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  #261  
Old 03-31-2020, 06:52 AM
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Mary Pat Campbell
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RATE OF RETURN

https://reason.org/commentary/map-co...m_medium=email

Quote:
Map: Comparing State Pension Plans’ Assumed Rates of Return
This visualization shows how states have been gradually adjusting their assumed rates of return down to more realistic levels.
Spoiler:
Each pension plan uses an assumed rate of return to estimate how much current assets—made up of contributions from both employers and employees plus any investment gains/losses—will be worth when promised pension benefits are finally due. This assumption plays a major role in a pension plan’s ability to maintain long-term solvency and to live up to the promises made to public employees.

Any time annual investment returns fall below the assumed rate of return (ARR), a plan must find ways to make up the shortfall between expected and actual assets. Sustained experience below a plan’s ARR results in growing pension debt, which has been a significant contributor to the funding shortfalls in public pension plans across the nation.

In response to decades of investment performance below expectations, most public pension plans have been gradually adjusting their assumed rates of return down to more realistic levels.

This map (click to zoom) shows the changes in assumed rates of return held by state pension systems from 2001 to 2018, along with the national average rate for comparative purposes. And this visualization highlights the different ways states have responded to the ubiquitous challenge of lower long-term returns. [Note: for cases of states with multiple public pension plans, the analysis uses each plan’s accrued liability to weight the state’s combined assumed rate of return.]



As an example, North Carolina lowered its ARR well before most other states. As a result, they experienced fewer unexpected costs over the studied timeframe, which helped them become one of the nation’s healthiest states in pension funding — with a 90 percent funded ratio at this time.

Colorado, on the other hand, was slow to adjust its ARR. Market returns below the state’s expectations were the largest contributor to Colorado’s pension debt over the past two decades, adding $8.4 billion in unexpected costs. Now, the state only has 60 percent of the funding needed to cover the retirement promises already made to its public servants.

States have been lowering their assumed rates of return across the board, but most maintain assumptions that are still too high. Many financial advisors believe that investors can expect to see continued overall investment performance that is below the levels experienced in the past. With this in mind—and the unignorably turbulent market results as of late—state policymakers should consider reducing the risk of future pension debt accrual by lowering their ARR even further.

The sooner government pension plans adopt more conservative return assumptions, the better off they will be down the road. More importantly, acting early can help ensure that promised pension benefits will be available for their public workers.


Spoiler:



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  #262  
Old 03-31-2020, 06:54 AM
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LIQUIDITY
ASSET DEATH SPIRAL

https://www.ai-cio.com/news/terrible...paign=CIOAlert

Quote:
It’s a Terrible Time for Pensions to Have Weak Liquidity
Market downturn could force some public pensions to sell assets for a loss.

Spoiler:
A market downturn is a difficult time for any investor, but it’s particularly bad for public pensions with weak liquidity. Because pension funds have long-term investment horizons that span decades, they often claim to be undisturbed by market turmoil as they have time to ride it out. But public pensions with liquidity stress don’t have that luxury in the kind of market we have right now.

“Given the current market downturn, US public pension plans may experience liquidity stress to cover benefit payments,” S&P Global Ratings said in a research note. “Assets in plans with weak liquidity are likely to be sold at a loss and may contribute to decreasing funded ratios. In our opinion, poorly funded plans and high discount rates may be indicators of excessive liquidity risk.”

According to S&P, US public pension plans have an average of 1% of their target portfolios held in cash and short-term investments to pay ongoing expenses, such as benefit payments and administrative costs. The firm said a liquidity-to-assets ratio can help determine how much liquidity risk a pension plan is carrying. A pension plan with a negative liquidity-to-assets ratio needs additional money to maintain operations and make benefit payments. And the further below zero the ratio is, the more assets that may have to be converted to cash.

In a typical year, weak liquidity isn’t a major problem because investment returns can supplement cash flow. However, this is not a typical year, and selling non-cash assets during the current market downturn could mean large losses for pension funds. Additionally, plans with weak funded ratios and high discount rates translate to increased liquidity risk. S&P said there is a direct correlation between the discount rate—which is usually the assumed rate of return in the public sector—and the underlying target portfolio.

“A high assumed return indicates a high level of risk accepted in investments, which sometimes indicates a low percentage of cash,” S&P said. “Plans with already weak funded ratios and limited cash might need to liquidate longer-term investments to meet annual benefit payouts, thereby eroding earning power and sinking into even weaker funded status.”

S&P said some public plans could completely run out of money to fund pension benefits. To demonstrate what happens at asset depletion, it provided examples of severely underfunded US pension plans, which the firm defines as under 40% funded. Five of the plans have ratios below zero, which signals possible negative available cash that would require either additional financing or a drawdown of assets for short-term support. This “could expedite their path to insolvency,” S&P said. Meanwhile the other plans are likely to experience significant deterioration during a prolonged and severe market downturn.

Liquidity Risk Heightened For Large Plans Under 40% Funded

Pension plan

Liquidity-to-assets ratio (%)

New Jersey Teachers

(7.46)

Chicago Police

(2.77)

KERS Non-Hazardous

(2.77)

Chicago Municipal

(1.39)

Illinois SERS

(0.68)

Connecticut SERS

0.34

Providence ERS

3.19

Pittsburgh

5.51

Source: S&P

Additionally, other post-employment benefits (OPEB) costs, such as retiree medical costs, are expected to increase because of the COVID-19 pandemic and may hurt pension sponsor liquidity, according to S&P. Because these costs are pay-as-you-go, that means that there is no room to reduce or delay contributions unless benefits are reduced.

To make matters worse, further pension deterioration is likely even when the market eventually turns around.

“Employer and plan sponsor budgets are going through a concurrent period of stress, so as sponsor and pension plans adjust budgets, they may look to defer contributions for budgetary relief,” said S&P, which added that steps that might be taken at the expense of funding the pension plan could include extended amortization payments, temporary changes to asset smoothing, or other means of contribution deferral.

“State and local governments with limited fiscal flexibility and weak economic metrics are more likely to consider these options,” S&P said. “Similar to the years following the last recession, many US public finance entities are likely to emerge seeking plan design and benefit changes in an effort to gain budgetary relief.”


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  #263  
Old 03-31-2020, 07:30 AM
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PHILADELPHIA, PENNSYLVANIA

https://www.pewtrusts.org/en/researc...irement-system
Quote:
How Will the COVID-19 Pandemic Affect Philadelphia's Underfunded Retirement System
Pew stress test may hold clues

Spoiler:
The COVID-19 pandemic will have a vast and far-reaching impact on cities’ budgets, in terms of both reduced revenues from a widely shuttered economy and increased expenditures for essential services. And in Philadelphia, those expenses include financing the underfunded retirement plan for city workers.

In late 2018, The Pew Charitable Trusts conducted a stress test analysis of the plan to help policymakers evaluate how it would fare under various economic conditions. Among the tested scenarios, as we reported in April 2019, was an asset price shock simulating a recession, with market returns initially declining by approximately 26 percent in year one, followed by a three-year recovery and then low, 5 percent equity returns over the long term—lower than the city’s current assumption of a 7.55 percent return.

How accurately that scenario simulates the current situation and near-term economic future, of course, remains to be seen. But the stress test showed that, even in an asset shock scenario, the city would still be able to sustainably pay down the plan’s accumulated pension debt over time. Under our simulation, the plan, which was 47 percent funded as of July 1, 2018, would be about 80 percent funded by 2035.

As Figure 1 shows, the pension plan’s funded ratio would fall in the first year or two, then recover relatively quickly, with the figure rising steadily thereafter. Over time, the results were similar to those of a scenario that assumes a steady 5 percent return on the plan’s investments.


These projections assume that city officials maintain their existing funding formula, which has been changed in recent years to increase payment levels. The formula pays the full actuarial determined contribution and also sets aside a portion of sales tax revenue and employee contributions as pension plan payments above and beyond the actuarial contribution. In the past few years, contributions from the city and its employees have been roughly equal to the payments going out. The recent adoption of a so-called stacked hybrid plan for new, nonuniformed employees also plays a role, reducing the plan’s exposure to investment risk.

