Adjustments in City’s pension plan may take six or more years

Link: https://richmondfreepress.com/news/2022/nov/10/adjustments-citys-pension-plan-may-take-six-or-mor/

Excerpt:

City Hall’s 4,200 retirees likely may wait years before seeing another cost-of-living adjustment in their pensions.

In a report to City Council on Monday, Leo Griffin, director of the Richmond Retirement System, projected that 2029 may be the earliest that cost-of-living adjustments are considered for enrollees in the defined benefit pension plan. The defined benefit plan provides a guaranteed pension that depends on the salary earned.

Mr. Griffin’s report suggested the city would be better off waiting until 2033 to consider pension improvements. That is when the system is projected to be fully funded and the city’s yearly

contribution for the pension plan is projected to plummet 81 percent from around $55 million a year to $10 million a year.

Mr. Griffin’s projections assume that the system achieves an average annual 7 percent return on investments.

If that level of return is received, his report indicates that the system would cross the 80 percent threshold of funding in six years – the funding threshold the retirement system has set before any cost-of-living adjustment could be considered.

Author(s): Jeremy M. Lazarus

Publication Date: 10 Nov 2022

Publication Site: Richmond Free Press

Forensic Analysis of Pension Funding: A Tool for Policymakers

Link: https://crr.bc.edu/briefs/forensic-analysis-of-pension-funding-a-tool-for-policymakers/

Graphic:

Full pdf: https://crr.bc.edu/wp-content/uploads/2022/04/SLP83_.pdf

Key findings:

State and local policymakers face a growing pension cost burden, but often lack understanding of the root causes.

One underappreciated cause is “legacy debt” – unfunded liabilities accumulated long ago, before plans adopted modern funding practices.

Legacy debt still exists today because historical unfunded liabilities were ultimately paid in full using some of the money intended to fund later benefits.

In a sample of plans with particularly low funded ratios, legacy debt averaged more than 40 percent of unfunded liabilities.

A failure to recognize the legacy debt has provided misleading information about benefit generosity, hindering progress toward effective solutions.

Author(s): Jean-Pierre Aubry

Publication Date: April 2022

Publication Site: Center for Retirement Research at Boston College

Original Sin (or Pandora’s Box) and Public Finance and Pensions

Link:https://marypatcampbell.substack.com/p/original-sin-or-pandoras-box-and?justPublished=true

Graphic:

Excerpt:

The kinds of messages that are welcomed are “innovative” in terms of telling you that you don’t have to do the thing you really don’t want to do (put more money into the pensions, promise less, cut back on many things, tax more, etc.)

Yes! You don’t have to fully-fund pensions!

Absolutely, pension obligation bonds will allow you to do really real arbitrage! Don’t worry about the extra leverage!

For sure, you should be chasing the waterfalls of alternative asset classes! You can get those high returns and not worry about extra risk! Otherwise, you’d have to decrease your discount rate!

Author(s): Mary Pat Campbell

Publication Date: 29 Jan 2022

Publication Site: STUMP at substack

Illinois downstate/suburban public safety pension gap increases

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202112211317SM______BNDBUYER_0000017d-ddd5-d418-a97d-fffffcde0000_110.1#new_tab

Excerpt:

The unfunded liabilities of Illinois? suburban and downstate public safety pensions rose to $13 billion in the last year of compiled results reported to the state, continuing a 29-year climb that underscores the deep strains on local government budgets.

The unfunded tab for the 295 firefighter funds and 352 police funds outside of Chicago grew to $13 billion in fiscal 2019 from $12.3 billion in 2018 and $11.5 billion in 2017. Police accounted for $7.5 billion of the total and firefighters for $5.5 billion, according to a new report from the state legislature?s Commission on Government Forecasting and Accountability.

The rising tab could help the Illinois Municipal League?s case in arguing for lawmakers during their 2022 session to loosen funding requirements.

