Illinois: Payments reduced to state pension system

Illinois state lawmakers approved a plan to close a projected gap in the general fund by diverting payments that were intended for the state's public retirement system.

The plan is the result of amendments to Senate Bill 27, the original text of which dealt with making changes to widows' pension benefits:

Pension Note (H-AM 1)(Comm on Gov't Forecasting & Accountability)

Senate Bill 27 (H-AM 1) reduces the required State contributions to the retirement systems by $1,077.9 million in FY 2006 and $1,031.6 in FY 2007. Reducing contributions in FY 2006 and FY 2007 will result in larger required employer contributions for the remainder of the funding plan (FY 2008 - FY 2045). These increases in future required State contributions have not yet been calculated. The bill also makes several changes to the Pension Code which may reduce the growth in accrued liabilities. A reduction in the growth rate of the accrued liabilities will result in lower required annual State contributions over the life of the funding plan. The amount of the annual reductions has not been calculated.

The Chicago Tribune reports on the likely impact of SB 27.

The proposal would take about $2 billion in money that had been destined for public pensions over the next two years and impose some modest changes in pensions to free up cash to close the budget hole.

At the same time, it would set a new payback schedule for state pensions that Republicans said could take as much as $3.5 billion away from pensions over the next five years, add to the long-term debt and force pension systems to sell more assets used for investment.

Rep. Robert Molaro (D-Chicago), the House sponsor of the plan, acknowledged a long-term impact to the systems but said the alternatives to balance the budget were "just horrible."

"This is the best of 10 not-so-nice options," Molaro said.
Some Democratic supporters said a controversy over public employee pensions was less likely to anger voters than raising revenue through higher taxes or more gambling.

In an odd reversal of traditional roles, Democratic lawmakers are the ones promoting the reduced pension fund payments under SB 27. Republicans argue that it will compromise the benefits promised to retirees.

Alaska passes DC plan

The Alaska House of Representatives joined the state senate with final approval of House Bill 191 which creates a 401(k)-style Defined Contribution retirement plan for public employees and teachers hired after July 1, 2006.

The Anchorage Daily News reports:

Opponents of the retirement bill say the individual accounts would make future retirees' security vulnerable to financial markets, whereas the traditional pension system guarantees a percentage of salary and health care for retirement.

Senate Republican leaders, however, have called the bill the most important legislation this session. It's a way to fix the structure of the systems that face a combined $5.7 billion shortfall for long-term payouts, they say.

More.

Columnist accuses CalPERS of creative accounting

Daniel Weintraub, of the Sacramento Bee says the apparent improvement in CalPERS' financial health is rather Enron-esque in nature.

After years of bad news about public pensions, California taxpayers caught a break last week when the public employees' retirement fund announced that the state's obligation to the pension system would decline by nearly $200 million in the coming year.
But don't start celebrating yet.

Unfortunately, that reduction didn't come from gains in the pension fund's investments, or from more efficient management of the program.

Instead, the discount was the result of accounting changes that might eventually come back to haunt us all.

More.

San Diego Official: Defendants should pay own legal fees

From the San Diego Union Tribune:

City Attorney Michael Aguirre today called on the board governing San Diego's retirement system to stop paying legal fees for six former and current trustees facing felony conflict-of-interest charges.

"Effective immediately I am advising you to discontinue any additional payments for legal fees for San Diego City Employee Retirement System, SDCERS, board members who have been charged with criminal law violations by the people of the state of California," Aguirre said in a letter to the board.

Ronald L. Saathoff, 57, John A. Torres, 56, Mary Vattimo, 44, Terri A. Webster, 43, and Sharon K. Wilkinson, 55, are each charged with three conflict-of-interest counts. Cathy Lexin, 54, faces one count.

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AK State House says "no" to pension overhaul

From KTUU:

The House voted 23-17 against the so-called PERS and TERS bill that would put new employees into individual retirement accounts without guaranteed benefits.

