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  #1481  
Old 08-13-2019, 01:59 PM
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INVESTMENTS

http://ipfiusa.org/2019/08/13/public...ex-portfolios/
Quote:
Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios

Spoiler:
With many states facing tough budgetary decisions, in part because pensions are requiring greater contributions, the Institute for Pension Fund Integrity decided to compare pensions through another metric besides the funding ratio. How well a pension is funded is important for determining the overall health of the system, but if the investments are not performing well, the system will continue struggling. Using a passive investment strategy as the guiding marker, IPFI has ranked pension systems across all fifty states based on their performance.

The findings were released in a new paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios.

IPFI drew data the Vanguard Total Stock Market Index and Vanguard Total Bond Market Index to build two passive index investment portfolios for comparison: one portfolio was 60% stocks, 40% bonds, and one was 50% stocks and 50% bonds. After thorough analysis, IPFI identified several key points:

Only five of the 52 pension funds that were analyzed outperformed the 60/40 passive index investment portfolio.
Only one state had both strong pension performance and is well funded. South Dakota is 100.1% funded and was 71 basis points stronger than the 60/40 index portfolio.
California was the 10th worst performing pension system, 116 basis points less than the 60/40 portfolio. However, California is almost 69% funded. This is important because the state is known for their activist investment strategies and has lost about $7.8 billion since 2000 due to various divestments based on political and social investment strategies.
Wisconsin, which has the best funded pension system in the country, performed 72 basis points worse than the 60/40 portfolio. This proves that fund performance is not the only needed metric to ensure a healthy pension. Wisconsin has reliably contributed the actuarially determined amounts to the system, helping its funded status.
The politicization of pension fund investments does have an impact on overall fund performance, and if a pension fund can’t beat a basic balanced passive investment strategy, it is time to reevaluate the current investment strategies and leaders in charge.
In developing this strategy and in response to the subsequent analysis, IPFI President and former Connecticut Treasurer Christopher Burnham said, “If a fund can’t outperform a basic balanced passive investment strategy, it is time to fire the fiduciaries and outsource the management of the pension fund to a simple, no cost, passive mutual fund.” He continued saying, “We hope this information will be used to provoke a discussion of the failure of the way some state fiduciaries and administrators manage our precious retirement and taxpayer dollars.”

IPFI is dedicated to bringing greater transparency and accountability to public pensions, fighting to keep politics out of the management of pension investments. This research, along with other quantitative and qualitative analysis that the organization provides, seeks to provide retirees, taxpayers, and policymakers with the data needed to ensure that pensions will continue providing for the hardworking Americans who dedicated their careers to the public sector.

Read IPFI’s latest paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios


http://ipfiusa.org/wp-content/upload...August2019.pdf
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  #1482  
Old 08-13-2019, 02:01 PM
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PENNSYLVANIA
ESG
DIVESTMENT

https://www.penncapital-star.com/gov...-student-debt/
Quote:
Pension board OKs $300 million investment in private equity firm connected to prisons, student debt

Spoiler:
Despite activist prodding, Pennsylvania’s Public School Employees’ Retirement System board voted Friday to approve a $300 million investment in a private equity fund that’s connected to prisons and student debt collection.

PSERS currently manages more than $50 billion to provide benefits to 200,000 retired school employees.

Decisions on investments are made by a 15-member board that includes state lawmakers, a gubernatorial appointee, the state treasurer, and current and retired employees.

The board voted 12-2 to approve the spending. The “no” votes came from State Treasurer Joe Torsella and a member picked by Gov. Tom Wolf’s Secretary of Education, Pedro Rivera. A designee for the Department of Banking and Securities recused himself.

The group in question is Platinum Equity, a California-based private investment firm started in 1995.

In 2017, Platinum acquired Securus Technologies, a prison phone services company that has been criticized for the high cost of calls. The previous year, in 2016, the company settled a lawsuit with civil rights activists in Austin for allegedly providing recordings of inmates’ calls to prosecutors.

Platinum recognized issues within Securus in a letter sent to investors in May, saying a review of the company’s business policies was underway to make sure it “serves not only the best interests of the corrections-facility customers, but balances that where possible against the interest of the incarcerated-inmate consumers.”

The private equity firm also owns Transworld Systems, a student debt collection agency. Transworld and National Collegiate Student Loan Trusts entered into a consent decree with the Consumer Financial Protection Bureau in September 2017 for filing lawsuits over debt they “couldn’t prove was owed or was too old to sue over.” Transworld was ordered to pay a $2.5 million civil money penalty.

Friday’s day-long meeting was preceded by testimony from three activists from two organizations: Worth Rises, a prison abolition nonprofit, and the Private Equity Stakeholder Project. One activist read a letter from a PSERS beneficiary advocating against the investment, highlighted Transworld and Securus’ regulatory run-ins, and noted growing political opposition to Securus.

Connecticut is advancing a bill to make all prison calls free. New York City has done the same for calls from its Rikers Island jail.

Worth Rises Executive Director Bianca Tylek said Friday that other companies’ phone-call rates are lower than Securus’.

“Of course counties could do better about negotiating contracts, but you could refuse to benefit when they fail,” Tylek said to the pension board.

Torsella told the Capital-Star that the “trail of controversy” following Platinum raised concerns for him about investing in the company again.

“In my fiduciary hat, those things worry me,” Torsella said. “You can also be worried about them as a citizen like ‘This is unsavory,’ but that’s different.”

Over the past 15 years, PSERS has invested more than $1 billion into Platinum, according to system spokesperson Steve Esack. That includes investing in the rounds of funding that let Platinum purchase Securus and Transworld.

