1, 2012 the member contribution rate increased .9% to 9.78%, and beginning on September 1, 2017 the member contribution rate returns to 7.28%. The employer match continues at 101% of the employee contribution. The state contribution of 1% of total salary compensation for the Schools Employees Retirement System and Class V (Omaha) School Employees Retirement System is extended from July 1, 2014 to July 1, 2017 when it returns to .7%. Beginning September 1, 2011, the contribution rate for Class V (Omaha) School increases 1% to 9.3%. For the Nebraska State Patrol Retirement Act, beginning July 1, 2011, the patrol and state/employer contribution rates increase from 16% to 19%. The member and state/employer contribution rates return to 16% on July 1, 2013.
Gov. Brian Sandoval proposed a change to the retirement system for new state employees that would reduce their current pension benefits by one half and cut the long-term liability for taxpayers by the same amount. As part of the change, the state would also provide a contribution to a "defined contribution" plan for workers to make up the difference in the lower defined benefit pension amount. Nevada News Bureau. February 28, 2011. Bill died in committee. Nevada News Bureau. April 14, 2011.
A legislative committee is considering eliminating the current pension system and replacing it with a defined contribution system. Seacostonline.com. November 26, 2011.
Retirement Board drops pension lawsuit. Newhampshirewatchdog.org. September 21, 2011.
Christie's overhaul may not save N.J. pension system. The pension system will again lose ground because the state still isn't chipping in enough money - and won't until at least 2018 - the administration recently told Wall Street. The result: By 2018, state taxpayers will begin paying more than $5 billion a year for pensions, roughly 10 times higher than the partial payment being made in this year's budget. The tab for local taxpayers will rise by about $600 million by 2020, estimates show. Experts say taxpayers could be hit with much higher pension bills if the state doesn't pay what it promises - or if it doesn't make as much as the 8.25 percent it expects to earn each year on investments. NJ.com. October 23, 2011.
Unions sue New Jersey over pension reform. Globalpensions.com. September 2, 2011.
N.J. Teachers union denies Democrats endorsements. humanevents.com. August 15, 2011.
Governor Christie signed into law the measure to require public employees and retirees to pay more towards health care and pensions. LATImes. June 28, 2011.
Chapter 178, Laws of 2011 (HB 628) makes three primary changes for pension contributions for state employee plans administered by the Public Employees Retirement Association (PERA) and the Educational Retirement Board (ERB):
- Extends the two-year 1.5% contribution shift implemented for FY10 and FY11from the employer to the employee for those employees making more than $20,000 for another two years (FY 2012 and FY 2013), but provides for the cancellation of the extension to FY 2013 contingent upon specified levels of General Fund revenue and state reserves;
- Makes a one-year contribution shift of 1.75% from the employer rate to the employee rate for those making more than $20,000 for FY 2012; and
- Delays the two remaining 0.75% increases for ERB members, currently scheduled for FY 2012 and FY 2013, to FY 2014 and FY 2015.
Governor's proposal would save billions without affecting current employees. Buffalonews.com. Feb. 12, 2012.
Billions of dollars are at stake in Gov. Andrew Cuomo's plan to shift new public workers into 401(k)-like individual retirement plans. The governor says the change would provide taxpayer savings of about $80 billion in the coming decades by shifting the pension risk from the state to the individual public worker. Timesunion.com. January 22, 2012.
State Controller Tom DiNapolis chickens out on pension reform. NY Daily News. January 20, 2012.
Cuomo's pension proposal riles union. Stateline.org. January 18, 2012.
A meaningful new try on pensions. The Tier 6 proposal included in Cuomo's latest budget is a big improvement. It would give state and local employees the option of joining a defined-contribution plan modeled on the popular Teachers Insurance and Annuity Association accounts offered by the State University of New York since the mid-1960s. For those choosing a traditional pension, it would add a "risk-reward" provision. When the pension fund needs more money, employees as well as taxpayers would have to contribute more. Newsday.com. January 18, 2012.
Comptroller Tom DiNapoli announced substantial increases in the amounts local governments and school districts must shell out next year to cover employee pensions. With little left to cut, property tax increases may be the only solution in some places. According to DiNapoli, the average contribution rate will rise about 16 percent, with an average hike of 19 percent for police and firefighters. Rates rose by as much as 37 percent this year. The increases take effect in February. Nyack-PiermontPatch.com. August 28, 2011.
