NPPC, I recommend you think through what will actually inform and protect your members. The TIA folks are not distorting the message, except to the extent that state and local governments are undervaluing their pension and OPEB promises.
Complaining about TIA will not make the pensions better-funded. Complaining about TIA will not prevent the worst-funded pensions from running out of assets, which will not be supportable as pay-as-you-go, as the asset death spiral before that will show that the cash flows were unaffordable for the local tax base.
And don’t look to the federal government to save your hash. So far bailout amounts have been puny compared to the size of the promises.
The Chicago Park District pension funding overhaul approved by lawmakers moves the fund off a path to insolvency to a full funding target in 35 years, with bonding authority.
State lawmakers approved the statutory changes laid out in House Bill 0417 on Memorial Day before adjourning their spring session and Gov. J.B. Pritzker is expected to sign it. It puts the district?s contributions on a ramp to an actuarially based payment, shifting from a formula based on a multiplier of employee contributions. The statutory multiplier formula is blamed for the city and state?s underfunded pension quagmires.
“There are number of things here that are really, really good,? Sen. Robert Martwick, D-Chicago, told fellow lawmakers during a recent Senate Pension Committee hearing. Martwick is a co-sponsor of the legislation and also heads the committee.
?This is a measure that puts the district on to a path to full funding over the course of 35 years,” he said. “It is responsible. There is no opposition to it. This is exactly more of what we should be doing.”
The district will ramp up to an actuarially based contribution beginning this year when 25% of the actuarially determined contribution is owed, then half in 2022, and three-quarters in 2023 before full funding is required in 2024. To help keep the fund from sliding backwards during the ramp period the district will deposit an upfront $40 million supplemental contribution.
The 35-year clock will start last December 31 to reach the 100% funded target by 2055.
Spending plans that “fully fund” pension obligations by making statutorily required contributions — amounts required by legislators, by law — do not necessarily fully fund pensions. In fact, Illinois has a sad history of passing laws with funding that falls far short of actuarial requirements — the amounts necessary to keep pension (and related retirement health care) debt from rising over time.
For an example, take a peek at the Illinois Teachers’ Retirement System (TRS). Their annual report for 2020 is available here. The table on pdf page 2 shows that the system has accumulated more than $50 billion in invested assets, but this massive amount actually falls far short of the nearly $140 billion in present value obligation for future pension payments, leading to a nearly $90 billion unfunded liability.
The practice of distributing unfunded promises to pay money in the future has been a key of the tool chest that politicians have employed in misleading the citizenry that Illinois has lived up to constitutional balanced budget requirements, when in truth it has done anything but.
The Illinois legislature ended its regular legislative session on May 31, in a flurry of legislation passed late into the night. One of those bills was a set of changes to the 30% funded pension plan of the Chicago Park District. Were these changes long-over due reforms, or just another in the long line of legislative failures? It’s time for another edition of “more that you ever wanted to know about an underfunded public pension plan,” because this plan illustrates a number of actuarial lessons.
80% is not OK. Governance – who gets to set the contributions? Funded status can collapse very quickly and be very difficult to rebuild. Need to use actuarial analysis not just legislator’s brainstorms
Wirepoints calculates that retirement costs will consume 26 percent of the 2022 budget. The state is set to contribute $9.4 billion in General Funds to pensions, pay $777 million in pension bond costs, and pay an estimated $1 billion in retiree health costs.
In total, that’s $11.2 billion of the $42.3 billion budget consumed by retirement expenditures.
On top of the payments from the General Fund, another $1.2 billion in pension payments will come from other budget funds, meaning the state’s total retirement costs will be an estimated $12.4 billion in 2022.
Kentucky has taken action to shore up its pension system, but it?s going to take time to reverse the adverse effects of past funding shortfalls, according to S&P Global Ratings.
Kentucky has one of the poorest funded pension systems among all U.S. states, with an aggregate funded ratio of 44% as of fiscal 2019, S&P said. The state?s general obligations are rated A by S&P with a stable outlook.
The state?s Public Pensions Authority is responsible for the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS) while counties and cities are responsible for the County Employees Retirement System (CERS). The Teachers Retirement System is a seperate system with its own board.