Esack said that PSERS has only received 7 percent of its intial investment into Transworld back. Platinum has since divested of most of the student debt collecting agency.

But of the $200 million total invested into Platinum during that round of funding, PSERS still had a net return of 33 percent. Lifetime, Esack said the pension fund has received $1.72 back for every dollar invested in Platinum.

“PSERS Board of Trustees certainly listened and considered the input from the advocacy groups but on balance believed that the new Platinum fund is a good investment,” Esack said in an email.

PSERS has a seat on Platinum’s advisory board, which the system’s board feels “could give us the ability to influence the direction of Platinum and the companies that could become part of the new fund,” Esack said.

Just as PSERS hopes it can influence the fund, Mark Barnhill, director of investor relations for Platinum, said he hopes the firm’s investments can influence companies.

He disagreed that by profiting off of prisons, Securus and Platinum are part of a problem that activists like Tylek have assailed.

“I can’t agree with that. I can’t buy into that,” Barnhill told the Capital-Star. “This is an industry managed and overseen by the correction agencies themselves and the regulatory and political bodies above them. Those political bodies determine policy, ultimately.”

“That’s their campaign — to influence those political campaigns. It’s not what I do,” he continued. “What we do at Platinum is, in a responsible way, transform companies into market leaders that exhibit the best and most responsible business practices.”

In other jurisdictions, some pension systems are taking action to divest from the prison industry.

According to Bloomberg, New York City’s pension system is considering adding a rider to its investments that would prevent use of funds in companies that provide services to correctional facilities. The city’s pension system already does not invest directly in prisons.

Tylek said Worth Rises will continue to push PSERS board members to negotiate a similar agreement as part of the new investment in Platinum.

A vote on the investment was originally scheduled for May, but was delayed following an earlier round of testimony from activists.

PSERS Chief Investment Officer James H. Grossman said in a statement at the time that “it was prudent to ask the Board to postpone its vote until PSERS’ investment professionals could gather more facts and Platinum officials had a chance to address the Board.”


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  #1483  
Old 08-14-2019, 11:52 AM
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ILLINOIS

https://www.thecentersquare.com/illi...2.html#new_tab

Quote:
Bill requiring sick pay disclosure for some pensioners becomes law

Spoiler:
Many public employees are now required to the disclose the number of sick days they plan of cashing out in their final years before retirement, a move that could help public employers better plan for pension costs.

Gov. J.B. Pritzker signed the bill into law Friday. Sponsored by state Rep. David McSweeney, R-Barrington Hills, the measure immediately requires any non-union worker who plans to collect a pension via the Illinois Municipal Retirement Fund to tell the public body they work for how many sick days they’re holding.

“Part of it so that local governments have the information and are prepared for it but the other part is public disclosure and transparency,” he said.


If a worker retires at a specific pay and it’s boosted with a higher average due to cashing out sick days, a municipality could be surprised with an unexpected higher pension contribution.

Although he would not have been affected by McSweeney’s legislation, former Calumet City Superintendent became the example of boosting the pension calculation when he attempted to hike his salary in retirement by cashing out 885 unused sick and vacation days worth $1.75 million. School officials later said there may have been fraud involved that case.

McSweeney said he plans to watch how the legislation works. He said he plans to expand it to other public employees in the future.

“We’ll look for more reforms in the future,” he said.


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  #1484  
Old 08-14-2019, 04:38 PM
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OREGON

https://www.pionline.com/courts/oreg...-contributions
Quote:
Oregon state employees sue to overturn statute mandating contributions
Spoiler:
Nine union participants in the $75 billion Oregon Public Employees' Retirement System, Salem, have filed a petition with the Oregon Supreme Court seeking the overturning of recent legislation that increased some employee contributions.
The petition, filed with the Supreme Court on Aug. 9, alleges that the changes mandated by Senate Bill 1049 violate Oregon's state constitution by impairing the contract rights of PERS members.
The bill, signed into law June 11 by Gov. Kate Brown, redirects 2.5% of the salaries of Tier One and Tier Two employees whose monthly salary exceeds $2,500 to a pension stability account that will be used to pay down the pension plan's unfunded liability instead of going into a defined contribution-type plan. Employees earning less than $2,500 a month will not have a portion of their salaries redirected to the pension stability account.
The changes are currently effective July 1, 2020, and the remaining 3.5% of their 6% contributions would still go into employees' individual account programs.

The law also creates a new $195,000 limitation on subject salary used for the retirement system's benefit calculations and contributions for salaries earned after Jan. 1, 2020.
Aruna A. Masih, attorney at Bennett Hartman Attorneys at Law, attorneys for the plaintiffs, said in an interview: “I think the main issue is that (PERS) is being asked yet again to reduce benefits for active employees who are not the cause of unfunded liabilities.”
PERS spokeswoman Marjorie Taylor said the system cannot comment on pending litigation.
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Old 08-14-2019, 04:39 PM
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CALIFORNIA
CALPERS
GOVERNANCE

Quote:
A Proposed CalPERS Board Code of Conduct Is Still Generating Controversy
The policy has the support of the majority of board members but others argue the vague language can be used against board members who dissent.


Spoiler:
While the most controversial section of a proposed code of conduct for California Public Employees’ Retirement System (CalPERS) board members has been removed, the debate still continues over free speech issues.

When the code of conduct was first presented to the 13-member CalPERS board July 17, it contained a clause stating, “when action is taken by [the] committee or the full board, all board members will support the actions regardless of their individual vote on the policy.”

A new draft sent to the board July 26 did not contain the controversial provision.

Board member Jason Perez, one of several CalPERS board members who had asked that the clause be removed, told CIO he was satisfied with the change.

