Broad range of stakeholders file amicus briefs urging California Supreme Court to reject the California Rule

Posted by Pete Constant on February 26, 2018 at 11:26 AM

SACRAMENTO, Calif., February 26, 2018 – Five organizations filed Amicus Briefs last week in support of the State of California in the pension reform case of Cal Fire v. CalPERS. Each brief articulates the constitutional right of the legislature to adjust future pension benefits and the grave threat to state and local economies posed by the increasing pension contribution requirements and the ever-increasing balance of unfunded liabilities. Governor Brown is defending PEPRA in the litigation brought by public employee unions. The organizations that submitted briefs are: Pacific Research Institute, California Business Roundtable, the City of Pacific Grove, Howard Jarvis Taxpayers Association and League of California Cities.

According to Wayne Winegarden, a senior fellow at Pacific Research Institute, “California has a seriously underfunded pension system that threatens the state’s economy and funding for education, public safety, and other critical programs. The pension reforms supported by Gov. Brown and the Legislature represent the first steps of what must be done to fix a broken system. Moreover, the legislature has the legal authority to enact reasonable reforms that would help mitigate a pension crisis in the state.”

Common to each of the excellent briefs is the argument against the judicially created “California Rule” that, as applied, requires that any reduction in pension benefits be offset by a different but comparable benefit. Chuck Reed, chair of Retirement Security Initiative, said, “We commend the organizations that filed briefs in support of the Governor. The California Rule was ill-considered, has been inappropriately applied, and it has made necessary modifications of public pension benefits virtually impossible.”  

Upholding the lower court ruling and rejecting the California Rule opens public pension plans to reasonable reform that would put plans on a path to long-term sustainability and deliver retirement security for public employees and retirees.

About Retirement Security Initiative

Retirement Security Initiative (RSI) is a national, bipartisan advocacy organization focused on protecting and ensuring the fairness and solvency of public sector retirement plans. Our mission is to inform and educate policy leaders and the public regarding the importance of fair and sustainable public sector retirement plans, and organize and support policy development and advocacy efforts at the federal, state and local levels. Learn more at www.RetirementSecurityInitiative.org.


RSI Supports California Business Roundtable Amicus Brief Urging California Supreme Court to Reject the California Rule

Posted by Pete Constant on February 20, 2018 at 7:03 AM

SACRAMENTO, Calif., February 20, 2018 – The California Business Roundtable (Roundtable) filed a friend of the court brief with the California Supreme Court in the pension reform case of Cal Fire v. CalPERS. The California Supreme Court is considering a case challenging the Public Employee Pension Reform Act (PEPRA) passed in 2012. The Governor is defending PEPRA in the litigation brought by public employee unions.

In its brief, the Roundtable urges the Court to reject the California Rule and overrule any cases that have adopted it because the Rule infringes on the Legislature’s sovereign right and duty to protect public employers, public employees, and California citizens.

“We support the Governor and the Roundtable in their efforts to protect the interests of public employees, taxpayers and residents by ensuring that State and local governments can take necessary and reasonable steps to ensure that their pension plans are sustainable,” said Chuck Reed, Chair of Retirement Security Initiative.

The brief argues that the California Rule is unconstitutional and that it creates contractual rights without any evidence of legislative intent, for which “Air Time” is but one example. PEPRA eliminated “Air Time”, a pension spiking practice, that allowed employees to buy extra years of service that are credited to their pension benefits. Public employee unions claim that the right to buy “Air Time” is protected from change by the California Rule even though the option to buy “Air Time” was not created as part of a contractual agreement.

In place of the California Rule, the Court should give pension benefits the same constitutional protection as salary—no more, no less. Adopting this approach would give employees a contractual right to any benefits that they have earned through past services, while giving employers the freedom to prospectively modify the rate at which employees earn benefits for future services.

The Roundtable brief asserts the California Rule has numerous legal flaws:

  • It violates the bedrock principle that statutes create contractual rights only when the Legislature clearly intended to do so.

