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State Pension Update January 9, 2012

January 9, 2012

The Williams Report Pensions January 9, 2012

This week's update since the January 3 report:

Illinois: 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. 

Indiana: Fines pending for Indiana House Democrats in Labor battle. Growing tension among defiant House Democrats facing stiff fines and sparse resources threatens to disrupt a no-show effort aimed at blocking a bill that would make Indiana the first state in more than a decade to enact right-to-work legislation.  Democrats stalled business Wednesday, the first day of the 2012 session, when they did not report to the House floor. They continued Thursday to block action on a right-to-work measure that would make Indiana the first state in more than a decade to bar private unions from collecting mandatory fees. The new $1,000-a-day fines established by Republicans after last year's walkout have raised the stakes much higher than some can afford.  Timesunion.com. January 5, 2012.  .

Rhode Island: Municipal leaders beg governor for budget and pension cutting tools.  Providence Journal. January 5, 2012.

Wisconsin Legislative Council's report on 2010 Comparative Study of Major Public Employee Retirement Systems.  December 2011.

States where pension reform action is expected shortly:

  • California: Governor and legislative leaders pledge action in 2012 session.
  • 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.

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:

Alabama

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.

Arizona

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.

California

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.

Brown's plan basically echoed the Republican Senate plan released in June. It doesn't go far enough to fix the problem, as a former Schwarzenegger official explained, but it's not bad either. It increases retirement ages for new hires, requires cost-splitting for current employees, creates a hybrid plan that mixes defined benefits with defined contributions, eliminates some of the more egregious pension-spiking gimmicks and starts to reform the corruption-plagued CalPERS by reforming its board.  Publicsectorinc.com. October 31, 2011.

Legislative leaders pledge California pension changes for 2012. Sacbee.com. September 10, 2011.

Pension reform top priority for returning lawmakers. Mercurynews.com. August 14, 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.

Colorado

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.

Connecticut

Gov. talked about increased retirement age to saving $300 million over the biennium. Source: Office of the Governor, Governor Dannel P. Malloy's Fiscal Year 2012-2013 Budget Address

Delaware

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.

Florida

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.

Georgia

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.

Hawaii

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.

 Idaho

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

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.

Illinois House cracks down on union officials who have been double-dipping from government and union retirement systems, Newsmax.com. October 28, 2011.

Likely site of next fight over public employee benefits. Leaders in both parties in Springfield appear ready to push a major pension reform bill this fall that would remove Illinois workers' current defined-benefit plan and replace it with less lucrative options, including a 401(k) plan. Meanwhile, Democratic Gov. Pat Quinn - who just last year was accused by Republicans of coddling labor for votes - is now being accused by labor of trying to renege on salary and benefit guarantees for union workers. stltoday.com. August 22, 2011.

House leaders mum on pension reform negotiations. SJ-R.com August 12, 2011.

Indiana

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.


Kansas

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.

Louisiana

Rep. Kevin Pearson (R-Slidell) called for increased state employee pension contributions to cover rising liabilities, but his proposal goes beyond Jindal's plan and would include police officers, judges, and university professors. Jindal is asking for rank-and-file state workers to contribute 11 percent of their salaries to pensions, up from the current eight percent. The Pelican Post. March 24, 2011.

 Maine

From August 1-8, Maine's government pension system lost $891 million in market value.  WCSH.com. August 9, 2011.

Maryland

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.

Massachusetts

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.

Michigan

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.

Minnesota

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.

Mississippi

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.

Missouri

Montana

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.

Nebraska

 Is Nebraska's cash balance pension a model? Stateline.org. September 25, 2011.

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.

Nevada

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.

New Hampshire

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.

Legislative Study committee tackles pension reform and expects to have proposed legislation by December 1. Newhampshirewatchdog.org. September 13, 2011.

New Jersey

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.

New Mexico

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.

New York

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.

"Cuomo Says Curbing Public Pensions Will Be His Top Goal in '12," trumpets the headline on today's New York Times article about a "wide-ranging interview" with New York's governor. Unfortunately, the article focuses on political style over substance and doesn't offer much meat to back up the headline, beyond this: The governor praised the state's largest public employee union for agreeing to wage and benefits concessions this year, but also criticized unions for resisting lower retirement benefits for what he described as "the unborn" -- future state workers for whom he wants to reduce pensions. "This will be the bar for next year," Mr. Cuomo said of his pension proposal. The first sentence of that passage refers to the governor's recent contract deal with the Civil Service Employees Association, which is still subject to member ratification vote that won't be completed until Aug. 15. As for Cuomo's pension proposal, it would sharply reduce current defined-benefit levels (for local as well as state workers) -- but it falls short of fundamental reform, since it does not include any structural change. The governor has not proposed a shift to the defined-contribution model for any group of workers, even as an option. Meanwhile, Cuomo yesterday staked out a strong position against the kind of fiscal chicanery all too many state and local governments have practiced in an attempt to dodge payment of their full pension contributions. The governor vetoed a bill that would have allowed New York school districts to issue bonds to cover their projected teacher pension cost increases over the next three years. The bill not only constituted a fiscal abuse; it also sidestepped Cuomo's newly enacted local property tax cap.

E.J. McMahon of the Empire Center for NYS Policy posts his reaction to the just-announced labor deal in New York State. Not surprisingly, despite some modest concessions, it appears as if public sector unions have once again gotten much more than the rest of us and been forced to give-up much less.

On the same day that he announced a proposal to cut retirement benefits for all new state workers, New York Governor Andrew Cuomo moved ahead on plans to lay off as many as 9,800 current employees to help the short-term finances of the state. The Times-Union of Albany obtained a memo indicating that layoffs are scheduled to begin July 15, unless Cuomo and the state's major public worker unions agree on new contracts before then. The governor has been demanding $450 million in concessions from the unions since their contracts expired April 1, though negotiations remain stalled. Stateline.org. July 15.

North Dakota

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

Ohio

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"

Reform in Limbo?  Publicsectorinc.com. August 12, 2011.
Pension reform in limbo as legislature waits to address pension changes. Dayton Daily News. August 7, 2011.

Oklahoma

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.

Oregon

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.

Pennsylvania

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. 

Rhode Island

Lawmakers plan next round of pension overhaul: Boston.com.  December 26, 2011.

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.

South Carolina

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.

Tennessee

The bill to end collective bargaining by Tennessee teachers suffered a setback on May 3, and the top House Republican leader said it may be difficult to pass this year. Supporters of the bill had expected the House Finance Committee to approve the repeal and send it to the House floor for final approval. The Senate approved the bill Monday. Instead, the Finance Committee voted 14-11 to send it back to the Education Committee for detailed review of a last-minute, 17-page amendment. Lawmakers gave conflicting views on how big of a setback it is. The education committee is closed for the year, but its chairman said he would likely re-convene it to hear the bill. Commercialappeal.com. May 3, 2011.

Texas

Texas Public Policy Foundation released a study showing the benefits of moving to a Defined Contribution plan. Texas Budget Source. April 28, 2011.

Utah

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.

Vermont

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.

Virginia

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.

Washington

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. 

State retirees plan to sue for return of cost-of-living adjustments. News Tribune. September 28, 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

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%.

Background:

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

a. Indiana

b. Oregon -2003

3. Optional DC Plans

a. Colorado

b. Florida

c. Montana

d. North Dakota

e. Ohio

f. South Carolina

g. Vermont

h. Washington

Problems:

-          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.

Solutions

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