“On review of the draft, they removed that part of the document,” he said in an email.

The code of conduct is scheduled to be voted on by the CalPERS board governance committee on August 20. It would be the first vote on the matter. Ultimately, the code of conduct would need to be approved by the full CalPERS board.

Two other critics of the draft policy, current CalPERS board member Margaret Brown and former CalPERS board member J.J. Jelincic, say portions of the revised code of conduct are so vague that they still could result in stifling dissent and preventing CalPERS board members from talking to the media.

Jelincic is running in an election, which will be decided in the fall, to regain a seat on the board. His opponent is board president Henry Jones.

Brown said she was particularly concerned about several provisions in the revised draft code. One states that “Board Members understand that they are representing CalPERS in and outside of committee and board meetings, Board Members will be truthful and use accurate characterizations in all platforms when making statements about CalPERS and its decisions and services.”

Another says that “Board Members shall communicate accurate and reliable information about CalPERS policy decisions to strengthen the understanding for beneficiaries, stakeholders, and the public.”

Brown says the clauses are too vague.

“A lot of this seems subject to interpretation and that’s where the risk is here because if you’re not in the majority of board members, they could say almost anything you do is unethical or causes reputational damage.”

Jelincic said the new code is an improvement.

“Going from terrible to just very bad is progress,” he said.

Jelincic said the problem is the code is too unclear.

“The proposal is subjective and therefore will be selectively enforced,” he said. “It is designed to hide bad conduct, not prevent it. It is about reputation. Avoiding bad press is the goal. Bad conduct is seen as damaging only if it is exposed.”

Board member Theresa Taylor is among the majority of board members who support the code of conduct.

“We need to be collaboratively working together and not undermining CalPERS and the board,” she told CIO.

Taylor said CalPERS’s reputation is important to the fund’s investment success. “If we use the press to air grievances then I do believe we have a problem,” she said.

Taylor said leaks to the press in past months seem to be coming from board members. She said a CalPERS internal investigation pinpointed that fact, but was not able to show with 100% accuracy which board members were leaking.

Taylor said not only is the code of conduct important, it must also include penalties for board members who violate the code, including leaking closed-door board meeting material to the press.

The draft code has heightened conflict at board meetings. Several witnesses at the July 17 CalPERS meeting said before the start of the meeting that Brown repeatedly confronted CalPERS Chief Executive Officer Marcie Frost for producing the draft code of conduct just minutes before the start of the meeting.

Jones has been one of the code’s biggest supporters, but told CIO that the proper place to discuss the matter is at the board’s governance committee meeting on August 20.

He said board meetings and board committee meetings are the place where differing views can be heard, even after decisions have been made by the CalPERS board.

“If you have a difference of opinion, the proper place to express those differences is at the board meetings,” he said.

After the first draft of the code of conduct was released, Jones said he favored the clause that called on CalPERS board members to support investment policy decisions of the entire board, even if they had opposed the action.

Jones would not discuss the removal of that clause. He said the revised code of conduct could change again as board members converse about the matter at the governance committee meeting, so any discussion would be premature.


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  #1486  
Old 08-14-2019, 04:46 PM
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NEVADA

https://www.ai-cio.com/news/nevada-p...5-return-2019/
Quote:
Nevada Public Pension Beats Benchmark with 8.5% Return in 2019
Retirement system also met or surpassed yardstick for three, five, and 10 years.


Spoiler:
The investment portfolio of the $44.1 billion Nevada Public Employees’ Retirement System (NPERS) returned 8.5% for the fiscal year ended June 30, just beating its policy benchmark of 8.3%, and ahead of its target long-term return rate of 7.5%.

The retirement system also reported three-, five- and 10-year annualized returns of 9.7%, 7.1%, and 9.9%, respectively, compared with its benchmark’s returns of 9.3%, 7.0%, and 9.9% respectively.

Not surprisingly, private equity proved to be the portfolio’s top-performing asset class for the fiscal year, returning 18.4%, while private real estate returned 8.1% giving the total private markets asset class a return of 13.4% for the year, and outpacing its benchmark’s return of 10.2%.

US equities returned 10.4% for the year, which was below the benchmark return of 14.2%, while US bonds returned 7.3%, just edging out its benchmark’s return of 7.2%. International stocks were the worst-performing assets for the portfolio, eking out a 1.8% return for the year, but still matching its benchmark’s return.

Over the past 10 years, private equity has been the portfolio’s top-performing asset class with annualized returns of 15.7%, although combined with private real estate’s 9.2% annualized returns during that time, the total private markets asset class returned 12.4% over 10 years, which was below the benchmark’s return of 13.3% during that time period.

US stocks returned 14.7% annualized over the past 10 years, ahead of the benchmark return of 11.4%, while international stocks returned 7.3% during that time, just beating its benchmark’s return of 7.0%. And US bonds had annualized returns of 3.9% over the past 10 years, compared with its benchmark’s return of 3.6%.

The asset allocation of the portfolio is 46.1% (42% target) in US stocks, 25.3% (28% target) in US bonds, 18.4% (18% target) in international stocks, 5.4% in private equity (6.0% target), 4.6% (6.0% target) in private real estate, and 0.2% (0% target) in cash.

The equities portion of the portfolio is heavy on tech and blue chip stocks, as its top equity positions are Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, Johnson & Johnson, JPMorgan Chase, Alphabet, and Exxon Mobil.

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Old 08-14-2019, 04:55 PM
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ILLINOIS

https://reason.com/2019/08/11/illino...adam-schuster/
Quote:
Illinois Is the Canary in the Pension Coal Mine, Says Adam Schuster
Mike Riggs talks with Illinois Policy Institute's Adam Schuster about how to fix the state's pension debt crisis.