  • It violates black-letter contract law by creating contractual rights that violate the reasonable expectations of the parties.

  • It violates longstanding constitutional law by assuming that every contractual impairment automatically violates the California and Federal Contract Clauses.

  • It lacks persuasive or precedential value. The Rule was initially adopted without anything resembling a full consideration of the relevant issues.

  • It has been almost uniformly rejected by federal and state courts—including by several courts that previously accepted it.

  • It has had—and will continue to have—devastating economic consequences on California’s public employers.

To view or download the Roundtable’s brief, go to: https://tinyurl.com/ybcrfnr4.

About the California Business Roundtable

The California Business Roundtable is a nonpartisan organization comprised of the senior executive leadership of the major employers throughout the State, with a combined workforce of over 750,000 employees. For more than 40 years, the Roundtable has identified the issues critical to a healthy business climate and provided the leadership needed to strengthen California’s economy and create jobs.

About Retirement Security Initiative

Retirement Security Initiative (RSI) is a national, bipartisan advocacy organization focused on protecting and ensuring the fairness and solvency of public sector retirement plans. Our mission is to inform and educate policy leaders and the public regarding the importance of fair and sustainable public sector retirement plans, and organize and support policy development and advocacy efforts at the federal, state and local levels. Learn more at www.RetirementSecurityInitiative.org.


RSI Leaders Testify in Support of Local Mich. Retirement Benefits Act

Posted by Tracy Grondine on December 05, 2017 at 1:47 PM

SAN JOSE, Calif., December 5, 2017—Leaders of the Retirement Security Initiative today testified before Michigan lawmakers in support of the Protecting Local Government Retirement and Benefits Act, a bill that would improve the solvency of municipal pension and retiree health care plans. RSI President Dan Liljenquist and CEO Pete Constant testified before the House Michigan Competitiveness Committee and the Senate Competitiveness Committee, respectively.

“This reform is an important framework to help ensure that Michigan’s local governments are appropriately funding their retirement commitments to their hard-working public employees,” said Liljenquist, a former Utah senator.  

With an estimated combined pension and retiree health care debt of nearly $20 billion, Michigan’s local governments face serious financial challenges. Currently, 245 cities, counties, townships and other municipalities have saved less than 1 percent of funding necessary to pay for retiree healthcare and other benefits. Further, most county governments have less than 10 percent of assets necessary to pay retiree benefits; cities have only 19 percent and townships and villages 20 percent, thus, putting at risk public employees’ and retirees’ retirement security.

“The funding levels for public employee pension and retiree healthcare benefits for the vast majority of local units of government across the great state of Michigan are now at a crisis level,” testified Constant during the Senate Committee hearing. “In fact, nearly one half of all local healthcare plans have less than one cent saved for every dollar of benefits that have been promised to past and current employees.” Born and raised in Michigan, Constant is a retired city police officer, former city council member and a former pension board trustee. 

“The Protecting Local Government Retirement and Benefits Act creates clear, understandable and transparent reporting standards for local employee pension and retiree healthcare benefit plans, while establishing gradual, yet predictable funding schedules,” continued Constant.  “Nothing in this legislation takes away any benefits earned or promised to employees or retirees. Nor does it force local governments to change the benefits they offer to employees, rather it puts them on a path to paying for the promises that they are making.”

Further, the legislation holds local governments accountable by creating a Local Retirement Stability Board to oversee the corrective action plans and a Financial Management Team to assist communities who are unable to independently develop and implement a plan that leads to the long-term viability of the pension and/or retiree healthcare plan. 

“This legislation puts employees first, requiring local governments to fully pay for the valuable work public employees do every day for residents and taxpayers across the state,” concluded Constant. “No more making promises today, and sending the bill to future generations; your children, grandchildren and great-grandchildren.” 

The Retirement Security Initiative believes that public employee pensions should provide retirement security, be sustainable, fiscally sound and responsibly managed so that all retirees and employees get paid what they have earned. 