Under the asset shock scenario, employer contributions to the retirement plan, expressed as a percentage of overall revenue, initially would rise as part of the downturn, then fall gradually in subsequent years. (See Figure 2.) In the current situation, however, near-term pressure on revenues is likely to be higher than in past downturns.


In the current environment, keeping to the existing formula will be a real challenge for officials, who may want to divert some of the money to more immediate needs. The proposed city budget, drafted prior to the COVID-19 pandemic, called for taxpayers to contribute $760 million to the plan, nearly 15 percent of the general fund budget. If that contribution and future contributions were to be reduced, the plan’s path toward fiscal well-being would become a longer one.

The city’s pension reforms, in terms of both contributions and benefits, have set the retirement plan on a path to sustainably deliver on pension promises as long as policymakers remain committed to their current contribution policy now and in the years to come. But maintaining those policies will have real costs for taxpayers and city services—and pose tough choices for officials at a challenging time.

Larry Eichel is project director of The Pew Charitable Trusts’ Philadelphia research and policy initiative.


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  #264  
Old 03-31-2020, 08:47 PM
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NEW JERSEY

https://www.pionline.com/pension-fun...7#cci_r=158332
Quote:
New Jersey Pension Fund returns -13% since July

Spoiler:
New Jersey Pension Fund, Trenton, sustained a negative return of more than 13% from the beginning of its fiscal year on July 1 through Monday, according to preliminary estimates, due to the plunging stock market's reaction to the coronavirus outbreak.

CIO Corey Amon described the pension fund's performance Wednesday at a meeting of the State Investment Council, which formulates policies for the division of investment, the state Treasury Department unit that manages investments for the pension fund. Mr. Amon is director of the division.

"It will be some time" before the division can assess the full impact of COVID-19 on the pension fund, Mr. Amon said. The meeting was held via telephone rather than at its normal Trenton location.

See more of P&I's coverage of the coronavirus
Although Mr. Amon offered the brief comment about preliminary data, the division of investment provided more detailed information about the pension fund during the first two months of 2020 as well as for the fiscal year through Feb. 29.

For the first two months of the year, the pension fund's return, net of fees, was -3.81% vs. a benchmark of -3.55%.

For the eight months of the current fiscal year, the return was 0.93% vs. a benchmark of 1.95%. Given Mr. Amon's comments about preliminary results through Monday, these figures illustrate the extreme volatility over just a few weeks.

For periods ended Feb. 29, the pension fund posted a 12-month return of 5.5% vs. a benchmark of 6.1%; three years, 6.78% vs. benchmark's 7.31%; five years, 5.9% vs. 6.09%; 10 years, 7.97% vs. 7.64%.

The report said pension fund's assets totaled $74.2 billion at the end of February. At year-end 2019, assets were $79.7 billion.

Also at the meeting, Assistant Treasurer Dini Ajmani said the state remains committed to making its fiscal third-quarter and fourth-quarter contributions to the pension fund despite the economic and investment uncertainty caused by COVID-19.

"Nothing has changed" for fiscal 2020, Ms. Ajmani said.

Gov. Phil Murphy's budget for the fiscal year ending June 30 calls for a $3.75 billion state contribution. The third-quarter contribution is due March 31.

Ms. Ajmani repeated the comments issued late Monday by Treasurer Elizabeth Maher Muoio in a notice to bondholders that the economic fallout from the COVID-19 will be significant, but still hard to accurately measure for the current fiscal year and the next fiscal year. For the 2021 fiscal year, Mr. Murphy has proposed a $4.6 billion state contribution to the pension fund.

The letter noted among other things that New Jersey will experience "precipitous declines in revenues" for the current fiscal year ending June 30 as well as the next fiscal year affecting revenue collections.

The letter said the state expects state lottery revenue to decline. This revenue has represented about $1 billion a year in the state's contribution to the pension fund. According to a state revenue report covering the first eight months of the current fiscal year, lottery proceeds were $629.5 million, or 9.8% below the same period for the previous fiscal year.

Also at the state investment council meeting Wednesday, the division of investment announced a commitment of up to €100 million ($107 million) to CVC Capital Partners VIII, which will pursue leveraged buyouts of medium to large businesses in Europe and North America, according to the division. CVC Capital is an existing relationship with the New Jersey Pension Fund.

The state investment council members also voted to allow the division of investment to temporarily exceed the regulatory allocation cap of 12% for private equity assets in the pension fund. The allocation was 12.8% as of March 20 due to the decline in equities' values. A formal proposal to raise this cap to 15% is still subject to public comment through April 6.

In addition, Mr. Amon said the division has hired an executive search firm to seek candidates for the jobs of deputy director of the division and head of alternative investments.



https://www.njspotlight.com/2020/03/...first-of-year/
Quote:
COVID-19 Hammers Public-Worker Pension System, Sheds $6B Since First of Year
JOHN REITMEYER | MARCH 26, 2020 | BUDGET, CORONAVIRUS IN NJ
Returns likely down more than 10% in the current fiscal year, but Treasury says it has no plans to skip upcoming pension contributions

Spoiler:
New Jersey’s public-worker pension system is getting walloped by the financial-market turbulence caused by the coronavirus pandemic, with at least $6 billion in market value lost since the beginning of the year.

But so far, the Department of Treasury says it has no plans to skip any of New Jersey’s upcoming employer pension contributions, even as the state budget is also being ravaged by the economic upheaval.

Members of the New Jersey State Investment Council assessed some of the initial damage done to the pension system during a public meeting on Wednesday that was held entirely by phone. It was the panel’s first meeting since the financial markets took a major tumble in mid-February.

Pension-fund freefall
Overall, pension-fund investment returns that were running in the double digits just last year have now significantly plummeted during the first part of 2020, according to the latest figures from the Division of Investment (DOI).

Returns for fiscal year 2020, which runs through the end of June, fell to below 1% as of the end of February, and they appeared to be down by more than 10% according to the preliminary fiscal-year figures that include the first few weeks of March, said Corey Amon, who serves as the director of DOI.

The value of the pension system has also dropped, from a high of nearly $80 billion at the end of December to $74.1 billion at the end of February, according to documents released ahead of the public meeting. And that two-month period doesn’t capture additional losses that have likely been suffered over the past three weeks.

“Clearly we are in the midst of a near-term public health crisis that is central to market turmoil, and we are focused on navigating through this,” Amon said during the meeting.

Meanwhile, a Treasury official who also addressed council members said the state is still planning to make its next quarterly pension contributions, even as the full damage that’s being done to the state budget is being assessed. Nearly $1 billion in fiscal 2020 discretionary spending was put in reserve late last week due to ongoing upheaval, including funding for things like property-tax relief and opioid initiatives.

In all, the state pension system covers the retirements of an estimated 800,000 current and retired workers across seven different funds. It is financed with contributions from workers; payments made by their respective state and local government employers; and from revenue that flows in on a monthly basis from the state Lottery.

The pension system also benefits from any returns that are gained from the investment of fund assets managed on a day-to-day basis by the DOI, which is a division of Treasury. The pension funds operate under a 7.5% annual assumed rate of return.

More bad news for troubled pension system
Heading into the recent market trouble, New Jersey’s pension system was already ranked as the nation’s worst-funded state retirement plan. That comes after governors and lawmakers from both parties over the past two decades have regularly shorted the state’s annual pension contributions as they’ve prioritized things like tax cuts or new spending initiatives instead.

The practice of shorting full, actuarial-required pension payments has continued during the tenure of Gov. Phil Murphy, a first-term Democrat, who has chosen to follow a gradual funding ramp-up started under Republican Chris Christie. Under that plan, the state is scheduled to make what actuaries would consider a full payment during the 2023 fiscal year.

A bond disclosure issued by the Murphy administration earlier this week alluded to the stress that recent market conditions have put on the pension system, and it also suggested that the state’s payment obligation may grow larger as the market value of the fund drops.

In the past, the state has responded to its own budget problems by delaying or even skipping planned pension contributions. But assistant State Treasurer Dini Ajmani said during Wednesday’s meeting that right now there are no plans to do so. The state’s next quarterly payment totaling $684 million for fiscal 2020 is due to go out on schedule on March 31.

“We are committed to making state contributions into the pension fund,” Ajmani said. “Nothing has changed in that.”