Spoiler:
Illinois is running out of time to fix its public sector pension problem. A new report from Moody's Investors Service identified the Prairie State as one of the two most likely to suffer during an economic downturn. Illinois towns and cities are already paring back government services to pay for generous benefits packages for retirees, and Chicago's pension debt alone is larger than that of 41 states. That arrangement can't last forever.

"The worst-case scenario is there's another national recession, which would cause our pension funds to lose a bunch of their assets again," says Adam Schuster of the Illinois Policy Institute. "As the assets shrink, the pension funds go into a financial death spiral. We might end up with some kind of Puerto Rico–style pseudo-bankruptcy or federal bailout. Everybody in the nation is now on the hook for Illinois politicians' irresponsible decisions."

The best-case scenario would involve repealing an automatic 3 percent raise that pensioners receive each year of their retirement and requiring workers to pay more into their own plans. Democratic Gov. J.B. Pritzker would prefer to scrap Illinois' flat income tax and replace it with a progressive tax scheme, which could cause even more people to flee the state. In May, Schuster spoke to Reason's Mike Riggs about the pension conundrum.

Q: If somebody had been paying attention 30 years ago, could they have anticipated this pension problem?

A: Thirty years ago would be just about enough time to stop some of the mistakes. We changed the state constitution in 1970 to add a pension protection provision, which essentially says that as of the day of hire, an employee's benefit formula cannot be changed in any way. So it doesn't only protect benefits that somebody has already earned. It protects the future growth rate of those benefits for life and gives the state legislature no flexibility to change them.

Q: What happened next?

A: In 1990, Illinois implemented a guaranteed 3 percent compounding cost of living adjustment. So a person's pension goes up by 3 percent every year regardless of how much inflation there is in the economy. It basically doubles the size of somebody's pension over the course of 25 years.

We also had a series of governors, both Republican and Democratic, who habitually shorted the system by putting in less than the required contribution. The reason they did that is that the required contributions were unaffordable and never would have been affordable because we overpromised the benefits.

Q: Do Illinois taxpayers know what's going on?

A: I think there is pretty widespread knowledge about the problem, but there's also a defeatist apathy. We've had five straight years of population loss. We're losing our prime working-age adults, and poll results say that the No. 1 reason they're leaving is that the taxes are too high here. And the No. 2 reason they're leaving is job opportunities are better elsewhere, which is related to No. 1.

Q: What do public sector union leaders say about the pension crisis? How about union members?

A: I appreciate that you make that distinction, because I've found there is a huge disparity in how they react to this kind of thing. Union leaders, who are involved in politics and lobbying, are against having this conversation at all. But when I talk to regular rank-and-file union members, they actually think the plan we put forward is a very fair and very reasonable compromise.

Q: What is the short version of your plan?

A: It would amend our constitution so that instead of protecting the future growth rate, it would only protect the pension benefit that somebody has earned to date. So if you retired today, your annuity would be protected, but it would give the legislature flexibility to change retirement ages for younger workers and to change that 3 percent cost of living adjustment, for example.

Q: What happens if Illinois does nothing?

A: I don't know if you followed at all the story of Harvey, Illinois, but it's a South Chicago suburb, and they have one of the highest effective property tax rates in the nation. Even still, their police and fire pensions are so underfunded that in order to make their pension payment, they had to lay off dozens of current police officers and firefighters.

Q: That's what people pay taxes for: government services!

A: Harvey was the canary in the coal mine. Down in Peoria, they've had to lay off municipal workers, people who plow the streets. In Rockford, they're being told they need to sell their city water system. Municipalities around the state are laying off public safety workers today to pay for yesterday's pensions.


http://pensionpulse.blogspot.com/201...nsion+Pulse%29

Quote:
Illinois Running Out of Pension Time?

Spoiler:
Mike Riggs of Reason spoke with Illinois Policy Institute's Adam Schuster about how to fix the state's pension debt crisis:
Illinois is running out of time to fix its public sector pension problem. A new report from Moody's Investors Service identified the Prairie State as one of the two most likely to suffer during an economic downturn. Illinois towns and cities are already paring back government services to pay for generous benefits packages for retirees, and Chicago's pension debt alone is larger than that of 41 states. That arrangement can't last forever.

"The worst-case scenario is there's another national recession, which would cause our pension funds to lose a bunch of their assets again," says Adam Schuster of the Illinois Policy Institute. "As the assets shrink, the pension funds go into a financial death spiral. We might end up with some kind of Puerto Rico–style pseudo-bankruptcy or federal bailout. Everybody in the nation is now on the hook for Illinois politicians' irresponsible decisions."

The best-case scenario would involve repealing an automatic 3 percent raise that pensioners receive each year of their retirement and requiring workers to pay more into their own plans. Democratic Gov. J.B. Pritzker would prefer to scrap Illinois' flat income tax and replace it with a progressive tax scheme, which could cause even more people to flee the state. In May, Schuster spoke to Reason's Mike Riggs about the pension conundrum.

Q: If somebody had been paying attention 30 years ago, could they have anticipated this pension problem?

A: Thirty years ago would be just about enough time to stop some of the mistakes. We changed the state constitution in 1970 to add a pension protection provision, which essentially says that as of the day of hire, an employee's benefit formula cannot be changed in any way. So it doesn't only protect benefits that somebody has already earned. It protects the future growth rate of those benefits for life and gives the state legislature no flexibility to change them.

Q: What happened next?

A: In 1990, Illinois implemented a guaranteed 3 percent compounding cost of living adjustment. So a person's pension goes up by 3 percent every year regardless of how much inflation there is in the economy. It basically doubles the size of somebody's pension over the course of 25 years.