Senate Bill 2108 as submitted to the governor increases member and employer contributions for the NDPERS main retirement system, Judges, defined contribution and Highway Patrol systems by 1 percentage point each in January of 2012 and 2013. The law enforcement plan increase is 1/2% for the member and 1/2% for the employer. For the main retirement plan, the two-year increases will be from 10.3 percent for employees to 12.3 percent, and for employers, from 16.7 percent to 18.7 percent of compensation. Source: North Dakota Legislature. SB 2108
Buckeye Institute releases latest report on five government pensions: Hanging by a Thread: Big Payouts and Promises Leave Ohio Pension Plans on the Brink of Collapse-Or a Massive Bailout"
Additional changes sought for Oklahoma pension plans-- proposals will focus on state's three pension systems for firefighters and law enforcement officers. NewsOK. Jan. 20, 2012.
Pension reform results in historic debt reduction of $5.5 billion. Bixbybulletin.com. November 11, 2011.
Oklahoma Attorney General Scott Pruitt said he was launching an investigation of banks and investment businesses, following up on communications he has received about possible wrongdoing that could have lowered investment returns to state pension funds. He also told reporters at the state Capitol the probe would follow a path similar to that taken by officials in California, Virginia and Florida to "recoup" some $200 million in earned assets. The Republican attorney general joined two key GOP legislators - House Speaker Kris Steele of Shawnee and Randy McDaniel of Oklahoma City - at a press conference where they announced intentions to conduct public hearings on further state pension reforms in October and November. Tulsatoday.com. July 29,2011.
Reform of Oregon's Public Employees Retirement System a Longshot in Legislature. Oregonlive.com. January 30, 2012.
The prospect of budget-busting costs to bail out the state's public employee retirement fund has been dogging government employers across Oregon since the financial market meltdown in 2008. Contribution increases kick in come July, adding $1.1 billion to taxpayers pension fund tab for the 2011-2013 budget cycle, effectively doubling their PERS bill. The increases prompted bold talk of pension reform before the 2011 legislative session. A report from the staff of outgoing Gov. Ted Kulongoski outlined a host of potential changes, and Gov. John Kitzhaber indicated he was on board for at least a few of them. Yet as state lawmakers head toward the home stretch of the 2011 Legislature, shaking the sofa cushions for cash to run schools, talk of PERS reform has died to a whimper. Apart from PERS housekeeping, only one bill and one concept remain from the 35 measures that were introduced at the beginning of the session. And those have been watered down to the point they offer less savings than first hoped. Oregonlive.com May 28, 2011.
Philly councilwoman to retire for one day, collect a $478k pension, and return to work on Monday. Philly.com. December 28. 2011.
The state's largest public employee union has a new four-year contract guaranteeing pay increases in three of the next four years. Unlike other first-term Republican governors, Gov. Tom Corbett did not take a hard-line stance with public sector unions, agreeing to a new contract quickly and quietly while most of the state's attention was focused on the budget process at the end of June. The contract includes a 4 percent base pay increase during the next four years and 6.75 percent increases based on the experience and seniority for workers who have been in the union between one and 20 years. Depending on seniority and position, unionized workers could earn a 10.75 percent pay raise during the course of the next four years in a series of smaller annual increases. Health-care contributions for union workers will rise from 3 percent to 5 percent in the fourth and final year of the contract. Even with those contributions, the average unionized state worker will have to pay about $150 per month for a comprehensive family health plan, though the exact amount will depend on the worker's salary. In the private sector, the average is $333 per month, according to the Kaiser Family Institute, a nonprofit health-care research center. The old contract expired June 30. Union members voted for the new contract by a ratio of 4-to-1, said David Fillman, president of Council 13 of the American Federation of State, County and Municipal Employees (AFSCME). It represents about 45,000 unionized state workers. Pocono Record. July 25, 2011.
Municipal leaders beg governor for budget and pension cutting tools. Providence Journal. January 5, 2012.
Legislature passes pension reform. ProvidenceJournal.com. November 17, 2011.
