AFL-CIO Update: Threats to Public Worker Pensions

Three Alarms: Direct privatization threat to public employee retirement security.

Alaska state lawmakers are at odds over a proposal to borrow money at a low-interest rate, invest the money for a higher return and use the difference to help offset the state's pension fund liability. Currently, the unfunded liability is estimated at about $8.5 billion.

Rep. Mike Hawker , who proposed the plan, and other proponents say it could generate $60 million for the state this year. It calls for Alaska to sell up to $2 billion in bonds for its public employee fund and another $2 billion for its teacher fund.

Hawker says the state would likely pay less than 6% in interest on the borrowed money. In comparison, he says pension fund investments have returned 16% so far this year. Hawker, an accountant, says there is little risk of losing the money.

That assurance, however, did not convince Sen. Bert Stedman , co-chairman of the Senate Finance Committee , where the measure has been blocked. Stedman, who is a financial planner, says pension bonds may be an effective way to get the state out of its pension hole, but he favors a slower, more methodical approach.

Hawker says the measure, House Bill 13, was passed unanimously by the House and is widely backed outside the Legislature. Stedman said he expects to revisit the pension bond proposal next year, but Hawker warns the investment climate may not be so favorable by then.

Starting next year, Alaska school districts and municipalities will see huge spikes in what they have to pay into the state's retirement systems. The Alaska Retirement Management Board approved the increases in employer contributions to the Public Employees Retirement System and the Teachers Retirement System this week. The increases are meant to whittle away at the systems' $6.9 billion shortfall over the next 25 years.

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HB 2141 & 2145 have the potential to establish a two-tiered system of benefits for several thousand future state, county and municipal workers in Arizona beginning July 1 of this year.

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On June 21, 2007, the Keith Richman led California Foundation for Fiscal Responsibility filed a pension and health care ballot initiative that would apply a benefits cap to the defined benefit plans offered to all new state, local government, school district, university and special district employees beginning July 1, 2009. The advisory board for the initiative includes Mike Arno (Arno Political Consultants) and Carl DeMaio (The Performance Institute).

CalPERS and CalSTRS generate a combined annual $21 billion in economic activity for California, according to a study by the Applied Research Center at the California State University, Sacramento. The review, sponsored by the $241.1 billion California Public Employees' Retirement System, Sacramento, shows that the impact the two plans have on the state exceeds that of the forestry and fishing industry and about equals the size of the hotel industry, according to a CalPERS news release.

California Governor Arnold Schwarzenegger, who previously proposed a partial privatization of state public pension funds, created a commission on December 28, 2006 to study how to meet future pension obligations ( http://www.pebc.ca.gov/ ). The twelve-member commission ¾ six to be appointed by the Republican governor, six by Democratic legislative leaders ¾ will have one year to study the problem, determine the extent of unfunded liabilities and devise a plan.

Warning that runaway pension benefits could steal money earmarked for schools, police and roads, the California commission launched the first statewide effort to overhaul the employee pension system on March 9, 2007. California's retirement systems for state employees and teachers have a combined unfunded pension liability of about $49 billion for pensions and $70 billion for health benefits. Local governments and school districts are facing similar multibillion-dollar deficits. The Los Angeles Unified School District is facing a long-term liability of at least $10 billion for retiree health benefits alone. The commission is expected to consider a variety of proposals, including a proposal to raise the retirement age from 55 to 65 for state employees and from 50 to 55 for public safety employees. The commission plans to hold up to five public hearings statewide by May 31. It will then work on a report and analysis of the scope of the pension and health benefits problem and recommend solutions to the governor and Legislature by January 1.

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On April 4, 2007, Governor Ernie Fletcher announced Governor Ernie Fletcher today announced the appointments of citizen members to the Blue Ribbon Commission on Public Employees Retirement Systems. These appointments complete the membership of the commission, which was created by Executive Order in February 2007.  Gov. Fletcher has directed the commission to evaluate all aspects of the Kentucky Retirement Systems (KRS), which includes state employees, state police and county employees, and the Kentucky Teachers' Retirement System (KTRS). 