We also had a series of governors, both Republican and Democratic, who habitually shorted the system by putting in less than the required contribution. The reason they did that is that the required contributions were unaffordable and never would have been affordable because we overpromised the benefits.

Q: Do Illinois taxpayers know what's going on?

A: I think there is pretty widespread knowledge about the problem, but there's also a defeatist apathy. We've had five straight years of population loss. We're losing our prime working-age adults, and poll results say that the No. 1 reason they're leaving is that the taxes are too high here. And the No. 2 reason they're leaving is job opportunities are better elsewhere, which is related to No. 1.

Q: What do public sector union leaders say about the pension crisis? How about union members?

A: I appreciate that you make that distinction, because I've found there is a huge disparity in how they react to this kind of thing. Union leaders, who are involved in politics and lobbying, are against having this conversation at all. But when I talk to regular rank-and-file union members, they actually think the plan we put forward is a very fair and very reasonable compromise.

Q: What is the short version of your plan?

A: It would amend our constitution so that instead of protecting the future growth rate, it would only protect the pension benefit that somebody has earned to date. So if you retired today, your annuity would be protected, but it would give the legislature flexibility to change retirement ages for younger workers and to change that 3 percent cost of living adjustment, for example.

Q: What happens if Illinois does nothing?

A: I don't know if you followed at all the story of Harvey, Illinois, but it's a South Chicago suburb, and they have one of the highest effective property tax rates in the nation. Even still, their police and fire pensions are so underfunded that in order to make their pension payment, they had to lay off dozens of current police officers and firefighters.

Q: That's what people pay taxes for: government services!

A: Harvey was the canary in the coal mine. Down in Peoria, they've had to lay off municipal workers, people who plow the streets. In Rockford, they're being told they need to sell their city water system. Municipalities around the state are laying off public safety workers today to pay for yesterday's pensions.
Illinois's pension woes are well-known, I've been writing about them for years. It's literally one of of the worst states to live in when it comes to public pensions deficits and cutbacks in public services and hikes in property taxes to make up for growing pension shortfalls.

But it's not alone. As I explained last week, America's public pension funds are falling short of their target returns and as rates plunge and liabilities soar, they're in big, big trouble, especially chronically underfunded public pension plans.

I'm very worried that when the next crisis hits us full force, many state plans will be teetering on the verge of default and only a massive bailout by Congress will save them from not meeting their growing obligations.

Or maybe not. Elizabeth Bauer, an actuary who writes on retirement issues for Forbes recently posted a comment on a modest proposal to solve Illinois's pension woes:
It's easy-peasy, really.

There's a way to reduce the Illinois and Chicago pension liabilities by half, with no constitutional amendment required, no hard political truth-telling or compromises, no cuts at all.

And considering that Chicago's pensions are 23% funded, and Illinois', 40%, this is not a minute too soon.

Here's the scoop:

The basic structure of Illinois' and Chicago's pensions are the same. In general, Tier I employees/retirees, those hired before 2011, receive a pension based on final pay and service with a fixed 3% per year Cost-of-Living Adjustment; whenever inflation is lower than this (the last ten years, it's averaged 1.8%, the last 20 years, 2.2%), they come out ahead, to the extent that some retirees get pension checks greater than any paycheck they ever received. Tier II employees, on the other hand, keep the same benefit formula, but averaged out over a longer period of time, receive pseudo-COLAs at half the rate of inflation, without compounding, and have their pensionable pay capped at a level that (unlike, for instance, the Social Security ceiling) doesn't rise based on average wage growth or even inflation but at half the rate of inflation, so that, to take the teachers as an example, any teacher who earns above-average pay levels will be affected as soon as 2027, based on current inflation projections and average wage data.

Now, the value of any pension without a true CPI-based cost-of-living adjustment will be eroded over time due to inflation, and eroded in very short order in instances of high inflation. And in countries with a history of inflation, employer-sponsored pensions are more likely to include true cost-of-living increases. In some cases, the entire actuarial valuation is done on a "real" basis, evaluating all of the inputs on the basis of "value in addition to inflation" — that is, using the assumed salary increase in excess of inflation and the interest rate in excess of inflation. When both these hold true - true-CPI increases and assumptions all relative to inflation, in principle, neither the liabilities nor the pension benefits' real value are affected by fluctuations in inflation. (Random trivia: in Brazil, the government even issues its bonds on a "real" basis.)

At the same time, back in the spring, the latest buzzword was Modern Monetary Theory (here's an explainer), which was the means by which various progressive politicians promoted the idea that there was an awful lot more room for government deficit spending than appears to be the case; concerns about inflation were waved away with the assurance that the government would be able to tack as needed by increasing tax rates.

You see where I'm going with this, don't you?

If the United States were to hit a period of high inflation rates, sustained over a long period of time, these liabilities would shrink considerably — and I'm not even speaking, snarky photo aside, of hyperinflation. Based on my calculations (and yes, these are real calculations, using real data for this plan collected for another project, not merely back-of-the-envelope estimates, however unlikely the very even numbers make it appear), an inflation rate of 10%, and assumptions for interest rate/asset return rate and salary increases over time which reflect the same net-of-inflation rates as at present, would halve the pension liabilities of the Illinois Teachers' Retirement System.

Sounds preposterous, I know. And admittedly, beyond all the ill-effects of high inflation, individual state governments don't control monetary policy anyway. But is it really any worse a proposal than the idea of selling the Illinois Tollway to a private firm which would do the dirty work of raising tolls so as to indirectly fund the pensions by making the tollway an attractive and profitable purchase? Or more ill-conceived a notion than the notion that public pensions can function perfectly well as pyramid schemes in which each cohort of employees funds their predecessors' benefits?