She did, however, raise concerns about the portion of the pension funding that flows directly into the retirement system from the state Lottery. A number of retail outlets statewide that sell lottery tickets have been shuttered by a Murphy executive order aimed at slowing the spread of the disease..

“So far, it hasn’t been catastrophic,” Ajmani said. “We’re keeping a close eye on that.”

Arguing to delay pension contribution
But at least one Republican lawmaker is faulting the Murphy administration for not holding back the March 31 quarterly pension contribution until more is known about how the state budget will endure the economic upheaval. Sen. Declan O’Scanlon (R-Monmouth) said delaying the payment, but not skipping it, would be a more prudent course of action.

“We can’t ignore as a safety valve everything that still has to go out the door the last few months of the (fiscal) year,” O’Scanlon said in an interview Wednesday afternoon.

He also said if any expenditure should still be allowed to go forward amid the current budget uncertainty, it should be $142 million in funding to cover this May’s Homestead property-tax relief. Instead, that funding is among the $920 million in appropriations that were frozen by the Murphy administration late last week.

“If we’re trying to maintain people’s liquidity, that’s something that puts money directly into people’s pockets,” said O’Scanlon, who serves on the Senate’s budget committee. “That money should go out the door before the pension payment.”

Asked for a response, Treasury spokeswoman Jennifer Sciortino said: “The decision to freeze funds in reserve during this unfolding crisis is designed to help us exercise all available options to ensure we can meet our statutory, debt, and health-related obligations during this unprecedented time of great uncertainty.

“We are awaiting more information and closely monitoring the federal stimulus bill and other actions that may impact the state’s revenue position,” she said.

During his presentation to the investment council, Amon, the DOI director, detailed several ways the financial markets have taken a hit in recent weeks. He said anything related to the travel and leisure sector, including hotels and airlines, has really taken a beating.

But Amon also highlighted preparations that have been made by the state heading into the likely economic downturn and preached an overall message of confidence to members of the council. And the pension system should have no problem paying out benefits to retirees in the short term, in part due to a decision made last year to move assets out of hedge funds and into U.S. bonds.

“Despite the challenges of the current market, it’s important for the division to look forward and to determine the best course of action to ensure the pension fund’s portfolio is well-structured into the future,” he said.

During fiscal 2019, which ended on June 30, 2019, pension-system investments returned more than 6% gains. While that marked the third year in a row of net-positive returns, the 2019 fiscal year investment gains still fell short of the assumed rate of return even as the total value of the pension system rose from $78 billion to $80 billion.

When annual investment returns fall below the pension system’s assumed rate, it puts more pressure on the government employers — and ultimately taxpayers — to come up with more cash to cover long-term liabilities, since employee-contribution rates are fixed by law. The pension system’s overall long-term unfunded liabilities are over $100 billion by some recent estimates.

The last time the state pension system failed to generate net-positive returns for an entire fiscal year was in fiscal 2016, when returns came in nearly 1% in the red.


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  #265  
Old 04-02-2020, 06:08 PM
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Mary Pat Campbell
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https://www.nytimes.com/2020/04/02/b...c-pension.html

Quote:
Coronavirus Is Making the Public Pension Crisis Even Worse
The pandemic has handed the funds big losses after they ramped up their appetite for risk over the past decade.


Spoiler:
For years, the country’s public pension plans have faced a yawning gap between what they owe and what they can pay.

From the State of California’s public employees’ retirement plan, with more than 1.6 million participants, to tiny funds for employees of local mosquito-control programs in Illinois, public pensions are the time bomb of government finance.

Now the coronavirus pandemic has it ticking faster.

Already chronically underfunded, pension programs have taken huge hits to their investment portfolios over the past month as the markets collapsed. The outbreak has also triggered widespread job losses and business closures that threaten to wipe out state and local tax revenues.

That one-two punch has staggered these funds, most of which are required by law to keep sending checks every month to about 11 million Americans.

Last week, Moody’s investors service estimated that state and local pension funds had lost $1 trillion in the market sell-off that began in February. The exact damage is hard to determine, though, because pension funds do not issue quarterly reports.

“You’re not going to see real data on the market crash until Christmas,” said Girard Miller, a former chief investment officer of the Orange County, Calif., pension fund and a former member of the Governmental Accounting Standards Board.

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And that data will not count the knock-on effects of the economic downturn, which would short-circuit pension funds’ ability to hit up taxpayers for bigger contributions. About 3.3 million people filed for unemployment benefits in the most recent week reported — a record by a huge margin — and further layoffs are inevitable. Thousands of taxpaying businesses are also losing revenue because of stalled operations, and some might be forced to close permanently.

Latest Updates: Markets and Business
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“The people have no money,” said Maria Pappas, the treasurer of Cook County, Ill.

Even before the pandemic gut-punched the economy, Ms. Pappas counted a record 57,000 delinquent property-tax payers in her county, which includes Chicago. Property taxes feed more than 400 municipal pension funds in Cook County, including some that are cash-starved and close to hitting bottom.

“It’s like a rubber band that’s been stretched too thin,” she said. “What I’m telling you is, the rubber band is about to break.”

The coronavirus outbreak could test the sacred nature of these programs in ways that even the crisis of 2008 did not, and ultimately force state and local governments to engage in complicated and perhaps unwinnable fights to reduce or slow the growth of benefits.

Failure to raise more money or reduce payouts could have dire consequences. Pension funds that run out of money — something that happened in Prichard, Ala., Central Falls, R.I., and Puerto Rico — could tip cities and other local governments into bankruptcy. States would be in uncharted waters because there is no bankruptcy mechanism for them; the nearest analogy is a one-off law passed by Congress for Puerto Rico, which has resulted in years of federal oversight, austerity measures and reduced debt payments to bondholders.

Public pension programs have long been endangered by a fundamental tension: With growing ranks of retirees and mature workers, they should invest conservatively, like someone on the cusp of retirement, shifting into high-quality bonds, for example, with durations timed to reflect scheduled future payments to retirees.

Instead, they often take on the kind of risk appropriate for someone with decades to go.

The accounting rules governing public pension plans have made all that risk attractive to those in charge of running and funding them: It’s simpler to put money in riskier assets and bet on rosy investment returns than to commit more taxpayer money upfront.

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Economists have been saying for years that public pensions should be shifting to safer investments as their members age. But Andrew Biggs, an economist at the American Enterprise Institute who specializes in retirement financial issues, said public pension systems hadn’t listened.

In fact, they’ve taken on even more risk.

As of 2018, state pension funds had on average invested 74 percent of their money in what Mr. Biggs called risky assets, including stocks, private equities, hedge funds and commodities. That was up from 69 percent in 2010, after the 2008 shock, and from 61 percent in 2001, when economists first began challenging the way public pensions operate.

“This was completely predictable,” Mr. Biggs said. “They are holding tons of equities when they’ve also got tons of retirees.”

California’s huge state pension system, known as Calpers, is offering a clue about the investment losses these programs face. It posts an investment snapshot, which suggests the total value of its investments has fallen by some $69 billion since mid-February, when it peaked at about $404 billion. Even then, it was short of what it needed to pay all the benefits it will ultimately owe.

So were Illinois, Kentucky, New Jersey, Connecticut, Colorado and many other states. Many counties and cities, too, had large pension shortfalls even before the current market crash.

And in most cases, state laws and constitutional provisions make those pensions sacrosanct — they have to be paid, come what may. Attempts to reduce benefits in meaningful ways often meet with fierce opposition, and failure: In 2015, for instance, the Illinois Supreme Court issued a sweeping, unanimous decision that every penny had to be paid, even the pensions that current public workers had not yet earned.

To reduce costs, some states have tried closing their pension plans to new hires. In Kentucky, state lawmakers met last month in a locked-down capitol to consider such a maneuver for its teachers’ pension plan. The state has also pushed covered workers to pay more; it already takes 13 percent from current teachers’ paychecks, more than twice the payroll tax rate for Social Security.

The other strategy is to turn to taxpayers — the very people and businesses that are now facing shutdowns, layoffs and shriveled balances in their 401(k) accounts.

Illinois chose the path of widespread taxation to pay its retirees’ pensions, including a 3 percent compounded annual increase, a figure well above the recent rate of inflation.