The 24-member commission will study methods to address the current unfunded liabilities accrued by these individual retirement plans, including pension and health insurance benefits. Over the coming months, the commission will develop a plan to fulfill its retirement obligations to current retirees and employees while examining the appropriate level of benefits for future employees. The plan must be presented to the governor no later than Dec. 1, 2007.

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Governor Carcieri says he'll explore the idea of putting newly hired state employees in a defined-contribution pension plan, similar to the 401(k) plans common in the private sector. The idea first surfaced publicly in a radio debate two weeks ago, and Carcieri has repeated it since. Although the General Assembly -- at the Republican governor's behest -- enacted pension changes last year that Carcieri estimates will save taxpayers $250 million in the first five years, Carcieri says that's not enough. "The fact is that the system, as it currently exists, is unsustainable, Carcieri campaign spokesman Jeff Neal said yesterday. "We have a huge unfunded liability. Ultimately, no matter who is in office, Republican or Democrat, someone has to face up to that reality."

The change Carcieri suggests would be a major departure from the state employees' current defined-benefit pension plan, which guarantees a certain pension amount regardless of what happens to the economy.

The labor unions that represent state employees are already balking, citing the increased risk inherent in defined-contribution plans, in which employer and employee both contribute money, but benefits increase or shrink along with the stock market.

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House lawmakers originally considered a bill that would give state employees a choice between defined benefit plans and defined contribution plans. The original bill was withdrawn on Friday and replaced with a substitute bill that would only put two groups of employees (Department of Transportation and Department of Technology) in the new dc plan. The substitute bill passed the House and is now in the Senate.

The Utah public employees' pension fund has grown to more than $17 billion, or nearly double the size of the state's annual budget. More than 163,000 people either contribute to it or draw from it - schoolteachers, judges, police officers, county clerks and even lawmakers and ex-governors. Neither side can say for sure how the change will impact the current retirement system. A fiscal note on the bill, basically a cost-estimate for implementing it, suggests state agencies might have to come up with as much as $18.4 million to deal with the drain on the retirement fund. It used to be that roughly one-third of state employees who leave service within the four-year period required to become vested would give up their share of the government-funded retirement. But, if those shorter-term employees are allowed to take their contributions with them, it would mean the state would have to come up with money to fill the expected gaps.

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Two Alarms: Significant threat of undermining retirement benefits.

Educators' pension and health care programs will soon be under attack, said David Bronner, chief executive officer of the Retirement Systems of Alabama, during a keynote speech to members of the Alabama Association of Collegiate Registrars and Admissions Officers on Wednesday night in Mobile. "Even though the Legislature has duked its way out of town, we're going to have a serious problem next year," Bronner told the more than 100 people gathered at the Riverview Plaza Hotel downtown. "It's going to be the most serious problem we've had in decades." Retirement benefits paid 10 years ago were $700 million a year. Today, those benefits total $1.8 billion annually and will continue to grow. The pension fund cost for teachers is expected to go up by about $50 million a year. "That's no increase in benefits or anything, that's just what I have to get out of the trust fund to fund what's been promised." Bronner said that people retiring earlier and living longer has affected the pension fund. A greater problem, he said, is the cost of the teacher health insurance plan, which is expected to go from $865 million this year to more than $1 billion in 2009. "That's a fundamental problem," he said. "There's going to be a tremendous fight in the state Legislature for state employees or teachers." They will not be affected this academic year, he said, because the 2008 budget has already passed, but come January, state employees and educators should be ready to don their "military garb or the armor of an old knight, because you're going into the battleground."