Or maybe the politicians of Illinois have some better idea? If so, I'm all ears.
I think Mrs. Bauer's argument is actuarial sound but it has more holes in it than Swiss cheese.

No doubt, a period of sustained high inflation over a long period will shrink pension liabilities as interest rates soar.

But what if we have a period of sustained low inflation reverting to a prolonged deflationary era where rates on Treasuries notes fall to zero or go negative? This is my macro scenario and it's based on the reality we are witnessing in many countries outside the US right now.

There's this naive notion that if Bernie Sanders or Elizabeth Warren win in 2020, MMT will rule the day and high inflation will magically reappear over the next decade. I don't buy that for a second. And don't be surprised if neither of them win or if Trump gets re-elected. At this point, it's a crapshoot.

This is why I prefer to live in reality and my proposals for Illinois and other chronically underfunded US public pensions are the following:
Make all contribution holidays constitutionally illegal.
Lower discount rate from 7-8% to 6% or lower to reflect real cost of liabilities over long run.
Adopt Canadian-style pension governance (separate the government from public pensions).
Adopt conditional inflation protection immediately and never guarantee COLAs, ever.
That last one sounds like I'm all for cutting benefits but that's not the case.

Go back to read a comment I wrote on how the fully funded Ontario Teachers' Pension Plan adopted conditional inflation protection to make it young again.

As public pensions mature, the ratio of retired to active members grows, so it makes sense to temporarily partially or fully reduce cost-of-living-adjustments to bring a plan back to fully funded status.

For retired members, the change to their monthly benefits is minimal for a short period and this ensures inter-generational equity in a plan. If there are more retired than active members, it makes sense they shoulder more of the deficit for a short period.

Once a plan recovers and is fully funded, they can then fully restore the cost-of-living adjustments.

I realize this isn't a defined-benefit plan with full indexing guarantees and more of a target benefit plan depending on the funded status of the plan but long gone are the days of guaranteeing COLAs to public pensions.

Look at Illinois. That guaranteed 3% increase compounding cost of living adjustment (no matter the if the actual rate of inflation is lower) is just insane, a recipe for disaster.

Of course, public-sector unions will fight tooth and nail for this but it makes no sense whatsoever and as Illinois's pension woes grow, so will the exodus from the state. No rational person will want to live in a place where property taxes keep rising as public services keep shrinking to make up for rising pension shortfalls.

Is Illinois running out of time? I guess they can emit more pension obligation bonds to plug the $134 billion pension liabilities and pray stock markets return higher than their return targets over the long run but that's wishful thinking and all it does is kick the can down the road.

If you live in Illinois or another state where public pensions are grossly mismanaged and chronically underfunded, you need to really take note and wonder how bad things are going to get and how it will impact your quality of life.

Below, Sean Carney, head of municipal strategy at BlackRock, and Bloomberg's Flynn McRoberts examine the new revenue plan for the state of Illinois as it faces mounting pension liabilities. They speak on "Bloomberg Daybreak: Americas."

Also, an interview with Mark Glennon, founder and Executive Editor of WirePoints, an online publication focusing on financial and political issues. He shares his views on what he sees as the key issues facing Illinois' financial future, on Governor Pritzker's proposed Progressive Income tax, and on the problems of pension funding.

Lastly, the right-wing Illinois Policy think tank says the state crafted the solution to its pension crisis nearly 20 years ago. That’s when lawmakers passed an inspired retirement plan that gave state university workers an alternative to the traditional pension plan, one that offered more flexibility, portability and individual control.

As I've explained many times, the brutal truth on defined-contribution plans (401 Ks) is they are FAR WORSE than defined-benefit plans, so I would ignore these idiotic policies which are "fairer" to taxpayers. That's very short-term thinking which will only make things worse in the long run.

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Old 08-14-2019, 04:58 PM
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PHOENIX, ARIZONA

https://www.washingtonexaminer.com/o...ions?_amp=true
Quote:
Voters can make Phoenix transparent and responsible on pensions

Spoiler:
Take a look around your community: Roads are crumbling. Public parks in disrepair. Ambulance and police dispatch services take longer to arrive. Citizen services are being cut. Yet virtually every city, county, and state in the country spent the last decade raising taxes every year.

So why don't those annual dips into your wallet ever seem to stem the tide? The answer is the worst kept secret in government today: Public pension systems are insolvent because politicians made promises they can’t keep, and taxpayers are the ones left holding the bag.

According to the Pew Charitable Trusts, only eight states have at least a 90% funded pension system, whereas 24 states are less than 70% funded. At the county or city level, the problem is even worse. In Phoenix, our past-due pension obligations are now costing taxpayers more than $250 million a year — an increase of more than 300% in less than a decade. This adds up to $5.7B in unfunded pension promises or $8,730 to $10,730 per household.


According to Rich States, Poor States, Arizona ranks next to last in ratio of public full-time employees per 10,000 residents. That’s why the system will only get worse. To compensate, municipalities employ a two-step approach of reducing the quality and quantity of services and working with local politicians to increase taxes or fees, even during a time of record tax revenues and a red-hot stock market.

Not so shockingly, the people you've elected to solve big problems have kicked the can down the road so long and so far, it’s difficult to to find out just how much they, or more to the point, you, actually owe.

Even worse, whenever you read about government struggling with pension debt, the numbers attached have been massaged. Pension deficits are calculated based on a predicted rate of return — money the pension fund is projected to earn on investments each year — and other factors. Instead of calculating honestly based on historical earnings and comprehensive actuarial tables, it's a negotiated compromise between the politicians and the pension fund boards, typically made up of government-union representatives and their appointees.