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Op-Ed: N.J. retirement benefits are earned, not given

Carla Katz, president of the Communications Workers of America, Local 1034 has an op-ed in the Asbury (New Jersey) Park Press in which she attacks politicians and the press for characterizing public employees' retirement benefits as "entitlements."

This is wrong. Entitlements are government-provided benefits automatically available to eligible citizens because of financial, age or health status, such as welfare, Medicare and Medicaid.

The benefits of New Jersey's public workers are hard won and hard earned — the product of the collective bargaining process. Collective bargaining does not result in entitlements. It results in negotiated contracts that must be honored.

Public workers are not getting rich on the backs of taxpayers. Public workers, who earn an average of $50,000 a year and who can retire after 25 years with an average pension of $27,000, are not the culprits in the state's fiscal crisis. Public workers have traded hundreds of millions of dollars in wage increases, and forgone promotions and higher private-sector wages to help the state and local governments meet their fiscal challenges.

We are not the problem. Bad decision-making and ethical lapses by some of our elected leaders, the failure of the state to pay its fair share into the public employee pension system for years, and rising costs — especially in health care — are the real issues beneath New Jersey's fiscal crisis.

More.

Louisiana retirees could see reduced benefits

The Louisiana legislature has advanced a proposal to curb retirement for future members of the Louisiana State Employees' Retirement System (LASERS). The measure would reduce the benefit accrual rate for members who join the system after July 1, 2006. It would also increase the employee contribution rate for those members.

LASERS Executive Director Bob Borden said he understands that changes are needed and that the system wants to be involved in crafting holistic solutions to its financing woes.

"I think it's to the point where we realize that we're going to have to proactively be recommending a solution," Borden said.

Schneider's bill would require state workers hired after Jan. 1, 2006, to contribute 8 percent of their paychecks toward retirement benefits that would build up more slowly than the benefits promised to current workers.

Current members of LASERS contribute 7.5 percent of their paychecks for retirement benefits that build up at a rate of 2.5 percent of their highest average salary for each year of service. Schneider's bill would let new workers build up benefits at a rate of 2 percent per year.

New hires would also have to work at least 10 years and wait until age 60 before they could collect normal retirement benefits, a change from the current system that allows some workers to retire with full benefits in their late 40s.

More.

San Diego pension officials charged

San Diego District Attorney Bonnie Dumanis has charged six current and former board members of the San Diego City Employees' Retirement System with felony conflict-of-interest.

According to the San Diego Business Journal, the D.A. claims the six voted for a proposal that granted them increased retirement benefits.

Those facing three charges each, following an 11-month investigation, are Ronald L. Saathoff, John A. Torres, Sharon K. Wilkinson, Mary Vattimo and Terri A. Webster. Cathy Lexin faces two charges.

Each faces a maximum sentence of three years in state prison.

According to information supplied by Dumanis’ office, the SDCERS board on July 11, 2002, voted to approve an amended version of a city proposal, which deferred a percentage of employer contributions and avoided the city’s obligation to make a balloon payment to SDCERS as negotiated under the terms of a prior city agreement.

The amended proposal included a negotiated enhanced retirement benefits agreement between the city of San Diego and three city employee bargaining unions – the San Diego City Firefighters Local 145; Municipal Employees Association; and the American Federal of State, County and Municipal Employees Local 127. Each of the trustees named in the criminal action voted in favor of this proposal and personally benefited as a result of their involvement with the amended proposal, according to Dumanis.

More.

NASRA: Public pension plans are healthy

The National Association of State Retirement Administrators (NASRA) has a useful guide to the health of the nation's state and local pension plans.

On average, according to NASRA, and contrary to popular misconception, taxpayers do not bear the burden of supporting public pension plans.

In fact, employer (taxpayer) contributions to state and local pension systems make up only one-fourth of revenues. Earnings from investments comprise the majority of public pension fund revenues. Unlike in the private sector, most public employees are also required to contribute to their pension plans. The chart below summarizes the sources of public pension revenue for the 20-year period ending in 2002.

Read the whole thing.