The funded ratios for the systems are 14.01% for the KERS non-hazardous and 55.18% for the KERS hazardous, 58.27% for the TRS, 28.02% for the SPRS and 47.81% for CERS non-hazardous and 44.11% for the CERS hazardous.
My colleague at Bloomberg writes we’ll have to pay teachers more to get them to return to work. Their pay has been stagnant for a decade. But their compensation has not been. A very large part of teachers’ compensation comes in the form of a massive risk-free asset—a defined benefit pension. The value of this pension increased as real interest rates fell. It not only took more resources for the states and municipalities to finance (assuming the pension funds were well funded—a big if) the pension when rates were low. The pension became more valuable.
So teachers really got large raises in the form of their more valuable pension. The problem is they don’t fully internalize how much more their pension is worth. Also, pensions are less valuable for young teachers who may change jobs one day. If we do want to increase teachers’ pay, we really need to reform the pensions. Reform would free up more money for salaries, and there’s evidence young teachers prefer more flexible compensation.
That probably won’t happen since the teachers’ union is very attached to its defined benefit plan. But you can’t have it all, even in this labor market.
Jelincic is challenging CalPERS’ dubious denials of two different Public Records Act requests he made. One focuses on impermissible secret board discussions shortly after Chief Investment Officer Ben Meng’s sudden resignation last August. The filing not only calls for these records to be made public but also demands that board members be released to discuss all the matters that CalPERS impermissibly covered in the August “closed session”. The second involves CalPERS’ continuing efforts to hide records showing how it overvalued real estate investments by $583 million. Yet CalPERS not only has said nary a peep about bogus valuations are larger than the total amount it was slotted to invest in a mothballed solo development project, 301 Capitol Mall, but it continues to publish balance sheets that include the inflated results.
We predicted that CalPERS would be be even more inclined than usual to fight these Public Records Act requests because the filing seeks remedies beyond release of the records. First, it requests that CalPERS be found to have violated the Bagley-Keene Open Meeting Act. Second, to the extent that the judge rules that the board discussed items in closed session that should have been agendized for and deliberated in open session, the suit asks that board members be permitted to disclose the contents of those particular discussions in public. Third, the filing calls on the court to require that CalPERS make video and audio recordings of all closed sessions and keep them for five years (this is something that CalPERS currently does but this obligation is meant to shut the door to “the dog ate my disk” pretenses down the road.)
Transparency is not just a good thing for the public. A study of the 2012 Recovery Act (ARRA) showed that the biggest users of publicly available data were government officials, who used the information to track spending. Cities that do not already issue comprehensive annual financial reports (CAFRs) should adopt them for the benefit of policymakers and the public. Meet or exceed Generally Accepted Accounting Principles (GAAP) and Government Accounting Services Board (GASB) statements in your reporting. Clearly account for liabilities such as pensions, retiree health benefits and infrastructure maintenance and replacement. Have that accounting independently verified.
According to a January 2021 report from Truth in Accounting, the top 75 US cities have a combined unfunded public pension obligation of more than $180 billion. Cities often underfund these obligations to cover budget shortcomings elsewhere, an irresponsible game of whack-a-mole.
Treasury guidance forbids using ARPA money in pension funds to cover unfunded liabilities from before the COVID emergency. It does allow spending on current payments for either defined benefit or defined contribution plans. Cities could use ARPA funds to provide additional payments to those plans to encourage employees to switch from their traditional pension to a defined contribution plan—which is a much more financially sound position for cities to be in.
You can find all the major filings at Kentucky Pension Case. The two below are over the most heated current issue: whether the Tier 3 Plaintiffs can move forward. Judge Shepherd said effectively that he needed to see what the attorney general planned to do before he decided that.
Given that the justification for the attorney general repeated extension requests was to wrap his mind around the case, and the Calcaterra report looked like Kentucky Retirement Systems hiring an outside firm to brief the attorney general, the new filing is entirely old hat. It has not only has no new arguments, it is even more openly cribbed from older plaintiff filings that the original attorney general intervention, where his office at least re-wrote a fair bit of the material into white shoe tall building lawyer style. Here, nearly all of the filing is a cut and paste, including the charts.