This allows local governments to continue to spend money they don't have. By projecting an unrealistic rate of return and assuming pensioners will pass away long before they do, the result is that every single year the problem gets worse while politicians desperately cling to their blindfolds.

It's time for the blinders to come off and taxpayers demand responsible budgeting. What will this look like? In Phoenix, Proposition 106 will:

Require governments to use standard GAAP accounting practices, so they can no longer hide their debts from the public.
Eliminate pensions for politicians as a first step to reining in out of control costs.
Require any surplus tax dollars over and above current spending levels be spent to pay down pension deficits and keep our promises to retirees.
Limit growth of the general fund budget to inflation plus population growth, allowing local leaders to maintain financial flexibility and focus squarely on the fiscal elephant in the room.
Elected officials are seldom willing to take responsibility for the mess they've made. But the longer they wait, the more blame they’ll receive for the coming catastrophe and the more pain there will be for the taxpayers stuck with the bill.

The transition from a Ponzi scheme to a fiscally responsible system won’t just occur overnight. Different municipalities can debate the length of transition or certain public safety spending to ensure the public isn't put at risk. The riskiest outcome, however, is the one they are pursuing at the moment, with no apparent end in sight. Voters will change this on August 27.

Chuck Warren is Co-Chair of Citizens for Responsible Budgets, a Phoenix-based initiative effort. Sal DiCiccio represents District 6 in the Phoenix City Council.


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Old 08-14-2019, 05:05 PM
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HOUSTON, TEXAS

https://www.houstonchronicle.com/new...s-14294232.php
Quote:
Two years after pension reform, Houston’s liability for retiree health benefits grows

Spoiler:
Four years ago, the main source of Houston’s deteriorating financial health — billions of dollars in unfunded pension obligations — loomed over the race for mayor, promising a massive test for the winner.

Now, Mayor Sylvester Turner, having overhauled the city’s troubled pension systems, is running for re-election and touting the reforms as his signature policy accomplishment. He faces several challengers, including Bill King, the businessman he defeated four years ago, millionaire lawyer and self-funder Tony Buzbee, City Councilman Dwight Boykins who has clashed with the mayor over firefighter pay and former Councilwoman Sue Lovell, as well as a handful of lesser known candidates.

Whoever wins will be forced to confront another simmering financial problem: Houston’s $2.4 billion unfunded liability for retiree health care costs, the result of years of deferred contributions, an aging city workforce and, experts say, growing medical costs that outpace the city’s revenue.

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The total has grown in recent years by an average of $160 million a year, or more than $400,000 a day. That is less than the $8.2 billion unfunded pension liability’s $1 million-per-day growth rate, but enough to require swift and sweeping changes, experts and local officials say.


“We’re in the earlier stages in this. It’s not a crisis by any means, but it would be better to address it now,” Controller Chris Brown said. “We don’t want to let this thing grow to another $8 billion unfunded liability. ... Let’s pay a little now instead of paying a lot later.”

The unfunded liability refers to the city’s obligations in the coming decades for retired employees’ medical, life and prescription drug insurance, commonly called other post-employment benefits, or OPEB. Houston has covered its OPEB expenses through a pay-as-you-go system, akin to making a minimum credit card payment while the balance grows.

After pension reform, Turner acknowledged the issue, though he did not take significant action until June 2018, when the city hired Segal Consulting to study its growing OPEB liability. In January, the firm presented City Council’s budget committee with a handful of options to cut into the unfunded future costs.

Among them:

limit how much the city subsidizes retirees’ supplemental Medicare policy premiums, by capping the subsidy at the amount paid to the less expensive privately administered Medicare Advantage plans.

The city has subsidized 20 to 30 percent of employees’ premiums under both plans, Segal Vice President David Berger said, but the average premium for supplementary Medicare plans is more than double that of Medicare Advantage.

Limiting support for supplementary Medicare premiums would have a sharp impact on the city’s liability, because about two-thirds of OPEB payments go to retirees over the age of 65 — when Medicare kicks in — or their spouses, Berger said.

stop covering spouses or dependents of employees who are under 40 or who have less than 15 years of service, and make employees hired after 2020 ineligible for Medicare coverage subsidies.

limit Houston’s total OPEB subsidies to a 4 percent annual increase, a move aimed at protecting the city from future large increases in medical costs, which would be passed on to retirees instead.

In a statement, Turner said he has reviewed the options and formed a working group from the city’s human resources, finance and legal departments to study them.

“We have also been in discussions with the employee groups working toward consensus, while keeping in mind the sacrifices employees have made to help us achieve the city’s historic pension reform,” Turner said.

The proposals align with recommendations from a separate firm, Philadelphia-based PFM, which said in its 10-year Houston financial plan the city should eliminate OPEB coverage altogether for retirees or dependents who have access to other coverage.

Other cities have taken a similar approach, limiting cuts for retirees and older employees who were promised certain benefits, while requiring bigger sacrifices from younger and future employees with more time to prepare.

As with the pension problem, many cities and states have kicked the OPEB can down the road for years. Though difficult to tally, the national total of unfunded liabilities approached $2 trillion in 2011, according to the Government Finance Officers Association.

States alone took on a combined $63 billion in OPEB liability during fiscal 2017, a S&P Global Ratings report found, bringing the total unfunded liability at the state level to $678 billion.

Though a change in accounting standards likely drove part of the increase by forcing more conservative liability estimates, the report still found many governments “continue to severely underfund their OPEB liabilities,” producing higher costs in the future.