 

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Statement on Michigan Governor Snyder Signing Pension Reform

Posted by Tracy Grondine on July 13, 2017 at 8:37 AM

Statement by Pete Constant,

Chief Executive Officer

Retirement Security Initiative

Re: Governor Snyder Signing Michigan Pension Reform

 

July 13, 2017—“Today is a significant day for Michigan. Governor Rick Snyder has signed monumental legislation into law that puts all Michigan teachers on a path to a secure retirement future, while capping the state’s massive pension debt from spiraling further.

"Weighed down with $29 billion in unfunded liabilities, the Michigan Public School Employee Retirement System was unsustainable and teachers’ retirement futures were uncertain. By restructuring the plan for new teachers, Michigan lawmakers have ensured that the teachers’ retirement system will be on a path to being fully funded and sustainable, allowing the state to meet its commitments to current and retired teachers without cutting a dollar of their pension benefits.  

“The restructured system provides teachers fair, predictable and sustainable benefits, as well as more control over their finances with a portable plan they can carry with them from one job to another, regardless of tenure. By fully funding their retirement commitments and paying down the state’s pension debt over a reasonable amount of time, lawmakers have effectively ensured Michigan teachers a brighter retirement future.

“There is no doubt that this is the most comprehensive pension reform enacted by any state to-date. This legislation provides every newly hired teacher with retirement security, while ensuring that future generations of taxpayers will not be subject to the unlimited accumulation of pension debt.

“The Retirement Security Initiative applauds the Michigan Legislature and Governor Snyder for tackling a difficult challenge and seeing it through to success. Michigan should be proud of their pension reform efforts. It is a job well done!”

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RSI Commends Mich. Legislature for Passage of Pension Reform; Urges Gov. Snyder to Sign

Posted by Tracy Grondine on June 15, 2017 at 12:47 PM

SAN JOSE, Calif., June 15, 2017 — The Retirement Security Initiative (RSI) today applauded the Michigan legislature for passing common sense pension reform that protects both Michigan’s teachers and taxpayers.  The Senate approved the plan on a 21-17 vote and the House on a 55-52 vote. RSI is now urging Governor Rick Snyder to sign the reform into law.

Michigan's public school employee pension system is outdated and broken. Only 20 percent of all new teachers receive their full benefits, while 50 percent of new teachers receive no benefits at all. Out of touch with the demographics and characteristics of a modern workforce, the plan fails Michigan’s teachers by allowing them no leeway to carry their earned benefits with them from one position to the next.

“Under this reform legislation, future teachers will automatically be enrolled in a competitive, portable and modern defined contribution retirement plan with an option to participate in a hybrid model,” said RSI CEO Pete Constant.  “This reform brings the Michigan teachers retirement plan into the 21st century, giving them control and freedom over their finances, thus placing teachers and school employees on a path to a secure retirement, regardless of tenure.”

Under the reform, Michigan will be able to keep its retirement promises made to current school employees and retirees, neither of which are affected by the legislation.

The reform legislation also protects current and future generations of taxpayers by employing a shared risk model and including a first-in-the-nation mechanism that will prevent the future accumulation of unlimited pension debt. Under the legislation, the hybrid system will automatically be forced to close should it begin to accumulate unfunded liabilities. With Michigan’s current unfunded pension liabilities at more than $29 billion, this is welcome news for taxpayers.

“Because of Michigan’s massive pension debt, 36 cents of every dollar that should go toward teachers’ pay instead goes to pay for pensions,” said Constant. “That’s unacceptable. Michigan’s teachers and taxpayers deserve better.”

RSI believes that state and local governments should fully fund employee benefits as they are earned, and incentives to underfund commitments should be eliminated. Further, unfunded liabilities, such as Michigan’s $29 billion pension debt, should be paid down over a reasonable time period. Michigan’s public school employee pension reform achieves these goals.

“Without substantial reform, Michigan will continue to pass more debt onto future generations and teachers will face financial insecurity in their retirement years,” said Constant. “For these reasons, RSI encourages Governor Snyder to sign this significant reform into law.”