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The market value of the state Employees' Retirement System's assets climbed by more than a half-billion dollars in the final three months of 2006, helped by investments in smaller publicly traded companies and international companies. Callan Associates Inc., an adviser to the pension fund, said the 5.6 percent investment gain during the quarter brought the pension fund's total assets to $10.7 billion. That was an increase of almost $511 million from the total at the end of September. While the ERS has been receiving healthy returns on its investments, and the fund has no problem paying retirees' current pensions, it is projected to face a shortfall in meeting its obligations to future retirees. That shortfall, known as an unfunded liability, rose 25 percent to $5.13 billion last year. Only 65 percent of its liability is funded, one of the lower percentages among state pension funds.

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A proposal to shift new Illinois state government employees to a 401(k)-style retirement plan will not reverse underfunding of the state's public pension funds, a new study says. It also says the plan could cost the state more money than it would take to shore up its defined benefit systems and leave retiree with fewer benefits.

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The state House began taking action Tuesday on a series of bills that would limit public employee health and retirement benefits, tax their pensions, limit school superintendent salaries and restrict school board elections to November. The bills are politically linked to Democrats' efforts to gain Republican votes for a tax increase to balance the state budget. Republican leaders have said they won't consider a tax hike without agreements to reduce the cost of public employees, including teachers. Governor Granholm has insisted on a tax increase to go along with budget cuts and government reforms. The House Committee on Oversight and Investigations approved three bills that would make public employee pensions subject to the state income tax – they are now exempt – and prohibit retired state workers from collecting both pension benefits and a salary if they go back to work for the state.

Other bills in the committee to limit public employee benefits were discussed but no action was taken Tuesday afternoon, although they are expected to be acted upon this week.

State Representative Brian Palmer continues to support converting the Michigan Public School Employees Retirement System into a DC plan. In 2005, Palmer introduced a bill offering DC plans to new hires. It never made it to the Senate. If there is no action taken by the end of the year, Palmer will have to reintroduce the bill.

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The St. Paul Teachers' Retirement Fund has a $420 million deficit, putting it at risk of serious near-term funding problems, the Office of the Legislative Auditor said Monday. To correct it, teachers, the school district, or the state A A- or all three A A- will have to kick in more money to get the fund back on track by a 2021 target date.

The revelation was part of a much larger evaluation of retirement benefits for public employees that said they appear better funded than they really are. The auditor's office, for example, said funding-ratio calculations by statewide public pension plans don't take into account a $4 billion deficit in the Minnesota Postretirement Investment Fund used to pay benefits to retirees. Among other things, the office said the Legislature should fully fund it and require those plans' funding ratios to reflect the actual value.

The auditor's office also said Minnesota's seven local pension funds are underfunded by $748 million, with the St. Paul plan facing the greatest risk of serious future funding problems as it is funded at a lower rate than the others.

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Just a little more than a year ago, there was so much consternation over the state's pension system that a special session of the Legislature was called to deal with the problem, as well as the equally perplexing issue of school funding. Now state pensions are barely a blip on the radar screen. A $100 million blip, but one that, if the silence on the matter is any indication, scarcely bears mentioning. What a difference a year -- and a nearly $1 billion surplus -- makes. Last year, the state's pension system faced a long-term deficit of more than $1 billion. As with several other states, Montana's system took a hit from lower-than expected returns on investments. The state was also feeling the pinch from increases in benefits it had made during years when coffers were flush with cash. The Legislature was told it could face a lawsuit from public employees if the system wasn't fully funded. Last December's two-day special session provided a fix, albeit temporary, in the form of a $125 million infusion into the retirement system. That would keep the system actuarially sound for up to 20 years, said Sen. Joe Tropila, D-Great Falls, who chaired the State Administration and Veterans Affairs Interim Committee. Now, Gov. Brian Schweitzer is proposing another one; this time for $100 million. The second infusion would keep the system sound for nearly 30 years, Tropila said.

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Leaders of the Communications Workers of America, representing 40,000 state employees, recently reached agreement with Governor John Corzine over his second state budget. The agreement provides for 3% raises this July and next, and raises of 3.5% in 2009 and 2010. Employee pension -fund contributions will rise from the present rate of 5 percent of pay to 5.5 percent. In addition, the New Jersey Education Association has agreed that teachers and other school employees will contribute another half of 1 percent of pay into their pension fund, matching the 5.5 percent that state workers will be paying into theirs.

