Good News for Public Retirement Plans: No More UBIT, but Funds Can Push It
By Chris Hayes, Lexology Newsfeed, December 19, 2017
The week brought two shots of holiday cheer: Congress decided not to subject public retirement plans to unrelated business income tax (“UBIT”) from their commingled fund investments, and the IRS proposed regulations benefitting public retirement plans in the event of a fund audit. Despite a final attempt to include the UBIT provision as a revenue raiser in the legislation by the House Ways and Means staff, the Speaker’s staff determined that it should not be included in the final conference bill. The final bill, as agreed between House and Senate conferees and released on December 15, follows the Senate version, as a result of a significant “full court press” advocacy effort by US public pensions and their advocates in Washington. Tax proposals like this have a nasty habit of coming back even after they appear to have died one or more deaths. There are five primary groups representing the public retirement plan community in Washington. One of the five is the National Conference of Public Employee Retirement Systems (NCPERS) representing the systems.
How Big Is Your State’s Share of $6 Trillion in Unfunded Pension Liabilities?
By Rachel Greszler, The Heritage Foundation, December 21, 2017
Despite a solid year for investment returns, the unfunded liabilities of state and local government pension plans increased by $433 billion, the most recent estimate from the American Legislative Exchange Council shows. According to ALEC’s report—which uses more appropriate assumptions on investment returns than the plans use themselves—state and local governments’ unfunded liabilities now exceed $6 trillion. That’s a whopping $18,676 for every man, woman, and child, or nearly $50,000 for every household in America. Florida ranks 6th from the top – having the least unfunded liabilities at $10,990 per capita. One motivation for states not to address their pension shortfalls is the hope or expectation of a bailout by federal taxpayers. This would force taxpayers in more fiscally responsible states to pay for the financial recklessness of more spendthrift states. Lawmakers in Washington need to send a strong signal to states that a federal pension bailout is not an option. Rep. Brian Babin, R-Texas, has introduced a bill that would do just that. His legislation, called the State and Local Pensions Accountability and Security Act, would prohibit the U.S. Treasury and the Federal Reserve from providing any form of bailout or financial assistance to a state or local pension plan. The bill is HR 1124.
Editor’s Note: The Heritage Foundation is a conservative organization that opposes defined benefit pension plans and uses disputed data regarding the unfunded liabilities of public pensions. This article also appeared in the Sunshine State News, December 18, 2017.
CAPITOL ROUNDUP: Latvala calls it quits
By Dara Kam, St Augustine Record, December 24,2017
For years, he flexed his muscle as a power broker, often putting the brakes on right-wing priorities of his fellow Republicans and championing legislation that benefited teachers, firefighters, cops and prison guards. An overhaul of the state pension system, the weakening of collective-bargaining rights and prison privatization are among the items that Latvala was able to curb during his tenure. But there’s little doubt that former Sen. Jack Latvala’s legacy won’t be that of a law-enforcement cheerleader, an advocate for protecting Florida’s environment or a defender of local governments.
Officer who developed PTSD after Pulse massacre to lose job
By Chuck Hadad, CNN, December 7, 2017
Omar Delgado was one of the first police officers on the scene of the Pulse nightclub attack in Orlando on June 12, 2016. By the time he pushed his way through fleeing survivors to get inside the club, the shooter was holed up in a bathroom. After rescuing the living, Delgado spent hours inside Pulse with the dead as the standoff with the gunman continued. He said he's still haunted by what he saw. Ever since that night, Delgado said, he has suffered from nightmares, depression and anxiety and has had major difficulty sleeping. He was diagnosed in August 2016 with post-traumatic stress disorder. Now, a year and a half after the nightclub attack, the "hero" officer is about to lose his job, he says, because of his PTSD. Delgado was notified this week that as of December 31, he'll no longer work for the department where he's been an officer for nearly a decade. Though it's an injury he sustained in the line of duty, PTSD is not covered by worker's compensation in Florida. It was a shocking development that Delgado believes is tied to his pending 10th anniversary, which would allow him to collect a pension. He said he was told that a doctor hired by the department to evaluate his health found him "unfit for duty" and that there is no civilian position available for him. In Florida this week, there was a hearing on a bill making its way through the state Legislature that would give first responders worker's compensation benefits if they're unable to work because of PTSD. Family members of first responders who committed suicide testified as part of the proceedings.