 

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Pennsylvania Pension Reform is a Win for Workers, Taxpayers

Posted by Tracy Grondine on June 12, 2017 at 12:32 PM

SAN JOSE, Calif., June 12, 2017—The Retirement Security Initiative (RSI) today called reform to Pennsylvania’s Public School Employees’ Retirement System (PSERS) and State Employees’ Retirement System (SERS) a huge win for the state’s public employees and taxpayers. The legislation, SB 1, which was passed by the Pennsylvania General Assembly last week on strong, bipartisan votes, was signed into law today by Governor Tom Wolf.

“RSI congratulates the Pennsylvania legislature and Gov. Wolf for accomplishing meaningful pension reform that will secure the retirement futures of public employees and retirees, while saving the state billions of dollars,” said RSI CEO Pete Constant. “For more than a year, RSI diligently worked alongside Pennsylvania legislative members and stakeholders toward this significant policy achievement and is proud of our collaborative effort to get pension reform over the finish line. It’s a job well done and demonstrates to other state and city governments that meaningful pension reform is possible.”

Under the reform, Pennsylvania’s employees and retirees, whose retirement futures were uncertain, will now be placed on a path to a secure retirement. The new law reforms PSERS and SERS from a defined benefit structure to a system in which future public employees have a choice between three retirement savings options, including two defined benefit/defined contribution (DB/DC) hybrid retirement plans and a defined contribution (DC) retirement plan. Importantly, with the new structure in place, employees and retirees will be able to count on fair, sustainable and predictable benefits.

Further, the reform is expected to save Pennsylvania up to $1.4 billion and is also expected to reduce the state’s unfunded pension liability, which currently is more than $75 billion, by up to $4.2 billion. Without reform the pension debt would have continued to increase, resulting in tremendous budget challenges for the state, while threatening public workers and retirees with unfunded retirement benefits.

“RSI 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,” said Constant. “Pennsylvania’s pension reform package achieves that goal.”

 

 

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RSI Commends PA Legislature for Passage of Pension Reform

Posted by Tracy Grondine on June 08, 2017 at 6:54 AM

SAN JOSE, Calif., June 8, 2017 — The Retirement Security Initiative (RSI) today commended the Pennsylvania Legislature for passage of SB 1, a pension reform bill that will save state taxpayers billions of dollars and safeguard retirement benefits for public workers. SB 1 passed the Pennsylvania Senate on Monday on a 40-9 bipartisan vote and passed the House today on a 143-53 bipartisan vote. It now heads to Governor Tom Wolf’s desk for his signature.

Pennsylvania’s unfunded pension liability is currently more than $75 billion, with $14.8 million of debt being added daily. Such significant debt threatens the solvency of public retirement plans and threatens the retirement security of all employees and retirees. As we have observed in other areas of the country, when government pension debt spirals out of control and lawmakers are unable to meet their pension obligations, it is employees and retirees who pay the price with benefit cuts. 

To put the state’s pensions on a sustainable track, SB 1 will reform Pennsylvania’s Public School Employees’ Retirement System (PSERS) and State Employees’ Retirement System (SERS) from a defined benefit structure to a system in which future public employees have a choice between three retirement savings options, including two defined benefit/defined contribution (DB/DC) hybrid retirement plans and a defined contribution (DC) retirement plan. The bill does not affect current employees and exempts state police, corrections officers, and other hazardous duty personnel. The new plans will apply to employees beginning in 2019; January 1 for PSERS and July 1 for SERS.

“This pension reform package is a significant policy achievement,” said RSI CEO Pete Constant. “It will help Pennsylvania meet its existing retirement commitments to public employees and retirees, addressing its substantial unfunded pension liabilities, while providing a new retirement structure that is both more sustainable and provides adequate retirement security for all workers, regardless of tenure.”