The state doubled its gas tax last year. It tripled a real estate transfer tax, and raised taxes on cigarettes, vaping, electricity and even dry-cleaning fluid. It made marijuana legal and taxable. It approved gambling, so casinos can be taxed, too. Tags for virtually all cars and trucks went up in January.

Chicago raised parking meter rates and put meters on streets that didn’t have them. It raised taxes on restaurant meals, increased a “congestion tax” on single-occupant cars and tacked a $3 fee on ride-hailing services.

And Peoria recently added a yearly “property fee” to raise money for police and firefighters’ pensions. (By making it a “fee” instead of a “tax,” the city could bill entities that are normally tax exempt, like churches and schools.)

The tax situation has driven some residents out of the state.

“Illinois is literally now taxing you for everything,” said Adan Villafranca, a school custodian in the Chicago suburbs who moved his family to low-tax Indiana. “You go to the store and they tax you for a bag. What are they going to tax you for next, the air that you breathe?”

The only other option is to reduce benefits — an approach that would be certain to meet fierce resistance and could be futile. In Illinois, for example, it would require amending the State Constitution.

Benefit cuts may be inevitable, Ms. Pappas said, and they may not be up to voters or the courts.

She volunteered for George Papandreou, a former prime minister of Greece, when his country became a financial pariah in 2010 and had to get rescue loans from the International Monetary Fund and other European countries.

Greece had also promised costly pensions to millions of people, but was forced to reduce benefits to receive those loans, she said.

“They didn’t want to,” she said. “They didn’t have any choice.”

Mary Williams Walsh is a reporter covering the intersection of finance, public policy and the aging population. She previously worked for The Wall Street Journal and The Los Angeles Times, mainly in foreign bureaus. @marywalshnyt • Facebook

https://burypensions.wordpress.com/2...is-even-worse/
Quote:
Coronavirus Is Making the Public Pension Crisis Even Worse
Spoiler:
Among the things I will be doing today:

seeing about applying for my $10,000 forgivable small business loan,
revising our benefit payout standard attachment to incorporate the CARES Act provisions, and
checking unemployment figures to get an idea of how many unemployed (who got through on the state website) will be getting the $600 in extra weekly benefits.
Which got me to thinking about how many sectors of the economy are getting bailouts….and one that is not – for now.

From an article by Mary Williams Walsh:


And that data will not count the knock-on effects of the economic downturn, which would short-circuit pension funds’ ability to hit up taxpayers for bigger contributions. About 3.3 million people filed for unemployment benefits in the most recent week reported — a record by a huge margin — and further layoffs are inevitable. Thousands of taxpaying businesses are also losing revenue because of stalled operations, and some might be forced to close permanently.

…..

The coronavirus outbreak could test the sacred nature of these programs in ways that even the crisis of 2008 did not, and ultimately force state and local governments to engage in complicated and perhaps unwinnable fights to reduce or slow the growth of benefits. Failure to raise more money or reduce payouts could have dire consequences.

Pension funds that run out of money — something that happened in Prichard, Ala., Central Falls, R.I., and Puerto Rico — could tip cities and other local governments into bankruptcy. States would be in uncharted waters because there is no bankruptcy mechanism for them; the nearest analogy is a one-off law passed by Congress for Puerto Rico, which has resulted in years of federal oversight, austerity measures and reduced debt payments to bondholders.

Public pension programs have long been endangered by a fundamental tension: With growing ranks of retirees and mature workers, they should invest conservatively, like someone on the cusp of retirement, shifting into high-quality bonds, for example, with durations timed to reflect scheduled future payments to retirees.

Instead, they often take on the kind of risk appropriate for someone with decades to go.

The accounting rules governing public pension plans have made all that risk attractive to those in charge of running and funding them: It’s simpler to put money in riskier assets and bet on rosy investment returns than to commit more taxpayer money upfront.




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Old 04-03-2020, 01:23 PM
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ILLINOIS

https://www.chicagotribune.com/coron...mge-story.html
Quote:
Despite economic havoc from coronavirus, state public pension officials say plans in good shape

Spoiler:
Although markets have tumbled since the onslaught of the COVID-19 pandemic, the state’s pension systems are reassuring retirees that payments will be processed as usual.

“We’ve prepared for an eventuality like this,” said Dave Urbanek, a spokesperson for the Teachers’ Retirement System. “Our top priority is to protect assets, so we’ve been in what we call a ‘defensive posture’ for the last several years.”

Due to TRS’ perennially low-funded status, only 36% of its portfolio has been kept in public equities, which Urbanek said is low for a portfolio of its size. Representatives from the Illinois State Retirement Systems and State Universities Retirement System said their systems also maintained lower-risk investment profiles prior to the public health crisis.

“We tend to outperform in down or choppy markets, compared to our peers,” said Tim Blair, the executive director of the State Retirement Systems, which oversees pensions to former state employees, judges and legislators. “And during good times … we don’t realize as much on the upside.”

Blair said it is too early to know how much of a financial loss the state’s systems will incur as a result of COVID-19 — or how the pandemic may affect future funding from the state.

“We haven’t even really had time to get too far into that at this point,” Blair said. Given the portfolio’s over $20 billion in assets going into the pandemic, he said “there’s absolutely no danger whatsoever of missed benefit payments.”


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Old 04-03-2020, 01:54 PM
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NORTH CAROLINA

https://www.wbtv.com/2020/03/25/nc-s...e-coronavirus/
Quote:
N.C. Treasurer Dale Folwell released from hospital more than a week after testing positive for coronavirus

Spoiler:
RALEIGH, N.C. (WBTV) - North Carolina State Treasurer Dale Folwell has been released from the hospital after a five-day stay for issued related to the coronavirus.

Folwell issued a statement on March 26 after testing positive for the virus, saying that after a long-planned trip with his son, he returned to Raleigh on March 16 and experienced a cough which he thought was a seasonal reaction to spring pollen.

Folwell, aware of the COVID-19 pandemic, says he monitored his temperature and said he saw no increase through the weekend even as his cough seemed to worsen.


NC Department of State Treasurer
@NCTreasurer
Treasurer @DaleFolwell Issues Statement
Upon Being Diagnosed with #COVID19

READ: https://www.nctreasurer.com/news/pre...sues-statement

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After consulting with a physician, Folwell was tested on the afternoon of Monday, March 23, and was informed the next night of a positive result.

Officials say the virus primarily impacted Folwell’s respiratory system, producing a severe cough. As he was convalescing at home, the cough became more acute and his physician recommended he admit himself to the hospital, which he did on March 29.

“At no time during his stay in the hospital was Treasurer Folwell on a ventilator or otherwise incapacitated. He has been in contact with his family and necessary senior staff members at the Department of State Treasurer (DST) throughout his illness,” officials said Friday. “He has continued to lead DST, with the assistance of his deputies, and has been as engaged as necessary given the severity of his illness and his need to rest and recuperate.”

Folwell will now continue his recovery from home following the protocols as outlined by the discharge procedure as well as those required by local and state health officials.

He said he would like to thank his wife, family and friends for all their support during the difficult time.




http://pulse.ncpolicywatch.org/2020/...with-covid-19/
Quote:
North Carolinians deserve more information about the State Treasurer’s bout with COVID-19
Spoiler:
Let’s make it clear at the outset that everyone should be pulling for State Treasurer Dale Folwell to make a swift and complete recovery from COVID-19 and that no one is blaming him for falling ill.

As the disease continues its rampage through American society, almost everyone is at risk even when taking significant precautions.

It’s also true that hindsight is 20/20. While one wishes that Folwell had been more alert and cautious and not decided to head back to work after returning from a trip to an undisclosed location with his son with illness symptoms he dismissed as a typical cold or allergy, fallible humans often make mistakes. What’s more, while others in his office have subsequently tested positive for the illness as well, we do not know at this point if they worked with or were exposed to Folwell. (As a side note, one fervently hopes that, wherever he and his son went on their trip, Folwell notified as many people as possible with whom he came in contact.)

All that said, this situation raises some important legal issues about which North Carolinians deserve some additional information.

