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!”
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Michigan's public school employee pension system is outdated and broken.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.”
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.”
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.
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.”
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.
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.”
Posted by Tracy Grondine on January 09, 2017 at 7:14 AM
SAN JOSE, Calif., January 9, 2017— A second decision by the California First District Court of Appeal that rejects a rigid interpretation of the California Rule of vested rights get Californians one step closer to saving the state from financial disaster, according to the Retirement Security Initiative. The ruling, in Cal Fire Local 2881 v. CalPERS, states that although an employee has a vested right to a pension, their only right prior to retirement is to a "substantial or reasonable pension." A different panel of judges issued a similar ruling in Marin Association of Public Employees v. Marin County Employees’ Retirement Association in August 2016.
“Pension reformers in California have been advocating for years that some reasonable modifications to future pension benefits accrued for future work by current employees could be permissible under the California Constitution,” said RSI Board Member and former San Jose Mayor Chuck Reed. “It now seems it may be possible to do so.”
The Appeals Court quoted the California Supreme Court on vested rights to explain its ruling:
“Although vested prior to the time when the obligation to pay matures, pension rights are not immutable. For example, the government entity providing the pension may make reasonable modifications and changes in the pension system. This flexibility is necessary ‘to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy.”
The case arose out of legislation enacted in 2012, the Public Employees’ Pension Reform Act (PEPRA), in which the opportunity for an employee to buy additional years of service credits was eliminated. Plaintiffs alleged they had a vested right to continue what is referred to as “buying airtime” because it had been permitted for years.
Plaintiffs claimed they had a vested contractual right to purchase up to five years of airtime service credit that is not subject to elimination or destruction by legislative amendment or repeal “even before the benefit has been accessed or the time for retirement has arrived.”
The Appeals Court rejected plaintiffs’ assertion that “Public employees obtain a vested right to the provisions of the applicable retirement law that exist during the course of their public employment. Promised benefits may be increased during employment, but not decreased, absent the employees’ consent.”
The Appeals Court noted that “California law is quite clear that the Legislature may indeed modify or eliminate vested pension rights in certain cases.”
“The big question for pension reformers is whether or not the California Supreme Court will agree,” said Reed. “The Marin County case has already been accepted by the Supreme Court and this case is likely to go there as well.
“If the Supreme Court agrees with these appellate court decisions, the legal door will be open for Californians to begin to take reasonable actions to save pension systems and local governments from fiscal disaster,” concluded Reed.
Posted by Tracy Grondine on November 02, 2016 at 7:41 AM
How Would Retirement Fare Under a Clinton, Trump Presidency?
SAN JOSE, Calif., Nov. 2, 2016 — The Retirement Security Initiative (RSI) today published an interview with Marc Goldwein, senior vice president of the Center for a Responsible Federal Budget, on how retirement issues are faring in the 2016 election. In the interview, Goldwein discussed the two major presidential candidates’ policies on social security, retirement issues, debt reduction and taxes.
“Unfortunately, retirement hasn’t been a big issue this election,” said Goldwein in the interview. “The candidates are talking very little about retirement, whereas it should be one of the top things being addressed. This is especially true given the unsustainability of the Social Security program.”
It is estimated that Social Security, the major source of income for most retirees, will run out of funds to pay full benefits beginning in 2034. According to Goldwein, neither Hillary Clinton nor Donald Trump adequately address the problem.
“Both candidates have their heads in the sand on Social Security policy,” said Goldwein. “Donald Trump’s plan is to keep the system on its current path to insolvency. Hillary Clinton’s plan expands benefits in targeted ways…but otherwise she doesn’t change the program’s benefits or touch the age requirement. Both candidates are doing tremendous disservice by taking so many things off the table.”
It would seem that public employees would have their pensions to make up for the retirement uncertainty. But, as more public pensions go underfunded, putting at risk public employees’ savings, that payoff may not be so certain. What, if anything, do the presidential candidates’ policies do to address retirement needs?