On November 30 th thousands of unionized state workers took to the streets at locations around the state to protest plans to trim their retirement and health benefits. They were protesting 41 recommendations from the Legislature's Joint Committee on Public Employee Benefits Reform, one of four special committees that studied ways to trim government spending and property taxes. The proposals include raising the retirement age from 60 to 62, adding co-payments for health coverage and rolling back pension benefits by about 9% for new employees.

After strong lobbying by state public employee unions, the FY 2007 budget included a $1.1 billion pension contribution, more than the last 10 years combined. In 1994 Republican Gov. Christie Whitman raided pensions to pay for a $1.2 billion tax cut for the wealthy.  Whitman increased employees' contribution to the plan to 5 percent, and through a series of legal maneuvers, she and subsequent governors allowed the state to ride the stock market to cover its pension obligations, deferring payments into the plan.  The state pension's director testified last fall that they had shortchanged the pension funds by $5.5 billion.

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A Washington educational think-tank says that the Ohio State Teachers Retirement System is antiquated and will fail its retirees unless it switches to a defined contribution or hybrid plan. Ohio says those conclusions are wrong, that it won't consider making such a conversion and that the study was conducted without any input from the state system. In its report ( http://www.edexcellence.net/doc/060707_Pensions_Report.pdf ), issued last week, the Thomas B. Fordham Institute calls the $77 billion Ohio fund "a ticking time bomb" and cites multiple problems with the system. The institute claims that among the most harmful are the system's $20-billion unfunded liability, allowing teachers to draw a pension while continuing to work full-time and encouraging early retirement. The Thomas B. Fordham Institute says the only solution is to transition to a cash-balance or defined-contribution plan.

Ohio's pension systems face $30 billion shortfall. The State Teachers Retirement System of Ohio estimates that at its current status, it would take 55½ years to become fully funded, according to a report sent to the Ohio Retirement Study Council. The fund could be 30 years from full funding by 2015 with no changes, but if it makes administrative changes such as increasing employer and employee contributions, it could get to the 30-year mark by 2009. The system had $56.4 billion in assets as of June 30, 2005.

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The Oklahoma state treasurer is pressing lawmakers to pour more money into the state's beleaguered pension systems. In a letter sent last week, Treasurer Scott Meacham told Gov. Brad Henry and other top officials that the state's seven pension systems need “a significant infusion of money” to offset more than $11 billion in current unfunded liabilities.

“If this problem is left unaddressed, the systems will eventually require a cash infusion of staggering proportions to meet current payment obligations,” Meacham writes. “This could result in the need for the state to raise taxes or dramatically reduce funding to vital state programs.”

The state's seven pension systems have combined assets of $16.2 billion. The seven have overall funding of 59.6% – well below the national average. According to Wilshire Associates data, the average public pension has about an 88% funding leve l.

The Republican controlled state House of Representatives has authorized an interim study to determine the feasibility of changing the six public employee pension plans in the state from DB to DC. Interim Study 2006H-049, sponsored by Representative Ken Miller, cites a combined $10.6 billion unfunded liability for the six state retirement systems as of June 30, 2005.

Democrats and Republicans unveiled competing solutions in May to the question of how to improve Oklahoma's teacher retirement system. House Democrats suggested putting $25 million a year into the system for the next two decades, increasing its fund size by $500 million. Interest earned from fund would make the fund fiscally viable. Senate and House Republicans said they would support a constitutional amendment that would redirect excess mineral income into the system. The extra income is now going to a fund with the Oklahoma Commissioners of the Land Office, which now exceeds $1 billion. Representative Tad Jones, R-Claremore, said the money should be dedicated to the teacher retirement system until it is funded at a 90 percent level.