Over the 30-year amortization period, the legislation is expected to save up to $1.4 billion and is also expected to reduce the current unfunded liability by up to $4.2 billion. Importantly, the legislation will reduce future risk to taxpayers by more than 50 percent.

“Pennsylvania’s pension funds lost $115 billion in funding, taking a $20 billion surplus in 2000 to a $75 billion deficit in 2017,” said Constant. “Without substantial reform, Pennsylvania would not be able to meet its commitments to current employees and retirees and the debt would continue to increase.”

With national unfunded pension liabilities in excess of $1 trillion, traditional defined benefit pensions are straining the finances of state and local governments across the country.  RSI believes that state governments have an obligation to fix this growing problem by ensuring that their retirement plans are sustainable, fiscally sound and responsibly managed so that all retirees and employees get paid what they have earned.

 

 

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Arizona CORP Pension Reform a Win for Workers and Taxpayers

Posted by Tracy Grondine on April 17, 2017 at 5:06 PM

SAN JOSE, Calif., April 17, 2017—The Retirement Security Initiative (RSI) today called reform to Arizona’s Corrections Officers Retirement Plan (CORP) a huge win for the state’s correctional employees and taxpayers. The legislation, authored by State Senate President Pro Tem Debbie Lesko and signed into law by Governor Doug Ducey, will help ensure the long-term solvency of CORP’s pension plan while saving the state billions of dollars.

Passed by the Senate and House with strong bipartisan support, the reform package, SB1442, will repair CORP’s structural flaws, provide greater retirement security, slow the accrual of new pension liabilities, lower pension costs and significantly reduce future taxpayer risk.

With only 53 percent funding and an accumulated $1.4 billion debt, the long-term solvency of CORP’s pension plan was threatened. Over the last 15 years, the aggregate employer contribution rate had grown from 3.2 percent to 20.76 percent of payroll. 

“The CORP plan, as it was structured, was not sustainable and failing the vast majority of employees it was designed to benefit,” said RSI Executive Director Pete Constant, who helped lead reform efforts. “Overall, this reform protects the promises made to current members of the plan, while providing retirement security for new employees.”

The new reform, which adopts a defined contribution plan for new correction officers, will help current employees and retirees in the existing CORP pension plan by capping liability and improving the plan’s solvency, while ensuring adequate retirement security for all employees regardless of tenure.

Taking into account employees’ demographics and career behavior, SB1442 allows new employees to be 100 percent vested within three years of service, improves the portability of benefits and creates more retirement planning choices.  Prior to reform, the plan had been failing 80 percent of all plan members who left the job before vesting, forfeiting their full benefits.

Last year Arizona lead the nation with a comprehensive reform package to the Public Safety Pension System. Emulating last year’s successful process, Sen. Lesko convened a pension reform working group that brought together employees, employers, taxpayer advocates and pension experts to examine and address CORP’s structural pension issues.

“We congratulate Sen. Lesko and are proud that this effort, too, had the support of employees, employers and taxpayer groups,” said Constant. “It’s a job well done and demonstrates to other state and city governments that meaningful pension reform is possible through collaborative stakeholder engagement.”

 

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RSI Experts: Omaha, Lincoln Pension Reform is Needed

Posted by Tracy Grondine on February 07, 2017 at 4:41 PM

SAN JOSE, Calif., February 7, 2017—Leaders of the Retirement Security Initiative today testified before Nebraska Legislature’s Retirement Systems Committee in support of LB30, a pension measure that would reform Omaha and Lincoln police and fire pension systems. The bill, sponsored by Committee Chairman Sen. Mark Kolterman, would transition new-hire employees from the currently-used defined benefit structure to a cash-balance retirement program.

Testifying at the hearing were RSI Board Member Dan Liljenquist, who successfully spearheaded pension reform efforts during his time as a Utah State Senator, and RSI Executive Director Pete Constant, a former San Jose City Council member and retired police officer.

Both Lincoln and Omaha fire and police pension systems are in dismal financial shape, according to the RSI experts. Without substantive reform offered by LB30, both systems will continue to deteriorate, jeopardizing government finances and public workers’ retirement benefits.