Editor’s Note: This news items appeared in many papers and other national media outlets across the United States as well as Great Britain.
Did the Recession Permanently Downsize the Public Workforce?
By Mike Maciag, Governing, December 6, 2017
When the economy first began unraveling during the Great Recession, most governments didn’t feel it right away. Then, as revenues began to tumble, states and localities cut back on services, implemented hiring freezes and left vacancies unfilled. By 2010 and 2011, many state and local governments were shedding staff and making sizable cuts to agency budgets. There are about 7.5 million full-time equivalent state and local government workers, excluding those in education. That number is 3 percent below the levels of March 2008, shortly after the recession began. Taking population growth into consideration, noneducation local government employment per capita is down about 8 percent, while state employment is nearly 11 percent lower. Rising pension and health-care costs are also making it difficult for states and localities to fill vacant staff positions. For state governments, it’s Medicaid that’s eating up an ever-larger share of the budget. Some governments in states that sustained major property tax losses from the housing market collapse, including Arizona and Florida, haven’t come close to recovering those losses. The good news is that states have managed to bolster their reserves. Local governments aren’t in a better position to weather the next downturn, but they may be more prepared in terms of management. Managers who worked through the last recession have proceeded cautiously. Rather than staff up, they’re relying more on contractors and temp workers.
Don't penalize workers for retiring later | Opinion
By Ferdinando Giugliano, Sun Sentinel, December 13, 2017
Retirement should not be a one-size-fits-all system where those who work longer or retire earlier are penalized. Governments and citizens have much to gain from a more flexible pension system than exists in most countries today. There are two reasons why governments in advanced economies are forcing workers to retire later. The first is the overall increase in life expectancy. The second is to correct the mistake most governments made in the 1970s and 1980s in introducing early retirement schemes in an attempt to bring more youth into employment. As the Organization for Economic Cooperation and Development study notes, giving people the freedom to retire when they want would benefit both individuals and the state. The government can clearly benefit from letting people work for as long as they want to, since this means higher taxes and economic output. There are several challenges facing politicians who want to let people retire earlier. Giving people more freedom over when to stop working means risking that they will not earn enough to fund a long retirement, and end up falling back on the state's safety net. There should be a minimum level of pension contributions before a person is allowed to retire to avoid this. Just as private-sector pension plans penalize early withdrawal, public-sector plans could do the same as a way of nudging workers to think hard before drawing from savings.
Ring in the new — MONEY
By Roger Williams, Fort Meyers Florida Weekly, December 20, 2017
While things always change, they don’t always change for the better. But a number of business experts say incremental increases in minimum wage and decreases in sales tax for businesses that rent commercial properties are for-the-better changes enacted by the state legislature and set to begin Jan. 1. Pensions for state workers, however, will become opportunities for money managers to get a cut of retirement income if newly hired workers don’t choose a traditional pension plan, instead allowing their money to be placed in investment pools and managed as 401k or similar programs, union representatives say. Come the New Year, state employees will have to actively choose to pick a traditional retirement pension plan; otherwise their retirement monies will be diverted to 401 (k) accounts that invest it and depend on market stability.
Probably not a good idea, given how unreliable the market can be over years, says Bryan Bouton, president of the Charlotte County branch of the Florida Education Association and a teacher at Port Charlotte High School. “Teachers used to retire at 65 percent of their salaries, and now we’re down to less than 50 percent, with a defined benefit plan, so you get a check every month. But legislators have tried to move us away from that plan,” he said.
Time to stop high-risk gamble
Opinion, Pensions & Investments, December 11, 2017
It's time for U.S. public employee pension plans to lower the risk profiles of their investment portfolios. The academics found "U.S. public pension funds with a higher level of underfunding per participant, as well as funds with more politicians and elected plan participants serving on the board, take more risk and use higher discount rates. The increased risk-taking by U.S. public funds is negatively related to their performance." With most economists predicting long-term returns from stocks will be about 5% per year, not 7.6%, it's time for public fund executives to end their high-risk, high-return gamble. It is more likely to end badly, and taxpayers will pay the price in higher taxes or poorer services.