Posted by Tracy Grondine on January 11, 2018 at 10:57 AM
In partnership with researchers at the Reason Foundation, the California Policy Center has recently compiled data for every agency of California's biggest pension system, CalPERS, including 427 cities and 36 counties. The data has been distilled to present two sets of numbers: payments to CalPERS for the 2017-2018 fiscal year, and officially estimated payments to CalPERS in the 2024-25 fiscal year. In calculating these results, the only assumption made was for estimated payroll costs in 2024. Researchers used a 3 percent annual growth rate for payroll expenses, the rate most commonly used in official actuarial analyses on this topic.
To see how the numbers stack up for each city and county, click here to read more from the California Policy Center.
Chart courtesy of the California Policy Center.
Posted by Tracy Grondine on January 04, 2018 at 8:06 AM
By RSI Chair Chuck Reed
Special to The Sacramento Bee
California is great at making pension promises, but a dismal failure at properly funding them. The most recent annual report released by the California Public Employees’ Retirement System shows that, as of June 2016, CalPERS was more than $138 billion in debt. The teachers’ retirement system (CalSTRS) is nearly as bad, with $96 billion in debt. Even with a couple of really good years in the stock market, pension debts have grown.
The California system of overpromising and underfunding is failing taxpayers, public employees and retirees and wreaking havoc on California’s finances, including those of cities like Sacramento. And the giant CalPERS and CalSTRS pension debts ensure more of the same for decades to come.
The first pension domino fell in 1999, when the state Legislature granted retroactive pension benefits without paying for them. Since then, many factors have contributed to the pension debt, including chronic underfunding and relying on the stock market with unrealistic assumptions for investment returns. Quite simply, California has relied on kicking the can down the road for someone else to deal with at a later time.
To continue reading, click here.
Posted by Tracy Grondine on December 15, 2017 at 6:10 AM
Special to Forbes by RSI President Dan Liljenquist
Albert Einstein once said we cannot solve our problems with the same level of thinking that created them. Unfortunately, when it comes to the nation’s struggling public pensions, now more than $1 trillion in debt, that’s exactly what’s been happening. For years, state and local policymakers have been trying to keep their heads above water, while ignoring the coming pension debt tsunami.
That is until recently.
Over the past year, three states have made the tough decision to tackle pension reform head on. These states—Arizona, Pennsylvania and Michigan—are vastly different in size, budgetary resources, and political makeup. The common denominator has been their commitment to safeguarding their public employees’ retirement systems by enacting reforms that are fiscally responsible. These states not only rose to the challenge of pension reform, but they each saw their efforts through to success.
Click here to continuing reading Mr. Liljenquist's Forbes commentary.
Posted by Tracy Grondine on November 30, 2017 at 8:06 AM
California Governor Jerry Brown is garnering significant praise this week with the filing of a brief, which aims to tackle the state's massive pension debt. As Brown prepares to leave office, the filing targets the so-called 'California Rule,' which bars state and local governments from modifying pension benefits. According to the Sacramento Bee, "The filing embraces a cluster of recent court decisions that hold public employees are entitled to reasonable pensions, but not necessarily ones that are calculated on the most favorable formulas for them." Brown's office is specifically taking on 'air time,' an option that allows public workers to purchase extra years of service that are credited to their pensions, which, according to Brown, is an “unworkable and fiscally irresponsible scheme.”
More from the Sac Bee: "Before Brown’s  pension reform law took effect, California public employees could buy up to five years of service credit through the air time offerings. Participating in the program cost workers tens of thousands of dollars up front, but gave them a higher pension when they reached retirement age."
While recent lower-court decisions have supported Brown's 2012 pension reforms on air time and pension spiking, the challenges are now in front of the California Supreme Court -- a decision that could have significant implications not only in the state, but throughout the country.
The San Francisco Chronicle's editorial board today called Brown's filing a "notable decision," further saying "The governor deserves praise for taking on a financial issue that’s the equal of his dreams of a new plumbing system for California water or a quick-shot train line connecting the north and south. Whether it’s his short-timer status or tightwad reputation, he’s focusing on a major problem. The state’s two main pension pots are hundreds of billions short of promised payments to retirees while cities and counties are facing steeper costs to keep the game afloat."
For nearly two decades, California's public pension debt has been spiraling out of control, eating up tax dollars and public services. Both the California Public Employees’ Retirement System and the California State Teachers’ Retirement System--with more than a combined $200 billion debt--only have approximately two-thirds of the assets needed to pay the debts they owe.
Posted by Tracy Grondine on October 30, 2017 at 2:47 PM
Double, double toil and trouble; fire burn and cauldron bubble...