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Oregon public employee unions got their day in court September 15 th for what may be their last chance to overturn two 2003 pension reforms. If the unions prevail before a three-judge panel of the U.S. 9th Circuit Court of Appeals, it would mean billions of dollars more for worker pensions. In two separate but related lawsuits, the unions are asking the federal appeals court to overturn two Public Employees Retirement System reforms enacted by the Legislature and upheld by the Oregon Supreme Court and a federal judge.

The reforms are: the revision of outdated life-expectancy tables used to set worker pensions, and the shifting of the "employee contribution," amounting to 6 percent of public employees' salaries, from workers' PERS accounts into 401(k)-style accounts.

The two reforms were part of a larger package passed in 2003 after PERS' long-term shortfall reached $17 billion. At the time, actuaries estimated the two reforms would shave $3.5 billion from that shortfall, saving taxpayers $1.6 billion by updating the life-expectancy tables and $1.9 billion by shifting the employee contribution. Circumstances have changed since then, so it's not known if the current price tags would be higher or lower, said Paul Cleary, PERS executive director.

Public employee unions filed suits in state and federal courts to overturn several of the 2003 reforms. They won a partial victory before the Oregon Supreme Court last year. The court nixed the freeze on cost-of-living adjustments for recent retirees and preserved workers' right to 8 percent annual increases in their accounts from investment earnings for those hired before 1996. Now the unions are trying to overturn two major surviving reforms in federal court, with two suits known as the Henderson and Robertson cases.

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Virginia will start automatically enrolling its state employees into a supplemental defined contribution plan for all workers hired after January 1, 2008. Brian Goodman, Legal Affairs and Compliance Coordinator for the Virginia Retirement System (VRS), said the passage of the Pension Protection Act (PPA) cleared the plan sponsor of liability from automatically enrolling employees into DC plans, making the state's decision in March to adopt the measure a relatively easy one that saw little or no dispute in the General Assembly. Virginia state employees will have $20 each pay period deferred from their paychecks, with a state contribution of $10. However, no decision has been reached on default investment options.

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With just a week to go before Milwaukee County Executive Scott Walker unveils his much-anticipated 2007 budget, a coalition of groups seeking to preserve county services is endorsing one more year of underfunding the county employee pension system.  The Alliance to Protect the Public Good suggests a pension fund payment of $40 million instead of the $59 million that actuaries for the pension fund have said is needed.  The alliance -- consisting of county unions, faith-based organizations, social service agencies and civic groups -- is convening a rally tonight at the county-operated Mitchell Park Domes to outline its prescription for avoiding major program cuts and job losses.

The alliance thinks some $62 million can come from a combination of pension underfunding; health care changes; a 4% increase in property taxes, the maximum allowed under state law; a bigger contribution from local hospitals to the county's General Assistance Medical Program; and other moves, said Jack Norman, an alliance spokesman.

Walker has sharply underfunded the pension system to balance his proposed budgets without tax increases, but he has been criticized for pushing off those costs with interest. For 2007, Walker is likely to revive a new version of a borrow-and-invest plan that would fully fund the pension system. The GMC likes the concept; the alliance says it could be part of a long-term solution. The County Board has balked at the idea in the past as too risky.  Last year, the county voted to put $27.4 million of the tax levy into the pension fund.

There is potential for a serious threat of conversion to a DB plan in Milwaukee County, where the County Executive is threatening to convert the system.

Milwaukee county pensions are paid for out of the county's $1.5 billion pension fund. It has been well managed through prudent investment and elected officials since at least 1990 have indirectly used the fund to help balance the county budget and skipped tax-funded payments to the fund in some years, relying on healthy investment returns to keep it whole, or by manipulating earnings assumptions.

Hoping to recoup at least $100 million paid out in a pension deal that still dogs its finances, Milwaukee County is suing its former actuarial firm Mercer Human Resources Consulting, claiming malpractice. The lawsuit focuses mainly on a lump-sum pension payout option approved in the deal.

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One Alarm: Potential threat through legislative uncertainty or funding shortfall.