The League wants a re-amortization of the funding schedule that would extend the target date for achieving 90% funding beyond fiscal 2040, and lower the funding target to 80% from 90%. While both would ease the burdens on governments market participants have warned they are Band-Aid fixes that don?t solve the underlying funding strains.

Author(s): Yvette Shields

Publication Date: 21 Dec 2021

Publication Site: Fidelity Fixed Income

Chicago Park District pension revamp takes fund off road to insolvency

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106081343SM______BNDBUYER_00000179-ec17-d1ac-a5fb-ef37eda90001_110.1

Excerpt:

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.

Author(s): Yvette Shields

Publication Date: 8 June 2021

Publication Site: Fidelity Fixed Income

My Word | The rhetoric does not match the arithmetic on public pensions

Excerpt:

In 2015 Eureka started paying down its unfunded pension liability. These pension debt payments were $921,000 in 2015, $1 million in 2016, $3.9 million in 2017, $4.6 million in 2018, $5.4 million in 2019, and $5.7 million in 2020. Going forward, these debt payments will increase from $6 million in 2021 to $8.4 million in 2029, and are currently scheduled to continue until 2038. In 2015, Eureka cut $834,000 from the Eureka Police Department budget. Heading into budget talks in early 2020, EPD Chief Steve Watson talked of how EPD had seen a 19% reduction in staffing since 2016. Eureka followed up these previous cuts to EPD in its FY 2020-2021 budget with a funding cut of $1.1 million and loss of six more positions, including four officers, for EPD.

…..

The rhetoric does not match the arithmetic. Pension debt payments are funding taken out of the budget and represent tax dollars that are not invested in the community and that citizens see no current services for. Not exactly keeping funding local. With so many governmental agencies in the same debilitated economic situation due to pension obligations, the economic evidence does not support the claim of governments being prudent in their spending. Constant increases in funding for pension obligations along with cuts to law enforcement and other services do not support the idea that tax dollars are the taxpayers’ dollars as a priority expenditure.

Author(s): Patrick Cloney

Publication Date: 2 June 2021

Publication Site: Times-Standard

Voice of the people: Pension problem will have to be addressed at some point

Link: https://www.daily-journal.com/opinion/voice-of-the-people-pension-problem-will-have-to-be-addressed-at-some-point/article_5fc77b16-8e44-11eb-a527-bf430c87768c.html

Excerpt:

I am not personally involved with the success or failure of these pension funds because I am not, nor do I have any family members enrolled, in either of the pensions.

The last report I saw (from 2019?) stated the City of Kankakee taxpayers’ annual funding of the pensions was at or close to $3 million. It would be nice if the “windfall” the city’s representatives receive would take some of the burden off the backs of the taxpayers of the city. Since it wasn’t included in the several ideas of the distribution of this “windfall,” I would hope that it could be. It would be wonderful to have this albatross removed from the necks of the city’s taxpayers.

If all pension providers would have been included in the Employee Retirement Income Security Act of 1974 (ERISA), this problem would probably not exist. However, US Congress in its usual passing of legislation exempted all governments (federal, state, county and local). The federal law sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

Author(s): David Cox

Publication Date: 27 March 2021

Publication Site: Daily Journal of Kankakee, Illinois

Marylanders Concerned about State’s Ability to Fund State Employee Pensions

Link: https://www.mdpolicy.org/research/detail/marylanders-concerned-about-states-ability-to-fund-state-employee-pensions

Excerpt:

With Maryland’s state pension fund nearly $20 billion in the red, a new statewide survey from the Maryland Public Policy Institute reveals that a large majority of voters are concerned about the state’s ability to fund pension benefits for public employees. The survey of more than 500 registered Maryland voters gauged public sentiment on the health of the state pension system and found that two-thirds of Marylanders are worried that the state will have to raise taxes to ensure adequate funding. Read the full survey at mdpolicy.org. 

More than 400,000 former and current state employees depend on the Maryland State Retirement and Pension System, yet the system suffers from a $20.1 billion shortfall – or approximately $15,000 per Maryland resident.