There’s nothing scarier than the systemic failure of our nation’s public pension systems—and no one is spared. Estimated at $5 trillion, U.S. public pension debt is the shadow lurking at your door, slowly creeping up behind you. The nation’s failing pension systems are responsible for higher taxes, reduced government services and, in some of the worst cases, reductions in pensioners’ promised retirement benefits. And that’s scary stuff.
Growing pension costs are resulting in tremendous budget challenges for state and local governments. Just look at the recently released study by Stanford University examining California's unfunded pension promises and how the pension crisis is impacting city and county governments and school districts. In many cases, the state's police, fire and other critical public safety services have been reduced to pay increasing pension costs. Other services, such as public health, public assistance and transportation, are especially being hit, as well as libraries and recreational services. School districts, too, have been dealt a blow with cuts in operating expenses and staff reductions.
Just as scary, rising costs and the continual underfunding of pension systems are threatening the solvency of public employee retirement plans, putting at risk the hard-earned savings of many workers. RSI believes that all workers deserve safe and secure futures and retirement plans should place employees on a path to a secure retirement. It shouldn’t be a case of trick-or-treat: retirement benefits should be fair, sustainable and predictable.
Although today’s pension crisis is due to past policy decisions made by legislative bodies that created unsustainable systems, current policymakers can change the tide. For example, policy leaders in both Pennsylvania and Michigan faced the challenge head on this year and passed meaningful pension reform. Further, leaders in Kentucky are currently working hard to reform their broken pension system and stop the state's $37 billion pension debt bleed before it's too late.
Don’t be tricked this Halloween. State and local governments have a responsibility to provide essential services that protect the welfare and quality of life for all Americans—services that will be reduced as public pension debt continues to skyrocket. Governments also have a responsibility to fulfill their pension promises to public employees. After all, there are many things that frighten us, but our retirement futures shouldn’t be one of them.
Posted by Tracy Grondine on October 27, 2017 at 7:15 AM
Retirement Security Initiative founding board member Lois Scott this week was appointed to the Kroll Bond Rating Agency’s board of directors. Considered a trailblazer for women in the field of public finance and one of the most influential people in U.S. government, Lois is instrumental in bringing awareness to public pension sustainability challenges and working with national leaders on reform efforts.
From 2011-2015, Lois served as the Chief Financial Officer for the City of Chicago and currently serves on the board of the Chicago Stock Exchange and the Federal Home Loan Bank of Chicago. She is chair of the Advisory Board of the Center for Municipal Finance at the Harris School of the University of Chicago, co-founder of the Municipal CFO Forum, and is well known as one of the founders of Women in Public Finance.
Click here to read special RSI commentary by Lois on financing state and local pension obligations.
Posted by Tracy Grondine on October 19, 2017 at 9:58 AM
This week marks National Retirement Security Week. Unfortunately, most Americans face uncertainty when it comes to their retirement futures. Even public employee pension plans, which at one time were considered safe harbors for public workers to save and enjoy their retirement years, are now antiquated and failing the very people they are meant to serve. As more pension systems go without being fully funded, and plans consistently lose money, it’s the workers and retirees who are impacted the most.
Such is the case in Kentucky, which has accumulated more than $37 billion in pension debt due to such factors as inadequate funding and poor investment returns. The system faces insolvency and, without reform, state officials estimate retiree benefit checks could stop coming as early as the next three to six years.
But this week, Kentucky Governor Matt Bevin and legislative leaders introduced a comprehensive plan to stave off the impending pension crisis. The proposal, aimed at making the system healthy and solvent, would go into effect July 1, if passed by a special session of the legislature.
Here are some highlights:
- Kentucky will have to pay its actuarially required contribution every year and create a funding formula to put hundreds of millions of more dollars into retirement plans.
- Retirees will be protected. They will see no change in their retirement checks and their healthcare benefits will remain secure.
- Retirement age for current public workers will remain intact and their current defined benefit plan benefits will continue until the employee attains his or her promised level of unreduced benefit.
- Non-hazardous future employees and teachers will be moved into a modern retirement plan that offers more mobility and flexibility.
The Retirement Security Initiative believes that all workers deserve safe and secure futures and retirement plans should place employees on a path to a secure retirement, regardless of tenure. Governor Bevin’s pension reform plan will do just that.
“The right thing to do is rarely the easiest,” said Bevin. “But we are determined to address the crisis with the most fiscally responsible public pension reform plan in the history of the United States. I am confident that the rest of the country will pay close attention to this excellent work by our legislature and for good reason. For those retired, for those still working, and for those yet to come: we are truly fixing our broken pension systems.”
Growing pension costs are threatening the solvency of public employee retirement plans throughout the country, putting at risk the hard-earned savings of many workers. We tip our hat to Governor Bevin for stepping up to the state’s $37 billion challenge, saying enough is enough, and putting public workers first.