First and foremost is the matter of whether Folwell is actually exercising his constitutional and statutory duties or is even capable of doing so at this critical time for investment markets. Folwell is the sole overseer of a huge, multi-billion dollar public pension fund and has responsibility for a state health plan that serves more than 700,000 members. Raleigh’s News & Observer reported on Monday that Folwell has not responded to a text inquiry and a spokesperson said he was “under the care of doctors.” We do not know exactly what that means.

As the same N&O story also reported:

“[On March 26] Folwell said he could not answer a call from [the paper] because of the severity of his symptoms. ‘I am really focused on saving my energy by not talking which (agitates) my cough and lungs,’ Folwell said in a text message directing further questions to [Treasury Department spokesperson Frank] Lester.

On Sunday [March 29], Folwell did not answer a text message seeking an update on his condition.

Lester said Monday that Folwell remains sick and under the care of doctors. When asked if Folwell was hospitalized he said he had no further information he could provide. Lester said he is relying on Folwell’s family to tell him what they’re comfortable with the public knowing….

Lester said there is no succession plan while Folwell is out sick but that Chief of Staff Chris Farr has been leading the office.”

If Folwell is truly incapacitated, this raises important matters of state law. As a prominent North Carolina attorney recently pointed out in an email to Policy Watch, Article III, Section 7, Subsection 5 of the state constitution says the following:

(5) Acting officers. During the physical or mental incapacity of any one of these officers [including the state Treasurer] to perform the duties of his office, as determined pursuant to this Section, the duties of his office shall be performed by an acting officer who shall be appointed by the Governor.
In addition, General Statue 147(a)(3) (which deals with the Governor’s right to fill vacancies in other offices) states in relevant part:
The Governor may determine (after such inquiry as the Governor deems appropriate) that any of the officers referred to in this paragraph is physically or mentally incapable of performing the duties of the office. The Governor may also determine that such incapacity has terminated.

In other words, while it’s heartening to know that someone is minding the store during his illness, Folwell doesn’t appear to be empowered under state law to simply designate such a person. That power resides with the governor.
What’s more, with the plague of COVID-19 likely to be felt in our state for some time, it’s entirely plausible that another constitutional officer could fall ill and it would appear to be a worrisome precedent that is being set if the governor has not been involved in selecting an acting officer as state law appears to require.
https://www.nakedcapitalism.com/2020...-say-more.html
Quote:
Key Official Missing in Action: North Carolina Treasurer, Sole Fiduciary of Its Pension, Has Covid-19 but State Refuses to Say More
Spoiler:
Public officials in mission critical roles don’t have the privilege of playing the personal privacy game. Their ability to perform their duties is of critical importance to citizens in their jurisdiction. For instance, when Boris Johnson was diagnosed with Covid-19, the Government made a statement, claiming he had a mild case and would continue working in isolation at No. 11. The fact that Johnson was (in theory) remaining at his post, at least until further notice, obviated the need to say much more.

By contrast, Dale Folwell, the Treasurer of North Carolina is in a critical position, if nothing else by virtue of being the sole trustee of the state’s pension fund. Those of you who remember the financial crisis may recall that some systems, notably CalPERS, were caught in a liquidity crunch and had to dump assets at fire sale prices. Among other reasons, they had to meet private equity capital calls in addition to making expected pension payments. We won’t lard up this post with the details, but institutional investors are exposed to another private equity related liquidity crunch, this one due to a leverage-on-leverage mechanism of bank subscription lines. So even nominally adequately liquid funds are at risk.

Unlike the Boris Johnson example, the public has no idea how sick Folwell is. Press accounts say he isn’t answering his phone or e-mail. That strongly suggests that he is very ill. Yet the state is taking the position that his family can keep the situation mum. Sorry, you don’t have get to claim a right to privacy when you assume a public office. This posture is irresponsible and a disservice to North Carolina citizens and pension beneficiaries.

In addition, two members of the Treasurer’s office have also contracted the virus. It has also been reported Folwell had meetings within the office and with the press while he was having symptoms. Folwell also ordered the department to show up at work even after the governor issued a stay at home order.

Andrew Silton, the well-regarded former Chief Investment Advisor for North Carolina, has roused himself to weigh in. You can read an addition recap of this sorry situation in North Carolinians deserve more information about the State Treasurer’s bout with COVID-19 at The Progressive Pulse.

By Andrew Silton. Originally published at Meditations on Money Management

The North Carolina Treasurer has Covid-19: Questions we must ask

Last week North Carolina State Treasurer Dale Folwell revealed that he tested positive for Covid-19. I hope he recovers quickly, and I can only imagine how worried his family must be. While I’ve disagreed with the Treasurer on a variety of investment issues, he is my state treasurer, and he has one of the most important jobs in our state.



His illness raises questions that deserve answers, especially in a time of crisis. Some readers may think that this post is insensitive because of the Treasurer’s illness. However, my questions are the same ones that the Treasurer would raise if one of the state pension’s investment managers became ill. His duty as fiduciary is to ensure that the pension’s contractors are able to perform their duties and to make alternative arrangements if they cannot. In addition, the pension’s investment contracts require managers to notify the Treasurer of any significant event that might affect their ability to perform. In fact, Treasurer Folwell often reminds us that he is in the business of managing risk. The Treasurer’s illness is a risk we need to understand.

Rob Schofield of the Progressive Pulse has raised the most important issue. What is the Treasurer’s medical condition? The Treasurer’s spokesperson has asserted that the Treasurer’s family will determine what information is shared about his condition. However, the Treasurer’s condition is not a private matter. As Mr. Schofield points out, the North Carolina Constitution and General Statutes have specific provisions governing any public officer who becomes incapacitated. If the Treasurer is incapacitated, it would be the Governor’s responsibility to appoint an acting Treasurer.

As a reminder, the State Treasurer is sole fiduciary of the $100 billion North Carolina pension plan. He oversees $30 billion in short-term investments and another $12 billion in supplemental retirement assets. The Treasurer administers over $3 billion in insurance claims on behalf of public employees and over $6.5 billion in benefit payments to retirees. His office also provides oversight to over 1,300 units of local government. Everyone of these areas is being buffeted by the pandemic and financial crisis, thus it is critical to know if the Treasurer is able to exercise his duties.

Even if the Treasurer is not incapacitated, the public should know that the Treasurer has formally delegated authority to his deputies. During the twin crises it is vital that the appropriate professionals have the authority to make decisions. This is especially true for the Investment Division, which manages the state’s pension and cash investments. Unfortunately, the state has not had a Chief Investment Officer for nearly two years. However, the State Treasurer has designated two professionals as Acting co-CIOs, and they should be empowered to make investment decisions at this critical time in the financial markets

We know based upon press reports that the State Treasurer had symptoms of the virus for a period of time before he was tested on March 23. We also know that he continued to meet with staff and members of the public during this period, and that two employees of the department have tested positive for Covid-19. Apparently employees were required to work from their offices even after Governor Cooper ordered state employees to work from home if possible. At least in the Investment Division, there was no reason for the employees to come to the office. Even in the distant past when I was CIO, we had contingency plans that allowed us to manage the state’s investments remotely.

At this point the Treasurer’s office should assure the public that they have done a thorough job of contact tracing to ensure that employees who met with the Treasurer have self-quarantined and that any employees showing symptoms have been identified. The employees who tested positive are entitled to privacy. However, the Department should be sharing details with the Governor’s office in order to make sure that the Department is fully able to function.

I hope the Treasurer will make a full recovery. The health and financial crises will require his attention. In the meantime certain questions need to be answered.


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Old 04-06-2020, 05:26 AM
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https://burypensions.wordpress.com/2...will-play-out/

Quote:
How the Coming Pension Fund Crisis Will Play Out
Spoiler:
Aaron Brown, Bloomberg Opinion columnist and former head of financial market research at AQR Capital Management, understands the problem and suggests:


Admit that promises to employees will not be kept, and start figuring out how to direct the cuts to where they will do the least harm: younger workers with more time to prepare and richer workers with more ability to pay.
Collect the maximum contributions possible, but in realistic forms employees can count on rather than unreliable promises.
Release timely and complete data on assets and cash flows.
Cap pension payments, probably at something like the Social Security maximum of $3,011 per month for someone who retires at age 65.
Tax the benefits, again probably like the rules for Social Security (50% of benefits for single filers with total income between $25,000 and $34,000, 85% of benefits for higher income individuals).
Make healthcare plans more Medicare-like, with lower provider payments. Employee contributions to be directed either to Social Security/Medicare or individual retirement accounts rather than underwriting payments to retired workers.
Off topic, with libraries and bookstores closed home isolation has led to some downloading discoveries including this gem (guess the movie) that has some surprising relevance:
.



https://www.bloomberg.com/opinion/ar...oronavirus-hit
Quote:
Pension Funds Will Take a Big Coronavirus Hit
Retirees will have to accept sharply reduced benefits that are more in line with what they would get from Social Security and Medicare.