After legislators, public-employee unions and the CoPERA struck a compromise on April 27 th to reform the state's largest pension plan, the right-wing group Americans for Prosperity was forced to withdraw their pension privatization ballot initiative. The legislation emerged in the Assembly's final days as Democrats, PERA and unions hatched a plan to fix the pension plan's $11.3 billion unfunded liability. The governor signed on to the compromise last week. Current members' benefits are basically untouched, with changes in the plan affecting only members hired Jan. 1, 2007, and after. Assuming PERA investment managers can average an 8.5 percent return, the pension plan under the bill will maintain about three-quarters of the funding level it needs for the next 30 years before moving toward full funding. The bill raises the minimum retirement age for new hires from 50 to 55. Employees can retire at that age with 30 years of service. PERA launched the new year by implementing a DC plan as an alternative to the DB plan to employees hired after January 1, 2006; the move passed at the end of ‘04.

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Connecticut Treasurer Denise Nappier has proposed a $2 billion financing plan intended to help offset an estimated $5.1 billion deficit in the state teachers' pension fund.  Nappier says she plans to seek the required legislative approval for the package of pension obligation bonds in a few weeks.  State Rep. Betsy Ritter, D-Waterford, says she and other lawmakers are looking forward to reviewing the plan.  According to Nappier, her proposal includes a covenant requiring the state meet its annual pension obligations over the life of the long-term bonding package, which could be 20 to 25 years.  She anticipates the bonds would pay about 6% to investors, because of the lower interest-rate environment, and hopes to use the proceeds to generate market returns far above the 6% investors will be getting each year. 

Nappier's office oversees some $23 billion in retirement assets in the state's six large pension plans, of which the $12 billion teachers' fund is the largest. Over the past three years, she says, the funds have delivered annual returns of more than 12%, which beats market benchmarks and the estimated actuarial return of 8.5%.

"The teachers’ pension fund has a funding gap of more than $5 billion. The pension was only 60% funded as of 2004.  That's compared to 83.5% on average for other states. Connecticut teachers are not part of the Social Security system, but they contribute 7.25% of their salaries to the retirement fund. The unions for Connecticut teachers continue to lobby for the state on this issue and they were successful in getting a commitment in the new budget for the legislature to meet 100% of its annual obligations for each of the next two years."                

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Indiana Public Employees' Retirement system, Indianapolis, was 96.8% funded as of July 1, the start of the current fiscal year, up from 95.3% a year earlier, according to a new actuarial report. The assets of six pension plans comprising the system total $15.9 billion, as of the July 1 data. The largest plan, the Indiana Public Employees' Retirement Fund, was 97.6% funded as of July 1, with $11.2 billion in assets and almost $11.5 billion in liabilities, said Jeffrey D. Hutson, director of communications, in an interview

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Big changes in the pension plan for teachers and government workers would be coming in 2009 under a bill legislators approved this week before starting their annual spring break. Most of the changes will affect employees hired after July 1, 2009, and they're designed to save the Kansas Public Employees Retirement System $3.6 billion over the next 25 years.

For more than a decade, legislators have worried about a gap between what the pension is collecting and the total, 30-year cost of benefits. Among the changes, employees will be eligible to collect a state pension after five years of service instead of ten. But they'll have to contribute six percent of their paychecks to their pensions instead of the current four percent.

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Louisiana State Employees Retirement System (LASERS) faces a $4 billion shortfall.  Pension consolidation bills are likely to be pre-filed for the Louisiana Regular Legislative Session beginning at the end of March. In 2005 Legislative session, state Rep. Pete Schneider introduced a bill that would require state workers hired after July 1, 2006, to contribute 8% of their paychecks toward retirement benefits.  Current members of LASERS contribute 7.5% toward the retirement system.

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The right-wing Calvert Institute has launched an attack on Baltimore City's two pension funds, and called for a complete or partial conversion of the systems to defined contribution plans. Concurrently, the right-wing Baltimore Examiner rag has called for the 2007 General Assembly to “overhaul pension benefits for state employees, shifting from a defined benefit to a defined contribution plan for all new employees.