House and Senate Finance Committees approved the revised pension overhaul bill on November 10. Senate Finance approved it on a 10-1 vote at 7:42 p.m. The House Finance Committee approved it on a 13-2 vote at about 7:35 p.m. after brief discussion. Among the key concessions in the reworked bill: most workers covered by the plan will not necessarily have to wait until they reach the Social Security retirement age to collect a pension, and those retired from their ranks will not have to wait up to 19 years, as originally proposed, for a pension increase. The bill goes to the full Rhode Island House and Senate on November 17. The House is scheduled to begin at 2 p.m., and the Senate is to begin at 4 p.m. Providencejournal.com. November 10, 2011.
New age and service-length requirements in a proposal to reform South Carolina's pension system may not apply to current employees after all. A House panel on January 18 directed a consultant to re-calculate how changes to its proposal would affect the system's solvency. Their effect on the state's long-term liability will be presented in a couple of weeks. Last month, the subcommittee approved a draft proposal to require public employees to work 30 years and be at least 62 years old to draw full retirement benefits. Employees currently have to work 28 years for full retirement, and there are no age requirements. The panel may apply the changes only to new hires. It may also let workers either work 30 years or retire at age 62, rather than meet both qualifications. TheRepublic.com. January 18, 2012.
House committee gives approval to pension reform for new employees that requires them to work 30 years and be at least 62 years old to draw full retirement. Currently, government employees can retire after 28 years of work regardless of their age and get full retirement. Businssweek.com. December 13, 2011.
How system fell $17 billion into the red. Thestate.com. November 27, 2011.
Texas Public Policy Foundation released a study showing the benefits of moving to a Defined Contribution plan. Texas Budget Source. April 28, 2011.
Utah wins national public pension award, but still is at risk. If the best state in America at protecting public workers' pensions still has to worry about falling short, how bad are the worst states? Catastrophic. That's the message from Utah state Sen. Dan Ljilenquist, who Thursday accepted the first awards presented by State Budget Solutions, a national nonpartisan organization researching specific fiscal reform. Liljenquist, R-Bountiful, accepted the "Reality Check" award for his state, and the "Real Leader" personal award for recognizing and acting immediately on Utah's public pension crisis. Even with the reforms, Utah faces an existing unfunded liability estimated to range from $3.6 billion to $18.6 billion. Other states face liabilities that now are as high as $200 billion. The total for all is more than $3 trillion - about $10,000 for every child, woman and man in the United States - and growing every day. Watchdog.org. June 2, 2011.
The state's teachers agreed to a plan requiring them to work three additional years before retiring and contribute 1.6 percent more of their pay towards their pension. The state's other large union, which represents most public workers outside of education, voted to increase pension contributions by 1.3 percent over the next five years; the governor and legislative leaders say they will approve it. The state is reaping significant savings from the public pension cuts. Vermont's budget shortfall of about $150 million will shrink $15 million in the current fiscal year from the teacher retirement reforms, $2 million from the pay cut and $5 million from the higher state employee contributions. Teachers keep their defined benefit plan, with larger retirement checks. Other state workers retain current pension benefits, although their checks do not go up. Stateline.org. March 16, 2011.
Governor wants state employees to contribute an additional 1 percent toward their retirement system. Richmond Times-Dispatch. January 13, 2012.
Governor McDonnell in his state-of-the-state said "We must reform our pension system now, so that it will be there for the hundreds of thousands of Virginians depending on it." Governor.virginia.gov. Jan. 11, 2012.
Gov. McDonnell proposed budget amendments today that would establish an optional defined benefit plan, similar to a 401(k), for state employees. The Senate Finance Committee killed the proposal three times this year, including one bill introduced on behalf of the governor. McDonnell also proposed putting an additional $27.8 million into the Virginia Retirement system through increased employer contributions. The governor wants to give local governments the option of requiring their employees to pay 5 percent of salary toward pension, regardless of when they were hired. TimesDispatch.com. March 30, 2011.
Reorganization on table at Washington state. Pionline.com. November 14, 2011.
Union sues over end of automatic COLAs for about 109K retirees. Newstribune.com. October 11 2011.