Spoiler:
The coronavirus crisis is still unfolding, but it’s not too soon to think about lasting financial impact and how to limit the fallout. One major financial crisis that may hit later this year or early in 2021 is the ever-looming collapse in state and local employee pension funds. Although the problem has been growing for decades, the virus may have been the event that pushed it over the edge.

Declines in the financial markets may have cost the funds as much as $1 trillion in assets, or about 25% of their total, according to Moody’s Investors Service. That would bring the aggregate funding ratio—value of assets divided by actuarial value of liabilities—from 52% based on the last report by the Census Bureau down to perhaps 37%. Markets may recover, of course, but they may not. The latest aggregate numbers we have are from 2017, and for most individual funds data is available only as of mid-2018. Asset returns are usually smoothed so it could be four or five years until the full effect of the virus is reported officially.

But it’s not aggregate numbers or official reports that will trigger a crisis. It’s the big funds in the worst shape. My back-of-the-envelope calculations suggest Connecticut could be looking at a 28% funded percentage if the numbers were available now, Kentucky 25%, New Jersey 24% and Illinois 20%.

Those figures rely on optimistic assumptions about healthcare cost increases and discount rates; the true numbers are probably worse. The important statistic is more objective: how many years’ benefits do the pension assets represent? That could be no more than about four years in Illinois if true numbers were public today, five in New Jersey and Kentucky, six in Connecticut.

All benefits for active employees, plus all benefits for everyone in the near future, will have to come from employee or state contributions. But states will be strapped for cash, and looking to cut contributions, not raise them. Employees will be unwilling to contribute more since there’s little likelihood they’ll ever see that money again, especially as post-2008 reforms have denied many of them the gold-plated benefits that employees with more seniority enjoy.

Taxpayers? The least willing of the bunch. Creditors? The states need to keep borrowing money, so they have to appease creditors. Some of the money will come via defaults or restructuring of state and local debts, but this is its own crisis, and it won’t fill the gap. The federal government? Maybe, but not for full payments. A more likely scenario would be absorbing retirees into Social Security and Medicare at sharply reduced benefit levels—and those programs face similar problems as state and local plans.

It’s true that 48 states have constitutional or other legal protections for pension benefits. These will improve union bargaining power, but it won’t squeeze anywhere near the full amounts promised. Courts will both unwilling and unable to force governments to hand over money the governments don’t have and can’t get.

Will deaths tied to the Covid-19 pandemic save the day? After all, deaths will likely be concentrated among retired employees getting benefits rather than active employees paying contributions. Moreover, active employees who succumb to the virus will be replaced. If we exclude Hollywood disaster scenarios, the highest projections are U.S. death rates doubling in 2020 and remaining 2.5% higher thereafter. Using the age distribution of coronavirus deaths for which information is available, that could cause liabilities to fall by about half the amount that assets fell. But in that scenario assets would probably fall much farther. It’s hard to come up with a scenario in which additional coronavirus deaths improve pension funded ratios.

Will these events trigger Illinois or some other state to default? It’s plausible. Will that cause other states and municipalities to follow? That’s likely, mainly because creditors will stop lending to states with big unfunded pension liabilities. Will that provide the cover for every state except maybe Utah and Wisconsin from seizing the opportunity to renege on promises? I’d bet on that as well.

What we do today is start treating pensions as an issue that must be addressed rather than a can to be kicked down the road. Admit that promises to employees will not be kept, and start figuring out how to direct the cuts to where they will do the least harm: younger workers with more time to prepare and richer workers with more ability to pay. Collecting the maximum contributions possible, but in realistic forms employees can count on rather than unreliable promises about future. Releasing timely and complete data on assets and cash flows.

The basic terms of the fix are obvious. Pension payments will be capped, probably at something like the Social Security maximum of $3,011 per month for someone who retires at age 65. Tax the benefits, again probably like the rules for Social Security (50% of benefits for single filers with total income between $25,000 and $34,000, 85% of benefits for higher income individuals). Make healthcare plans more Medicare-like, with lower provider payments. Employee contributions to be directed either to Social Security/Medicare or individual retirement accounts rather than underwriting payments to retired workers.

This will provoke fierce fights. First to accept the inevitable and second to set the precise terms. How will police officers be treated versus teachers versus Division of Motor Vehicle clerks? Will all state and local plans be put in one bucket, or will employees from more prudent states do better than employees from profligate ones? How will scarce funds be directed to pensions versus health benefits? How much will taxpayers and creditors kick in? These fights will take place in legislatures, courtrooms and union elections. It won’t be pretty or fun. But the sooner we admit the problem and start to solve it, the sooner it’s behind us.


Radio:
https://www.bloomberg.com/news/audio...is-brown-radio
Quote:
Covid-19 Could Be The Trigger For Pension Crisis: Brown (Radio)
April 2, 2020 — 3:16 PM EDT
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BLOOMBERG OPINION: Aaron Brown, Bloomberg Opinion columnist and former head of financial market research at AQR Capital Management, on his column, "How the Coming Pension Fund Crisis Will Play Out." Hosted by Lisa Abramowicz and Paul Sweeney.

Running time 05:41

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Old 04-06-2020, 11:20 AM
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https://www.forbes.com/sites/ebauer/.../#c6620b77617d

Quote:
Pensions In A Pandemic: Is One Man’s Bailout Another Man’s Pension Funding Relief?

Spoiler:
In the news recently . . .

Public pensions

In the New York Times NYT today: “Coronavirus Is Making the Public Pension Crisis Even Worse.”

“Last week, Moody’s MCO investors service estimated that state and local pension funds had lost $1 trillion in the market sell-off that began in February. . . .

“And that data will not count the knock-on effects of the economic downturn, which would short-circuit pension funds’ ability to hit up taxpayers for bigger contributions. . . .

Today In: Retirement

“’The people have no money,’ said Maria Pappas, the treasurer of Cook County, Ill.

“Even before the pandemic gut-punched the economy, Ms. Pappas counted a record 57,000 delinquent property-tax payers in her county, which includes Chicago. Property taxes feed more than 400 municipal pension funds in Cook County, including some that are cash-starved and close to hitting bottom.”

PROMOTED


The article continues by reminding readers of the pre-existing shortfalls faced by such states as California, Illinois, Kentucky, New Jersey, Connecticut, as well as many cities and counties, and the legal and (state) constitutional restrictions that prevent them from reducing benefits. Unable to reduce even future accruals, the state of Illinois “chose the path of widespread taxation to pay its retirees’ pensions, including a 3 percent compounded annual increase, a figure well above the recent rate of inflation. The state doubled its gas tax last year. It tripled a real estate transfer tax, and raised taxes on cigarettes, vaping, electricity and even dry-cleaning fluid. It made marijuana legal and taxable. It approved gambling, so casinos can be taxed, too. Tags for virtually all cars and trucks went up in January.” Chicago has also been raising taxes at a furious pace, and “Peoria recently added a yearly ‘property fee’ to raise money for police and firefighters’ pensions. (By making it a ‘fee’ instead of a ‘tax,’ the city could bill entities that are normally tax exempt, like churches and schools.)”

What happens next? The report concludes by citing Pappas again:

“Benefit cuts may be inevitable, Ms. Pappas said, and they may not be up to voters or the courts.

“She volunteered for George Papandreou, a former prime minister of Greece, when his country became a financial pariah in 2010 and had to get rescue loans from the International Monetary Fund and other European countries.

“Greece had also promised costly pensions to millions of people, but was forced to reduce benefits to receive those loans, she said.

“’They didn’t want to,’ she said. ‘They didn’t have any choice.’”