Maryland's teachers and state employees will get better retirement pensions thanks to $120 million in improvements signed into law Tuesday. The pension bill allows people hired after 1998 to retire with 54 percent of their pre-retirement income, up from about 42 percent. The new law calls for the workers to contribute more money toward their retirement, from 2 percent to 5 percent over three years. It raises the multiplier, or the percentage of the average salary that is paid for each year of service, from 1.4 percent to 1.8 percent.

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Massachusetts Treasurer Tim Cahill is expected to announce that assets held by the state pension system grew by 16.7% last year, setting a record and handily beating the state Legislature's benchmarks. So reports the Boston Herald . In comparison, Cahill's office says the S&P 500 finished 2006 with a 15.76% return, excluding tobacco stocks. The treasurer's office says the state pension fund had a record $46.7 billion in assets at the end of 2006.

As a trio of their former colleagues fight for higher pension payouts, lawmakers are pushing back with a series of proposals to stop future state retirees from padding their monthly paychecks. Lawmakers backing a pension overhaul say that recent high-profile controversies underline the need to keep officials from "gaming" the system. The state retirement board is scheduled to vote Feb. 22 on whether former state representatives Marie J. Parente, Susan W. Pope, and Thomas N. George should be allowed to include perks such as parking spaces, office stipends, and travel expenses as part of their income for the purpose of pension calculations. Pensions are based on an employee's age, years of service, and salary during the three highest-earning years.

Concerned about the implications of the Bulger lawsuit, Treasurer Timothy P. Cahill has been working with Senators Michael W. Morrissey , a Democrat from Quincy , and Robert A. Havern , a Democrat from Arlington , on legislation to narrowly define "compensation" as salary, not fringe benefits. Cahill said officials do not make pension contributions on their perks, as they do on their salaries, so they should not ask the pension system to pay them returns on money it never had a chance to invest.

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Public Employees Retirement System (PERS) is facing a $5.7 billion shortfall.  State officials are examining various proposals, from bond debt offers to changes in contribution rates.  Republican Governor, Democratic State House, Republican State Senate.

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January 8, 2006, editorial in the Las Vegas Review-Journal called for "reforming PERS and eliminating retiree health care subsidies for future employees by instituting defined-contribution retirement plans, such as 401(k) accounts.  That would keep their civil servants around -- and save Nevada taxpayers billions of dollars in the century ahead."  Republican Governor, Democratic Assembly, Republican Senate. 

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On June 21 the legislature approved a 2.25% COLA for retirees effective July 1 as part of a larger pension reform package (HB 653). The legislation changes the system's funding method, ends the systems gain-sharing program, which sent retirement fund money into special accounts for health insurance subsidies and COLAs, and repeals an employee's ability to purchase nonqualified time toward retirement. The legislation also establishes a reform study commission due to make recommendations by years end on how to sustain the system over time. The public pension system in 58 percent funded.

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The New Mexico legislature passed legislation in '05 establishing a task force that directed the 70% funded Educational Retirement Board to study the feasibility of switching to a DC plan for state educators.   The task force completed it's mission and a bill will be introduced in '06 to make the task force ongoing.  Task force members have become learned on pension and investment issues. Bills are expected to reform composition of ERB board and tinker with contribution rates and years of service formula for ERB as a way to improve funding of ERB DB plan. No anti-DB activists were seen at hearings. No support at all for a DC conversion plan for ERB in '06--no bill will be introduced. PERA, with a high funding level, and good reputation was used as a model for support of DB system.

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On August 20, the New York Times reported that New York City's pension actuary has prepared a little-noticed set of alternative calculations showing that the gap in the pension funds could be as wide as $49 billion. Every year since 1999, New York City has reported that it has all the money it needs to pay for the pensions that have been promised to city workers. Senior city officials vehemently dispute the suggestion that their pension funds are weaker than the official numbers claim and point out they are contributing more money to them every year.