Read more about Governor Bevin’s plan here and watch his press conference here.
Posted by Tracy Grondine on October 13, 2017 at 7:31 AM
Pension costs in California are ballooning so much that important community services are being crowded-out in their wake, according to a new study by Stanford University professor Joe Nation. The report, “Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030,” details jurisdictional case study after case study of failing pension systems per county, city and school system and what it means for taxpayers.
In many cases, police, fire and other critical public safety services have been reduced to pay increasing pension costs. For example, in the City of Vallejo, as the pension share of the city’s operating expenditures increased from 3.1 percent in 2003-04 to 15.2 percent in 2017-18, the number of police fell from 221 in 2004 to 143 by 2014, and the number of fire personnel remains nearly 30 percent lower than in 2004.
Other services, such as public health, public assistance and transportation, are especially being hit, as well as libraries and recreational services. In the City of Stockton¸the pension share of operating expenditures increased from 3 percent in 2002-03 to 12 percent in 2017-18, and have displaced an estimated $31 million of other city expenses this year alone. The city’s higher pension contributions have led to reductions in three functional areas: public works, libraries, and parks and recreation. Furthermore, looking ahead, pension expenditures in 2029-30 appear likely to crowd out an additional $28 million in other city spending.
California school districts are not immune to escalating pension costs. The study examines the Los Angeles Unified School District, Mill Valley School District and Visalia Unified School District. In all three areas, operating expenses, salaries and staff have been reduced to pay pension costs. Further, in Mill Valley, educational services, supplies and books have been cut.
Source: Stanford Institute for Economic Policy Research
U.S. public retirement programs are more than $5 trillion in debt, resulting in tremendous budget challenges for states and municipalities. As more and more public retirement plans face insolvency, policymakers tend to pull funds from important public services like education, public safety and transportation to pay down pension debt. This, coupled with reduced funding for community centers, libraries and parks, leads to a reduced quality of life for all taxpayers.
The Retirement Security Initiative believes that state and local governments have a responsibility to provide essential services that protect the safety, health, welfare and quality of life for all Americans. Sadly, as the Stanford study shows, these services will continue to be reduced as public pension debt increases. While it’s easy to kick the can down the road for another day, if policymakers don’t get control of the public pension crisis now there will not be funds for essential community service programs in the future.
Posted by Tracy Grondine on September 22, 2017 at 12:37 PM
By Chuck Reed, RSI Chair
Analysis published this week by J.P. Morgan’s Chairman of Market and Investment Strategy Michael Cembalest demonstrates the growing risk to public employees and retirees as many municipal debts outweigh revenues.
Following up on his 2016 tri-annual credit review of U.S. states, Cembalest has added the largest U.S. cities and counties to the mix in his latest review, The Arc and the Covenants 3.0. By calculating what local governments currently spend on bonds, pensions and obligations related to underfunded pensions and retiree health benefits (termed OPED) and what they would be spending over 30 years assuming a 6 percent rate of return, Cembalest has determined that U.S. cities and counties are substantially more debt-ridden than states and have some difficult choices ahead in order to meet their future obligations.
Using a calculation called “IPOD” (short for I=interest on bonds, P=pension payments, O=OPEB payments and D=defined contribution payments, all divided by municipality revenues), Cembalest looks at current IPOD ratios and, more importantly, full accrual IPOD ratios required to service all future obligations accrued to date. And the result is dismal. To meet the full accrual IPOD ratio, many municipalities will need to significantly increase taxes, cut services or increase public worker contributions.
For example, in my home state of California, to meet its future commitments, Oakland would have to increase taxes by 22 percent, or cut spending on services by 22 percent, or increase worker pension contributions by 462 percent. In Sacramento, policymakers would have to increase taxes by 19 percent, or cut spending by 18 percent, or raise workers’ contributions by 301 percent. And there’s municipalities in far worse shape, such as Houston, which would have to raise taxes by 26 percent, or cut services by 23 percent, or increase worker contributions by an outstanding 772 percent.
So, what happens if these governments choose to ignore the crisis, to maintain the status quo and do nothing? Municipalities may continue to rely on elevated investment returns, but that would require almost impossibly high annual returns for 30 years and it’s that short-sighted optimism that helped get our country into its current pension debt crisis.
According to Cembalest, at a more conservative and realistic return rate of 6 percent, municipalities would see their pension funding ratios decrease. For example, Houston’s current 23 percent funded ratio would fall to 15 percent; Cincinnati, Ohio’s would go from 60 percent funded to 49 percent funded; and Los Angeles County’s would drop from 87 percent to 79 percent—and that’s only if municipalities maintain their current contributions.