“Neither Hillary Clinton nor Donald Trump have concrete plans to fix some of our most pressing retirement issues, like unsustainable pensions, holes in the Social Security program for low-income wage earners, access to retirement savings plans, and the list goes on,” said Goldwein. “What should have been a priority in the political debate, has unfortunately been put on the backburner in this presidential election.”
As for how each of the candidate's policies would impact historic levels of public-held debt (estimates show up to $5 trillion in U.S. pension debt), Goldwein said that neither of the candidate’s economic plans would slow and reverse the national debt.
“Hillary Clinton’s plan would keep national debt on the path we are headed, increasing it by a small amount: an additional $9.2 trillion in the next decade,” said Goldwein. “And while this is certainly the wrong direction, Donald Trump’s plan is catastrophically worse. It would add $5.3 trillion on top of the already $9 trillion over the next decade, putting the U.S. in unprecedented debt.”
To read more of Golwein’s interview, click here, or visit: http://www.retirementsecurityinitiative.org/retirement_and_the_2016_election.
Underfunded pension systems are one of the biggest challenges facing state and local budgets, resulting in an estimated $1 trillion to $5 trillion in total U.S. pension debt. Goldwein’s interview is part of an ongoing RSI series of pension and retirement analysis from the country’s leading policy and fiscal thought leaders. Previously in the series, RSI spoke with the Rockefeller Institute’s Donald Boyd on investment risks being taken by pension funds and their potential consequences.
Posted by Tracy Grondine on October 26, 2016 at 8:40 AM
SAN JOSE, Calif., Oct. 26, 2016 — The Retirement Security Initiative (RSI) is urging Pennsylvania lawmakers to vote “Yes” on fundamental pension reform legislation that would save state taxpayers billions of dollars and safeguard retirement benefits for public workers. The bill, which passed a conference committee late Tuesday night, now heads to the Senate and House chambers for a yes-or-no vote.
The push to overhaul Pennsylvania's pension system comes as the state faces more than $63 billion in pension debt, which is twice the size of the state’s annual budget. According to RSI, the Commonwealth’s pension debt has skyrocketed due to continued poor decision-making, including system underfunding, risky investment assumptions and unfunded benefit increases. Pennsylvania ranks 49th among states for underfunding its pensions and is among one of the largest states nationally to underfund benefit increases, a factor that will ultimately cost the state approximately $50 billion in higher benefit payments over 30 years.
“Pennsylvania’s pension funds went from a $20 billion surplus in 2000 to a $63 billion deficit in 2015,” said RSI Board Leader and former Utah State Senator Dan Liljenquist. “For every day that lawmakers ignore this dire situation, it increases the taxpayers’ debt by $1 for every man, woman and child in Pennsylvania, or in other words $1,500 per year for a family of four.”
Legislation now before lawmakers would create a new plan for the State Employees’ Retirement System and the Public School Employees' Retirement System beginning in 2018. Employees would be given three retirement savings options from which to choose, including two defined benefit/defined contribution hybrid plans and a straight 401K-style defined contribution plan. The bill does not affect current employees and exempts state police officers, corrections officers and certain other enforcement officers from the hybrid DB/DC or DC plans for new employees.
According to the Pew Research Center, the proposal mitigates approximately 60 percent of risk if pension investments underperform, saving taxpayers more than $10 billion if returns were 6 percent. Further, employer contributions under the proposed plan are expected to be $2.6 billion lower over 30 years than contributions under the current plan.
"This pension reform package is a solid win for taxpayers and public workers,” said Liljenquist. “Not only would the cost to taxpayers be cut $4.3 billion over the next 30 years, but employees will no longer face an uncertain future where growing pension costs threaten the solvency of their retirement plan, putting at risk their hard-earned savings.
“For these reasons alone, it's critical that Pennsylvania lawmakers today vote ‘Yes’ on pension reform,” urged Liljenquist.