Publication Date: 22 March 2021

Publication Site: Maryland Public Policy Institute

PSERS hires two outside law firms to investigate $25 million error

Link: https://www.pennlive.com/news/2021/03/psers-hires-two-outside-law-firms-to-investigate-25-million-error.html

Excerpt:

In December, consulting actuary Buck reported that PSERS had reached a 6.38 percent average annual rate of return across the prior nine years, just barely above the minimum threshold of 6.36 percent and thus averting a rate increase.

Those calculations were called into question at the time and, more recently, PSERS admitted that they may have been incorrect.

On Friday night, after a nearly 2-hour-long executive session with no public discussion, PSERS’ audit committee approved hiring two law firms to investigate the error and offer recommendations.

Author(s): Wallace McKelvey

Publication Date: 19 March 2021

Publication Site: PennLive

Emilie Krasnow: My mother dedicated her life to teaching. Fund her pension.

Excerpt:

This year, teachers have faced more adversity than ever before. I have heard from many educators, union members and parents how scared they are. They are not vaccinated. They are working more hours than ever. They are worried about their students. This is not the time to take away the promise of their retirement stability. 

I am calling on our state legislators and our governor to find alternative revenue sources to fund the retirement plans for teachers and state employees. I am grateful for the hard work of the legislators, union leaders and educators who are collaborating and strategizing to address this issue.

Just a year ago, we were lauding our teachers as “heroes” and “essential workers.” It’s time to put our money where our mouth is and fund their pension program. 

Author(s): Emilie Krasnow

Publication Date: 15 March 2021

Publication Site: VT Digger

Murphy’s promise of full public-worker pension payment breaks 25 years of underfunding

Excerpt:

In addition to helping improve the long-term health of the pension system, Treasury officials are also projecting some significant budget savings can be generated by getting to full funding a year ahead of schedule.

Those savings, which will total an estimated $860 million over the next three decades, are based on the way the state’s unfunded liability accrues over the long term, the officials said.

Murphy’s administration should also be in a good position to manage the initial step up to full pension funding, thanks to a combination of factors, including money the state borrowed last year when it was expecting significant revenue losses would be triggered by the pandemic.

Author(s): John Reitmeyer

Publication Date: 15 March 2021

Publication Site: NJ Spotlight News

Working Paper — State and Local Pensions: The Case for Fundamental Reforms

Link: https://benefitslink.com/src/dol/working-paper-on-state-and-local-pensions-the-case-for-fundamental-reforms.pdf

Graphic:

Excerpt:

This Report addresses the widespread underfunding of the retirement systems in the nation’s state and local governments. It begins by summarizing some past, current, and probable future trends of unfunded pension liability at the state and local levels. It describes the scope of unfunded pension debt in various state and local jurisdictions and calculates both their aggregate debt and per capita debt, based on states’ self-assessments; it then incorporates a variety of other measurements of unfunded liability. Results from many of those other measures suggest that the magnitude of unfunded pension liability may be considerably larger than previously indicated.


This Report then describes and analyzes the inherent dynamics of government retirement systems that have produced this underfunding, finding that there are a variety of pressures and processes within these retirement systems that can operate to the disadvantage of employees, beneficiaries, and the public generally. It then summarizes attempts to reform pension systems in several states. Some of those states now have relatively sound retirement systems; others less so. It then contrasts the requirements that govern most private-sector pensions to the relatively relaxed regulatory regimes of state and local government pensions, concluding that adoption of rules similar to those governing private sector requirements would likely have positive consequences if implemented for state and local government pension plans and their beneficiaries.

The nation’s experience with unfunded pension liability at the state and local government levels may provide some lessons for policymakers; this Report concludes with several recommendations in this area.

Author(s): Daniel Greenberg: Senior Policy Advisor in the Veterans’ Employment and Training Service; Jay Sirot: Special Assistant in the Office of the Assistant Secretary for Policy

Publication Date: 15 January 2021

Publication Site: Benefits Link