If contribution levels fall, the funding gaps will only widen, putting at risk the retirements of many public employees. As Cembalest noted, public sector workers “have earned the benefits they accrued and which were granted by state and local legislatures, and have the right to expect them to be paid.” I couldn’t concur more.
Unfortunately, the situation is dire for many municipalities around the country and this report only further reflects the tremendous debt burden faced by our country due to overpromising benefits and underfunding pension systems and the risk it places on public employees and taxpayers.
Moving forward, pension reform can no longer be prolonged by state and municipal policy leaders while liabilities accumulate. To maintain benefits for current retirees, ensure a fair retirement for future workers and deliver government services to taxpayers without significantly increasing revenues, the debt crisis needs to be addressed now.
Posted by Tracy Grondine on September 05, 2017 at 9:59 AM
The latest brief from the National Conference on Public Employee Retirement Systems (NCPERS) claims that public pensions are a good deal for taxpayers. By cherry-picking a handful of spun tales and unsubstantiated theories, and by ignoring pension debt realities, the paper proves nothing more than its authors have a creative imagination. It does demonstrate how the pension industry lives in a world of optimistic assumptions and rosy scenarios only loosely connected to the taxpayers who have to pay skyrocketing retirement costs with real dollars.
In short, NCPERS premises are wrong and here’s why.
Pension funds are resilient, well-managed and have stood the test of time, according to the brief. We are certain pensioners in Detroit, Central Falls, RI, Loyalton, Calif., Prichard, Ala., and Puerto Rico, among others, would disagree. These pension funds were neither resilient nor well-managed, and certainly did not stand the test of time—and pensioners are paying the price with drastically reduced or terminated benefits.
Unfortunately, these examples are not one-offs, but instead a growing trend of mismanaged, underfunded, failing pension systems across the country. One only has to look at CalPERS’ 18 years of failure—from a $32.9 billion surplus in 1999 to more than $111 billion debt at present—to know that U.S. pensions are not resilient and well-managed. But if that’s not enough proof, take into account the mess of Illinois’ $100 billion-plus unfunded pension liability, Connecticut’s $68 billion pension debt and New Jersey’s $49 billion debt-ridden system, which leads us to NCPERS’ next fanciful theory…
Pension funds pose little burden, if any, on taxpayers. One word (ok, maybe two): Crowd-Out. When governments carry billions of dollars in pension debt, how can taxpayers not be negatively impacted? Again, let’s look at New Jersey, who’s Governor Christie recently proposed cutting critical funding from such important programs as higher education, homes for disabled soldiers, psychiatric hospitals and developmental disability centers, to instead put toward the state’s pension debt. Further, in Chicago, 89 cents out of every new tax dollar since 2009 has gone to pay pensions, leaving only 11 cents out of every dollar for the rest of education. And when crowd-out just doesn’t do the trick, governments raise taxes. On top of Chicago’s reduced funding for education, the city will implement a 10 percent property tax hike this year. And let’s not forget the nearly 1,500 Chicago teachers and school staff who were laid off several years ago due to the school system’s escalating pension debt.
We also take issue with NCPERS graph on the composition of income, as it is patently misleading. The chart, which shows employer contributions declining, is only accurate if you disregard employer contributions related to debt and interest. It appears the authors are using this graph to imply that employer contributions have dropped by greater than 50 percent from 2000 to 2014, when, in fact, every plan that we have ever looked at has shown that employer contributions over that time have tripled, quadrupled, or even more. Here are a few examples of increasing employer contributions: Chicago Public Schools (Fig. 2), CalPERS and nationally (Fig. 4). When employer contributions have tripled in the last decade or so and cities are putting more than 20 percent of their budgets into pension plans, that is an enormous burden on taxpayers.
NCPERS’ last theory is this: Taxpayers’ contributions are fully or partially offset by the tax revenues generated by public pension investments in the community and by the local spending of retirees who receive pension checks. This is purely speculation and obfuscation and ridiculous on its face. The fact that taxpayer funds are partially offset is meaningless. Moreover, it’s unsubstantiated. The paper’s authors even claim, “There is little or no research focused narrowly on whether tax revenues generated through pension fund investments and spending of retiree pension checks in local economies is enough to pay the taxpayer portion of pension contributions.” Further, while we may disagree on the economic impact multiplier for defined benefit pension benefits, there is no evidence to suggest that retirees would choose to spend their money any differently if the benefit was provided via a defined contribution plan, hybrid or cash balance plan, which provides retirement benefits with much less risk to taxpayers.
U.S. pension systems are an estimated $5 trillion in debt. Such debt is NOT a good deal for the economy. It’s certainly NOT a good deal for taxpayers, who are losing out on critical government services, while continually paying more taxes. And it is definitely NOT a good deal for public employees and retirees whose very financial futures are at risk.