Substitute House Bill 2021 gets rid of automatic yearly increases in pension payments to the state's Teachers Plan 1 and Public Employees Plan 1 participants. But it adds a higher minimum payment for those who retired long ago. Proponents say eliminates almost $4 billion in future Plan 1 pension liabilities (of about $7 billion on the books). It also saves around $524 million in state contributions from all funds in the short term. Bill has passed the Legislature and was signed by the Governor on May 16, 2011. The Olympian. April 22, 2011.
Wisconsin Legislative Council's report on 2010 Comparative Study of Major Public Employee Retirement Systems. December 2011.
Lawmakers approve pay freeze for two years and tighter rules on overtime. JSonline.com. November 17, 2011.
Gov. Walker signed legislation on March 11, to increase employee contributions to pensions from 0% to 5%.
Some Wyoming legislators have faced reality and a bill is heading to the Wyoming legislature to reform the Wyoming bureaucrat pension plan before the state has the same problems now sinking Illinois.Wyoming Liberty Group. December 22, 2011.
Wilshire report: State plans will fall short of assumed rate of returns. None of the state retirement plans studied by Wilshire Associates will be able to meet its actuarial assumed rates of returns over the next 10 years. Among the 126 systems studied, the medium plan will return an estimated annualized 6.5% on assets over the next 10 years, 1.5 percentage points short of the median actuarial long-term assumed rate of 8%. Pensions & Investments. March 8, 2011.
State, local pension funds understate shortfall by $1.5 trillion or more. Washington Post. March 3, 2011.
Bill Gates, Jr. on pensions. http://www.ted.com/talks/bill_gates_how_state_budgets_are_breaking_us_schools.html
The percentage of private sector workers participating only in a defined benefit pension plan declined to 3 percent in 2008 from 28 percent in 1979, according to the Employee Benefit Research Institute. Those participating in a defined contribution plan, or a combination of the two types, increased to 43 percent from 17 percent. Daytondailynews. March 11, 2011.
States that have Defined Contribution (DC) Plans
1. Mandatory DC Plans
a. Alaska -2005
b. Michigan -1997
2. Mandatory DC + DB Plans
b. Oregon -2003
3. Optional DC Plans
d. North Dakota
f. South Carolina
- Unfunded pension liabilities for state and local governments is between $1 trillion (Pew Estimates) and $3 trillion (SBS estimates)
- Unfunded retiree health care liabilities is at least $558 billion (Center for State & Local Government Excellence).
- Many States inflate annual return on investment estimates which lowers amount they must contribute to pensions. i.e.. many states assume an 8 percent annual return on investment.
- Most States "smooth" investment gains or losses over a five to eight year period. as a result the major decline in pensions investments over the past two years is hidden from the public and most legislators.
1. States need to switch from a defined benefits program to defined contributions.
2. In calculating the average salary for retirement, States need to switch to an average of the last five years of salary. Many states currently do the last two years. In calculating average salary for retirement, states need to omit unused sick leave; unused vacation; overtime; and double dipping (allowing a public employee to retire and then be rehired while collecting a pension).
3. Require legislators to cost out all pension enhancements before they vote on any enhancements.
4. The significant lawsuits I'm aware of are in Colorado, South Dakota and Minnesota, in all three related to reductions in post-retirement benefit changes for existing retirees and current employees. Michigan unions have threatened to sue over the 2010 requirements that teachers under enacted legislation and state employees under pending legislation would have to contribute for retiree health care, with the funds to be held in a trust fund for future use.
6. N.H. and Kentucky have taken steps to address unfunded retiree health care in the past three years.
7. Utah's reforms.
a. New Retirement System - http://le.utah.gov/~2010/bills/sbillenr/sb0063.htm
b. Post-Retirement Reemployment (Double Dipping) - http://le.utah.gov/~2010/bills/sbillenr/sb0043.htm
c. Lessons learned in Utah:
Ask the hard questions/demand data
Be hypothesis driven/avoid ideology
Involve all parties/build partnerships
Circulate reform proposal broadly
Be kind, polite and responsive
Keep moving forward
Demand comprehensive, long-term financial modeling from pension actuaries.
Reality is NOT negotiable- let the data do the work.
Future employees are not an effective lobbying force.
Know the details and you will own the issue