This is grim, but in a way, also surprising, as the possibility of federal bailouts of state and local pensions is not floated as an option, as Mark Glennon, writing at the Chicago Tribune, worries might happen, and writes:

“In our view, any open-ended federal assistance for state and local governments, and any direct assistance to pensions, should be conditioned on pension reforms in the states that need it. Under no circumstances should federal money go toward the futile hope of filling the bottomless pits of the worst-managed pensions in Illinois, New Jersey, Connecticut and certain other states.

“That reform condition must apply to other bailout ideas in the nature of block grants, general notions of which are now percolating.”

Multi-employer pensions

Washington Examiner, April 1, “Democrats to seek aid for troubled union pensions in next relief package.”

“House Democrats planning a new and sweeping economic relief package to respond to the coronavirus say they’ll include federal aid for troubled union pensions.

“Democrats have just begun drafting the relief bill, which they said would include enhanced family paid leave, more money for food stamps, and new worker safety requirements.

“The pension bailout, if included in the measure, could cost tens of billions of dollars if it matches a pension relief package the House passed last year.”

In fact, the House version of the $2 trillion stimulus/relief bill had included the $100 billion Butch Lewis Act previously passed by the House. However, Democrats are not wedded to that proposal.

“’Our proposal is the Butch Lewis Act, but, more importantly, we need and want multiemployer pension reform that works,’ a senior Democratic aide told the Washington Examiner. ‘We are not so committed to an approach that we can’t negotiate a solution.’”

The article recaps the Senate proposal and its opposition, then concludes:

“Democrats will have to negotiate a bipartisan solution with the Senate, which is run by Republicans. They'll also have to convince McConnell, of Kentucky, that any pension bailout belongs in a new coronavirus relief measure.

"’I’m not going to allow this to be an opportunity for the Democrats to achieve unrelated policy items that they would not otherwise be able to pass,’ McConnell said Tuesday on the Hugh Hewitt show.

Regular readers will recall that, in my latest article on the issue, I had outlined the various sticking points between the negotiating parties: how expansive should the cash infusion be, vs. shoring up the system with more contributions and cuts from the affected parties? And how much should the funding regulations be tightened up to keep the system healthier in the future, without boosting costs so much as to make the system unaffordable to participants?

Will the need for more legislation, generally speaking, finally be the “must-pass” bill that a solution negotiated behind-the-scenes is attached to for procedural reasons? Or will an unsatisfactory bill, that doesn’t suit the needs of the system in the long run, end up being passed as a result of horse-trading around other legislative priorities?

Traditional employer pensions

Regular readers will recall that in the CARES Act economic relief/stimulus package, employers were granted a deferral of their required quarterly contributions, and the ability to pay benefits as lump sums even if post-market-crash funded status calculations would otherwise prevent this. At the same time, however, the House version included additional “funding relief” for employer pensions: the ability to make up deficits over fifteen rather than seven years, and a boost in the anticipated rock-bottom discount rates with which companies would otherwise be obliged to fund their plans.

These provisions are not “bailouts,” of course, since these plans would be obliged to continue funding, and would, at the end of the fifteen years, be expected to be fully funded. And the discount-rate funding relief is based on the expectation that today’s rates are abnormally low and will eventually increase. But, of course, in every discussion of bailouts for large corporations, pensions also come into play, indirectly: bankrupt companies don’t pay into their pensions but hand them over to the PBGC.

And church plans?

Virtually all private-sector plans are guaranteed by the PBGC. But not all of them: for “separation of church and state” reasons, plans sponsored by churches and other religious entities are not a part of the PBGC system. That doesn’t mean they leave their plans unfunded — many such plans are diligent about funding even without legal requirements — but their funding methods are at their own discretion, and every now and again, a plan makes headlines for becoming unable to pay benefits, not so much with respect to churches as with religiously-affiliated hospitals which shut down, for example, St. Clare’s Hospital in New York. The Pension Rights Center lays out some of these details, with respect to bankruptcies and other circumstances, and a recent Democrat & Chronicle article describes the situation with respect to a particular bankruptcy, that of the Diocese of Rochester.

It’s fair enough to exclude from PBGC protection those plans which don’t pay into the fund, and which aren’t subject to the same funding rules as the others. But if federal funds find their way into everyone else’s pensions, should they also go to church plans?

In fact, there is so much we don’t know, so I leave readers merely with a question: where do you draw the line between reasonable relief and bailout, and if there are pension bailouts to be had, who should get them?


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Old 04-06-2020, 11:31 AM
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https://burypensions.wordpress.com/2...round-of-woes/

Quote:
Underfunded public plans facing a new round of woes
Spoiler:
P&I reported on the challenges public pension funds face in this coming depression but also offered some hope for even the worst funded plans (except for one):

“From a liquidity perspective, public funds have two sources to pay for benefits: existing assets and existing contributions,” said Greg Mennis, director of public sector retirement systems for Pew Charitable Trusts in Washington. “For underfunded plans, current inflows are very important.” Mr. Mennis said that states like Connecticut and Illinois, which are already making large contributions to their plans, are better positioned to maintain liquidity and work toward their target asset allocation. But a state like New Jersey, which he said has the lowest rate of cash flow among any state, is more at risk.

For example….


Connecticut

Shawn T. Wooden, state treasurer and principal fiduciary of the $37 billion Connecticut Retirement Plans & Trust Funds, Hartford, said in a phone interview that he came into office “with a clear sense that the market wasn’t going to continue to roar for the next decade.”

To prepare the portfolio for a downturn, Mr. Wooden’s investment team lowered the state’s $18.7 billion Teachers’ Retirement System’s assumed rate of return to 6.9% from 8%, decreasing its exposure to global equities while increasing its allocation to fixed income and hiring a chief risk officer to monitor risk across the entire portfolio.

The state’s TRS has a funded status of 58%, while Connecticut’s State Employees Retirement System is 38% funded.

Chicago

Chicago Public School Teachers’ Pension & Retirement Fund also took steps before the crisis to make its portfolio more defensive in anticipation of a market downturn.

“We’ve been in this cycle for 10-plus years, and we knew at some point something would happen, we just didn’t know it would be at this magnitude,” said Angela Miller-May, CIO of the $10.5 billion pension plan. CTPF’s funded status is 47.9% and the expected rate of return is 7%.

Ms. Miller-May said that the board does not expect the funded status to change as a result of COVID-19.

Kentucky
Because of its challenged funded status, Rich Robben, CIO of Kentucky Retirement Systems, Frankfort, said that the $16.8 billion pension fund went into the crisis with an already conservative asset allocation (overweight to core fixed income) and about $3 billion of dry powder.

“We were very fortunate with our liquidity position going in,” Mr. Robben added.

The funded status for Kentucky’s pension system is 32.8%. David Eager, executive director for KRS, said he “would expect the funded statuses to fall somewhat but not drastically since the asset structure is quite conservative.”

Whereas in New Jersey

Meanwhile, New Jersey Treasurer Elizabeth Maher Muoio warned bondholders in a voluntary disclosure statement issued on March 23 that the impact of COVID-19 on New Jersey will produce “precipitous declines in revenues” for the current fiscal year ending June 30 as well as the next fiscal year affecting “revenue collections and pension funds contributions.”

Still, Assistant Treasurer Dini Ajmani said at the State Investment Council meeting on March 25 that the state remained committed to making its fiscal third- and fourth-quarter contributions to the $74.2 billion New Jersey Pension Fund, Trenton.

Following Ms. Muoio’s warning, the state’s top leaders issued a joint statement on April 1 stating they plan to push back the current fiscal year-end to Sept. 30 from June 30.




https://www.pionline.com/defined-con...3#cci_r=158332
Quote:
Underfunded public plans facing a new round of woes

Spoiler:
The coronavirus has increased pressure on underfunded public pension plans that were already facing significant stress before the crisis.

Not only have plans' investment portfolios taken double-digit losses as a result of the pandemic, but government plan sponsors will need to increase their contributions at a time when revenues are down and expenditures are up.

"This has put a lot of strain and stress on pension deficits, and it's going to get worse," said Kevin McLaughlin, head of liability risk management at Insight Investment. "Pressures that were there before are now magnifying. It's quite worrying."