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A North Carolina judge has found Gov. Mike Easley and others in violation of the state constitution for diverting $225 million earmarked for state pension funds to help offset a budget deficit in 2001. So reports The Associated Press. Easley says he was legally bound to make up that $850 million shortfall. By the end of that year, some of the money was returned to the pension funds, but $130 million wasn't repaid. In issuing the ruling, the judge cited a provision of the state constitution that prohibits the use of retirement funds for unintended purposes. This year, the state General Assembly budgeted an extra $30 million to the pension funds, the fourth of five projected payments. The plaintiffs' lawyer says there still could be $83 million outstanding, including interest.

A new report authored by the Keystone Research Center and the Center for American Progress called on state government to take action to strengthen pension security in both the private and public sector. Public anxiety about retirement security stems from a number of trends, mostly in the private sector. Only half of private sector Pennsylvania workers are now covered by any employer-provided pension and the quality of many pensions that remain has deteriorated. 

The right-wing group Commonwealth Foundation recently issued a highly questionable report which found Pennsylvania taxpayers' costs to fund SERS and PSERS, assuming an annual investment return of 8.5%, will increase from $693 million in Fiscal Year 2005-06 to an estimated cost of $4.742 billion in Fiscal Year 2015-16 and $5.583 billion in Fiscal Year 2020-21. The group called on legislators to move new employees into a defined contribution system.

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State pension system faces $7.6 billion in unfunded liabilities.  In his 2005 State of the State speech, Governor Mark Sanford referred to the state pension systems as a "ticking time bomb."  Recently passed legislation increased the employee contribution rate, and requires retirees returning to work to start contributing to the system (this change is being challenged in the State Supreme Court).  On October 1, 2005, a six-member investment commission was appointed to begin overseeing the $25.6 billion investment portfolio.      

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As the state's watch list for troubled pensions grows, two Texas lawmakers are preparing recommendations that could help expose a plan's problems before a financial catastrophe. "With the pressures on pensions across the country, including public pensions, we want to make sure that they be transparent, and we want to make sure that they stay or become solvent and sound," said state Rep. Craig Eiland, D-Galveston, chairman of the Legislature's House Pensions and Investment Committee.

Lawmakers will have to weigh the interests of public pension plans, retirees and taxpayers. The state's largest pension association staunchly opposes a quarterly reporting system being developed by the Texas Pension Review Board. The system is being proposed to flag potential problems with pensions so that the state can intervene before a collapse. Cities including Dallas and Houston have had to take on additional debt to address pension shortfalls. The committee's recommendations will be part of an interim report to be presented to House Speaker Tom Craddick by Jan. 1.

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State pension systems faces $4 billion unfunded liability in covering 339,257 active members and 104,766 retirees.  In order to meet the Legislature's statutory goal of balancing the pension system by 2024, the government should allocate slightly more than $1 billion to the fund in the 2007-09 budget, according to the state actuary.  That's a $712 million increase over the current budget, which runs through June 2007.  Governor Christine Gregoire has proposed adding $176 million for pensions right away, before the next budget cycle, from the state's projected surplus.  In addition to Gregoire's $176 million proposal, leaders in the House and Senate have suggested setting aside as much as $300 million from the projected surplus for a future payment to the pension fund. That idea will be on the table when lawmakers reconvene in Olympia in January, 2006.

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West Virginia Consolidated Public Retirement Board's plan to merge the state Teachers' Defined Contribution Plan into the West Virginia Teachers' Retirement System, both in Charleston, was declared unconstitutional and blocked by a West Virginia Circuit Court judge. Participants in the 401(a) plan sued last spring to block the merger, which was scheduled to go through in July 2006. According to the Jan. 26 decision, the merger would violate the federal and state constitutions because it would authorize the seizure of the dissident plan participants' private property interests in their defined contribution accounts without their permission. The retirement board will decide in February whether to appeal, Anne Werum Lambright, executive director of the retirement board, said in an interview. The board administers state retirement plans with assets totaling $8 billion.

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