Editorial: Schwarzenegger was right

From the Sacramento Bee:

Schwarzenegger was on the right track with his pension reform, limiting new public employees to defined-contribution plans, rather than cost-be-damned defined-benefit plans, to produce some stability in taxpayers' burden. It was widely condemned as "privatization" to tie it to President Bush's controversial Social Security overhaul, but in fact the administration said that the new plans could be administered by CalPERS and other pension systems, not private firms.

A Climate of Uncertainty

The environment in which workers retire will look very different in the next 20 years than it did in the last 20 years.

Serious threats to Social Security and private Defined Benefit pension plans have emerged.

Almost unnoticed, however, are the threats to public Defined Benefit pensions enjoyed by employees of state and local governments across this country.

Governor Arnold Schwarzenegger's plan to alter the benefit structure of CalPERS made national news. Few are aware that similar efforts are underway in many other states. Unlike the California case, in many states, the effort to convert Defined Benefit plans to 401(k)-style Defined Contribution plans rolls on.

As an example, a New Jersey newspaper has published a ten-point plan to "put public employee benefits programs back on a firm footing, and to give taxpayers much-needed relief."

- Eliminate all pension and health benefits for elected officials, part-time public employees and professionals who contract with government. There is no justification for providing benefits to any part timer.

The arguments against doing so for elected officials are the most compelling of all. Since they personally benefit from any negotiated or statutory obligations, they have no incentive to play hardball. The allure of the benefits also gives them a strong incentive to maintain their grip on office for the wrong reason — self-interest, rather than the desire to serve the public.

Eliminating benefits for part timers also would end pension tacking, the practice of taking multiple part-time government jobs to create an exorbitantly high salary and a commensurately high pension. The "Pension Peril" series found that the state in 2002 paid out at least $238 million in salaries to 9,500 individuals holding 24,700 government jobs.

- End pension boosting, which allows officials to move from a lower-paying job into a higher-paying patronage job shortly before retirement to pad their pensions. Retiree payouts in most cases are based on the three highest annual salaries. Pension rules should cap spikes in pension payouts due to dramatic late-career salary hikes at 15 percent.

- Eliminate defined-benefit plans for government employees and offer 401(k)-type accounts instead (emphasis added), as is done in Michigan and is being considered in several other states. Only 20 percent of private-sector employees have defined-benefit plans, down from 40 percent in 1977. The public sector needs to change with the times.

- Eliminate cost-of-living adjustments for pensions. Most private-sector employees fortunate enough to have defined-benefit pensions do not get cost-of-living adjustments. Neither should public-sector workers.

- Tweak the pension formula to reduce the payouts. In July 2001, soon after the stock market began its precipitous slide, acting Gov. Donald DiFrancesco increased pension payouts by 9 percent. At minimum, the formula should be changed to restore the pre-2001 criteria.

- Convene a panel of benefits experts to make recommendations to bring New Jersey more closely into line with the private sector and to establish a fair framework to calculate pension benefits of all government employees. It's been more than 10 weeks since Codey announced he planned to set up a committee to study the benefits issue. He's still recruiting members. He needs to pick up the pace.

- Cap the number of sick, vacation, holiday and other benefits local and county governments and school boards can provide employees in contract negotiations. State government already provides caps on sick day and vacation day accruals.

- Mandate that all government employees pay at least 25 percent of their health coverage premiums. Eliminate health care coverage for newly retired employees and require that previously retired teachers — the only public employee group not required to contribute anything toward the premiums of traditional health care plans — contribute at least 25 percent of the cost.

- Revoke pension and health benefits for any public official found guilty of corruption. Two bills pending in the Legislature would do that.

- Require that "retired" superintendents who serve on an interim basis be ineligible to collect pension benefits while serving in that capacity. This is one of the most egregious abuses of the pension system.

From the article, it is not hard to discern that most of the outrage comes from abuses by a select few, rather than the majority of New Jersey public pension system members. But, when taxpayers' dollars are at stake, many commentators find it more effective to paint the picture with the broadest brush.