See more of P&I's coverage of the coronavirus
The pandemic has unleashed havoc on markets — and plans' portfolios. Moody's Investors Service estimates that U.S. public plans are generally on pace for an average investment loss of about 21% for the fiscal year ending June 30.

A report issued March 24 by the New York-based credit ratings agency noted that domestic public plans are facing nearly $1 trillion in investment losses because of the economic fallout from the coronavirus. These losses could exacerbate the pension liability challenges that many state and local governments already are facing. Plus, the economic setback is reducing revenue levels and threatening the ability of state and local governments to afford higher pension costs.

"Without a significant market rebound, that's going to result in some new unfunded liabilities that are going to be material and compounded on top of the already unfunded liabilities," said Tom Aaron, vice president and senior analyst at Moody's in an interview. "This will push up government contribution requirements."

Mr. Aaron added that, "given the already unfunded positions, if governments don't quickly increase their contributions, the longer-term consequences for pensions are severe."

Of the 181 public plans tracked by the Center for Retirement Research at Boston College, National Association of State Retirement Administrators and the Center for State and Local Government Excellence, 31 have funding ratios that are below 60%.

And while American Enterprise Institute resident scholar Andrew G. Biggs agreed that state and local governments should increase their contributions after public plans took "a big hit on their assets," he said that he wouldn't be surprised if governments failed to make their full contributions this year, given the massive costs associated with responding to COVID-19.

"The coronavirus wasn't predicted. But for years outsiders have warned that public-sector pensions have contributed too little, taken too much investment risk and failed to enact sufficiently far-reaching reforms," Mr. Biggs added in an email. "It was only a matter of time before something went wrong."

Budget effects
Another question the crisis poses is how the budgets of public plans will be affected.

"From a liquidity perspective, public funds have two sources to pay for benefits: existing assets and existing contributions," said Greg Mennis, director of public sector retirement systems for Pew Charitable Trusts in Washington. "For underfunded plans, current inflows are very important."

Mr. Mennis said that states like Connecticut and Illinois, which are already making large contributions to their plans, are better positioned to maintain liquidity and work toward their target asset allocation. But a state like New Jersey, which he said has the lowest rate of cash flow among any state, is more at risk.

Some plans facing funding challenges have been preparing for a disruption in the markets. And although none of them could expect a crisis such as COVID-19, they said they are at least better positioned to handle the resulting market volatility.

Shawn T. Wooden, state treasurer and principal fiduciary of the $37 billion Connecticut Retirement Plans & Trust Funds, Hartford, said in a phone interview that he came into office "with a clear sense that the market wasn't going to continue to roar for the next decade."

To prepare the portfolio for a downturn, Mr. Wooden's investment team lowered the state's $18.7 billion Teachers' Retirement System's assumed rate of return to 6.9% from 8%, decreasing its exposure to global equities while increasing its allocation to fixed income and hiring a chief risk officer to monitor risk across the entire portfolio.

The state's TRS has a funded status of 58%, while Connecticut's State Employees Retirement System is 38% funded.

Chicago Public School Teachers' Pension & Retirement Fund also took steps before the crisis to make its portfolio more defensive in anticipation of a market downturn.

"We've been in this cycle for 10-plus years, and we knew at some point something would happen, we just didn't know it would be at this magnitude," said Angela Miller-May, CIO of the $10.5 billion pension plan. CTPF's funded status is 47.9% and the expected rate of return is 7%.

Ms. Miller-May said that the board does not expect the funded status to change as a result of COVID-19.


Funding challenge
Because of its challenged funded status, Rich Robben, CIO of Kentucky Retirement Systems, Frankfort, said that the $16.8 billion pension fund went into the crisis with an already conservative asset allocation (overweight to core fixed income) and about $3 billion of dry powder.

"We were very fortunate with our liquidity position going in," Mr. Robben added.

The funded status for Kentucky's pension system is 32.8%. David Eager, executive director for KRS, said he "would expect the funded statuses to fall somewhat but not drastically since the asset structure is quite conservative."

The actions of these underfunded plans are in line with the expectations of Alex Brown, NASRA's research manager, in Washington.

"Pension plans that are poorly funded don't necessarily behave differently than other plans," Mr. Brown said. "They have policies in place that take their funding position into account."

Meanwhile, New Jersey Treasurer Elizabeth Maher Muoio warned bondholders in a voluntary disclosure statement issued on March 23 that the impact of COVID-19 on New Jersey will produce "precipitous declines in revenues" for the current fiscal year ending June 30 as well as the next fiscal year affecting "revenue collections and pension funds contributions."

Still, Assistant Treasurer Dini Ajmani said at the State Investment Council meeting on March 25 that the state remained committed to making its fiscal third- and fourth-quarter contributions to the $74.2 billion New Jersey Pension Fund, Trenton.

Following Ms. Muoio's warning, the state's top leaders issued a joint statement on April 1 stating they plan to push back the current fiscal year-end to Sept. 30 from June 30.


Have enough cash
Investment consultants with whom Pensions & Investments spoke said the plans they've worked with are not repositioning their portfolios and already have enough cash to pay out obligations.

Jay V. Kloepfer, executive vice president and director of capital markets research at San Francisco-based investment consultant Callan LLC, said that plans, even underfunded ones, "shouldn't be making sudden changes."

"You shouldn't be changing the wheels of the car while you're driving down the road," he said, adding that the big question plans should ask themselves is if they have enough liquidity. But based on the conversations he's had with clients, that hasn't been an issue.

"We've addressed liquidity pretty aggressively with most plans we've worked with, especially those in a challenged funding position."

Kristen Doyle, a partner and head of public funds at Aon PLC's investment consulting business, said that many plans, particularly underfunded ones, "have a healthy allocation to investment-grade credit and cash, so parts of their portfolios will remain liquid."

"Allocations are based on funded status. They test these different portfolios against that liability structure and test it across multiple markets, including ones like this one," Ms. Doyle explained.

She added that the plans she's worked with aren't panicking, and those that are rebalancing are doing so "very carefully and prudently."

"The plans we work with are pretty well-positioned," Ms. Doyle said. "They have a strong risk-reducing allocation that's liquid. And all of these plans typically have a robust process in place in where they're managing their cash flow on a monthly or more regular basis."


Pension obligation bonds
While revenues are down at a time when contributions need to be up, the pension obligation bond is another option that government sponsors of underfunded plans can use.

Girard Miller, a retired investment and public finance professional and former CIO of the $17.3 billion Orange County Employees Retirement System, Santa Ana, Calif., said that the pension obligation bond is a temporary measure that could put the underfunded pension plan "on firm footing."

"They only work well if they're issued in the depths of a recession. Now is the time for that," Mr. Miller said. "The plan sponsor has a liability with this, but they can stretch that out over 30 years if they need to." The cost of doing this is lower than the traditional way, so there is potential for some cost savings for the state.

But not everyone agrees.

"I don't think (pension obligation bonds are) an option in this market right now," Ms. Doyle said. "It's a risky endeavor because you're assuming the pension will outperform the interest rate of the bond, and that's a huge gamble."

Going forward, increased contributions alone will not keep struggling plans afloat.

"It will have to come down to structural reform," Karel Citroen, head of municipal research at Conning said. "I just don't see how you're going to address pension funding issues you see in this country without addressing the entitlement side of it."

Mr. Citroen pointed out that, if it's not possible to make such changes for current plan participants, structural changes should be put in place for new or future plan participants.

Mr. Citroen added that "it will probably come down to an escalation of this issue for one plan, like New Jersey or Illinois, for that mindset to be accepted by other constituents as well."

While Insight's Mr. McLaughlin said that underfunded plans will have to engage in "firefighting" to ensure they have enough cash on hand to pay their obligations in the short term, in the long term, plans will need to craft a "liquidity strategy that's more formal than they've had in the past."

"When the dust settles, you'll see plans making more fundamental changes to their investment strategies going forward," Mr. McLaughlin added.

NASRA's Mr. Brown said it's going to take a while before the long-term impact of all of this is known.

"One should remember that these losses and gains are phased in over several years," Mr. Brown said. "We won't know what the returns will be until the fiscal year ends, and so it's going to take a little while."


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