“The situation in Lincoln and Omaha is that they’ve been chronically underfunding their plans,” Liljenquist told committee members during the hearing. “Couple that with high assumption risks and low market returns for years and the plans are in dire straits.”

The Omaha Police and Fire public pension system is roughly $630 million in debt and Lincoln’s Police and Fire pension fund is an estimated $190 million in debt. “The structure of the plans and the new normal of what the markets are doing make it very expensive,” Liljenquist continued.

Neither the Lincoln nor the Omaha pension plans have kept up with funding levels to keep them sustainable (Omaha is funded at roughly 50 percent, Lincoln at 80 percent), instead relying on high assumed market returns. In Lincoln, the average rate of return for the past 15 years has been 5.2 percent, compared to its 7.5 percent assumed return. During the same time, Omaha has been guaranteeing 8 percent returns, while average actual returns have been only 4.8 percent. To help make up for the difference both cities have continually poured taxpayer dollars into the systems.

“Pumping more money into a system is not a plan, it’s triage,” said Liljenquist. “It’s like stumbling across a chemical spill in your backyard. First you have to cap that spill and then work overtime to clean it up. LB30 does that.”

LB30 would transition new hire employees from the current defined benefit structure to a cash-balance program that uses lower assumed return rates and cuts future risk in half. The reform would not affect current employees and retirees. Adopting the cash-balance plan for new employees would help ensure that retirement promises that were made to current employees and retirees can be kept.

"For Lincoln and Omaha to honor the promises made to their active police officers and firefighters and retirees, reform of some sort must happen,” Constant told committee members. “If they want to be able to recruit from the millennial generation and Gen Z, pension portability and sustainability are essential.”

According to Constant, neither the Lincoln nor Omaha pension systems, as they are currently structured, are sustainable and leave employees and retirees vulnerable to retirement insecurity.

“The plans have significant funding problems,” he told members. “When pension plans hit a funding ratio like Lincoln’s and Omaha’s and carry significant debt, taking no action threatens their very solvency.”

For more information on the pension crisis facing Lincoln and Omaha, click here for in-depth analysis by the Platte Institute and Reason Foundation.

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RSI: Connecticut Pension Bargaining Agreement Needs To Do More

Posted by Tracy Grondine on January 11, 2017 at 8:07 AM

SAN JOSE, Calif., January 10, 2017—In comments today to Connecticut Office of Policy and Management Secretary Ben Barnes, the Retirement Security Initiative said that the state’s recent bargaining agreement to revise its pension plan is commendable, but doesn’t go far enough to address the state’s $15.9 billion pension shortfall. The agreement with the State Employees Bargaining Agent Coalition attempts to modify the funding calculation and amortization schedule for the State Employee Retirement System by lowering the pension plan’s assumed return to 6.9 percent.

“While we commend you for your commitment to fully funding pension payments to resolve the unfunded liability, a 6.9 percent rate of return is overly optimistic and is highly likely to result in underfunding the plan,” said RSI Board Member and former San Jose Mayor Chuck Reed in his comments to Barnes.

Instead, RSI recommended that contributions be based on a more realistic rate of return that is closer to the 5.4 percent rate that was achieved by the state from 2001 to 2014.

“If you proceed based on the 6.9 percent number,” continued Reed. “Either more money should be put into the plan by the state and the employees, or plan redesign and benefit changes should be implemented to reduce costs to close the funding gap that will likely be created by assuming a 6.9 percent rate of return.”

According to RSI, the 6.9 percent assumed rate is unrealistic and could lead to Connecticut taxpayers shouldering the burden for decades to come.

“The funding gap between a 6.9 percent rate of return and a 5.5 percent rate of return will be $3.8 billion, which is more than $100 million per year from 2016 to 2046,” continued Reed. “To avoid that shortfall, we would strongly suggest getting as close to the 5.5 percent number as possible.”

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