“(Houston’s) current practice of making OPEB contributions, or paying down OPEB liability on a pay-as-you-go basis, is typically what we see in a lot of states across the nation,” said Adebola Kushimo, a senior analyst at Moody’s Investor Service.

In fiscal 2018, Houston paid about $40 million, or 24 percent, of its $166 million annual OPEB costs, as part of a $4.9 billion budget.

For now, Houston’s $2.4 billion liability does not appear to threaten its credit rating, in part because rating agencies evaluate OPEB alongside other “fixed costs,” such as debt service and the recently reformed pension systems.

“What we’re trying to do as part of that analysis is understand how many resources do you have to spend on things that the city is mandated to do, whether it’s public safety or whatever the case may be,” said Kushimo, Moody’s lead analyst on Houston.

Unlike pension reform, the city can enact OPEB reforms without going through the Legislature, where complications can arise. During pension reform, for instance, Turner opposed state Sen. Joan Huffman’s move to require a public referendum on $1 billion in pension obligation bonds, which she said was necessary to pass the bill.

Turner said he anticipates submitting an OPEB plan to City Council by the end of the year.

Aside from the benefit cuts, Segal Consulting recommended Houston pay for its OPEB liabilities through a trust fund, allowing the city to invest its assets and assume higher investment returns, generating a lower OPEB liability.

Even after reigning in the city’s OPEB liability, Brown said, the city faces numerous looming financial problems, including annual deferred maintenance and, in the recent city budget, recurring spending that outstrips recurring revenue. In addition, Houston has been operating under a voter-imposed cap on property tax revenue since 2004 and has trimmed its tax rate to avoid collecting more money than allowed.

“This is another piece of the larger problem that’s looming for the city of Houston, which is the structurally imbalanced budget,” Brown said. “Essentially, we want to be paying for all of our current expenses in the fiscal year in full. And we don’t want to defer anything out, i.e. kick the can down the road.”
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Old 08-15-2019, 09:17 AM
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CALIFORNIA
CALPERS

https://www.sacbee.com/news/politics...233372547.html
Quote:
Local pension costs grew in California at nearly six times national rate, new data show

Spoiler:
Median pension costs for local governments grew nearly six times as much in California as the rest of the country over a decade, according to new data compiled by a UC Berkeley professor.

Median pension costs went up $7,022 per employee in a selection of cities and counties in California from 2007 to 2016, compared to a national median increase of $1,216, Sarah Anzia, an associate professor of public policy, said Wednesday in Sacramento.

The rising pension costs have consumed an increasing share of local government revenues, absorbing an additional 2 percent of general revenues over the 10-year stretch in California compared to a national median of 0.7 percent, according to Anzia’s data.

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“Local government is being affected by high pension costs,” Anzia said. “It’s not in the future, it’s now.”

Anzia analyzed spending of 442 local governments around the country, including some from every state and 26 cities and counties in California.

Her results are in working paper form, and have yet to be peer-reviewed for publication in an academic journal. But she suggests her results could fill a gap in public policy debates, since most researchers have focused on pension plans and their performance rather than on local government impacts.

“This dataset is unlike any that existed before, and it is uniquely suited to the task of assessing the on-the-ground experiences of American cities and counties,” she wrote in the paper.

She found correlations between pension cost increases and union activity and collective bargaining, which is more common in California than many other states.

From 2007 to 2016, per-pension costs for local governments with less than 50 percent union membership increased by a median $740, while those with more than 50 percent increased by a median $2,950.

CalPERS administers pensions for many local governments in California along with state workers’ pensions. Like most pensions around the country, CalPERS doesn’t have enough money to cover all of its current and future obligations to public workers. The $377 billion fund, the nation’s largest, has about 70 percent of the assets it would need to pay all those obligations, leaving it with what is known as an unfunded liability.

Many of those obligations won’t come due for decades, and that distance has spurred disagreement among academics and policymakers over how urgent the underfunding is.

“California’s pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently,” California’s Little Hoover Commission reported in 2011, after the Great Recession had deeply affected CalPERS’ funded status.

In 2014, another group of researchers concluded unfunded pension liabilities and financial problems in Detroit and Illinois didn’t signal a broader crisis.

“The question is whether cities across the country are about to topple like dominoes — and whether pensions are the problem. The answer, the authors write, appears to be ‘no’ on both fronts,” according to a study abstract.

Anzia said she doesn’t fall into either camp, but hopes her data can make the pension debate more tangible for a broader audience.

“It stands to affect everyone who relies on local government service provision, including police and fire protection, refuse collection, public parks, libraries, and county court systems,” she wrote of increasing pension costs. “Rising pension expenditures are already changing the landscape of local government, and the findings here suggest that the future of local government may look very different than the past.”

Part of the uncertainty about the future lies in pension funds’ expected rates of return on their investments. When the funds don’t make as much money in a given year as expected, and the shortfall isn’t made up in extra payments from employers, employees or another source, the unfunded liability grows.

CalPERS in 2016 started reducing its target return-on-investment rates from 7.5 percent. The fund returned about 6.7 percent this year, falling short of a new 7 percent target.

The changes mean local governments pay more to make the fund more financially sound in the long run.

Last year, the League of California Cities surveyed 170 local governments about their pension contributions, finding that most cities expected their contributions to increase by at least 50 percent by 2024, to an average of 15.8 percent of general fund budgets.

Anzia on Wednesday suggested CalPERS should reduce the target rate even more, a change she said would give local governments a more realistic picture of the costs of their pensions.

Her study was funded by the Laura and John Arnold Foundation, the Berkeley Institute for the Future of Young Americans and the Institute for Research on Labor and Employment.


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