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PENSION NEWS CLIPS MAY 2018 ON FLORIDA PENSION ISSUES

Prepared by Fred Nesbitt, FPPTA Media Consultant – fnesbitt911@gmail.com

 

Tallahassee firefighters want to rollback their pension contribution

By Jeffrey Schweers, Tallahassee Democrat, May 8, 2018

A request by Tallahassee firefighters to renegotiate part of their recently approved contract to lower their pension contribution rate could cost taxpayers about $1.3 million, officials said. Union leaders asked to reopen contract negotiations for firefighters, saying the proposed bargaining agreement for police officers doesn’t include an increase in the employee contribution rate and it would be unfair for the city to seek increases from firefighters. Under the contract approved in October, the employee contribution rate is currently 17.47 percent, and is scheduled to increase to 19.08 percent next year and to 20.69 percent in 2020. Fire fighters want to rollback their pension contribution rate to 16 percent for the remaining two years of the agreement. As of the most recent actuarial review, the General Employee plan is funded at 92.6 percent, the Police Officer plan is funded at 83.1 percent and the Firefighter Plan is funded at 78 percent. Those hired after Oct. 1 will see no cost-of-living adjustment while in DROP for future DROP participants, the cost-of-living adjustment moved from age 52 to age 62, and average final compensation calculated upon the highest five years of average compensation rather than the highest three years of average compensation. Those hired after Oct. 1 will also have a 10-year vesting period instead of five years, and the annual accrual rate will be 3 percent for all years rather than 3 percent for the first 20 years of participation.

 

US Public Pensions’ Funded Status Falls to 71.4% in Q1

By Michael Katz, Chief Investment Officer, May 18, 2018

Volatile equity markets are being blamed for a decline in the funded status of the100 largest US public defined benefit pension plans during the first quarter of the year. The funded status dropped to 71.4% from 73.1% at the end of the previous quarter. According to consulting and actuarial firm Milliman’s Public Pension Funding Index (PPFI), the 100 largest public defined benefit pension plans had a $93 billion loss in funding during the first quarter, as the aggregate investment returns for the plans were down 0.75%. This is a reversal of fortune from the last quarter of 2017, when the funds took in investment income of approximately $126 billion. This aggregate investment return of 3.24% raised their funded status to 73.1% from 71.6% at the end of the third quarter of last year.

 

How Well-Funded are Pension Plans in Your State?

By Katherine Loughead, Tax Foundation, May 17, 2018

Recently released data from The Pew Charitable Trusts shows the strain on state retirement systems across the nation as state pension funds strive to keep pace with pensions owed to public employees. The study uses FY 2016 data to show the funded ratio of public pension plans by state, calculated by measuring the market value of state pension plan assets in proportion to each state’s accrued pension liabilities. Florida ranks #13 – funded ratio of 79%.  #1 is Wisconsin at 99% and New Jersey and Kentucky are tied at #49. 

 

Florida SBA trusts long-term plan

By Sarah Rundell, Top 100 Funds, May 14, 2018

When Ash Williams joined the $204 billion Florida State Board of Administration as chief investment officer and executive director in the third week of 2008, the fund hadn’t rebalanced its portfolio. It was the middle of the financial crisis, equity markets were in freefall and FSBA had put off rebalancing until it could find a permanent CIO to fill the post, which had been vacant for a year. Soon after his arrival, Williams led the rebalancing back to within FSBAs policy targets, trusting the long-term strategy. Meanwhile, the fund’s assets under management continued to plunge, hitting a low of $83.7 billion when the market finally bottomed in March 2009, barely half the $157 billion in AUM the fund had in 2007. FSBA has just three trustees: the state’s governor, attorney-general and chief financial officer. The trio are involved only in high-level policy, namely recruiting a CIO, having that person prepare an investment policy for the whole fund, and monitoring and reviewing performance. It’s in marked contrast to most other US public pension funds, with their large operating boards that pour over every detail and meet regularly.

 

Why states' pension burdens are likely to grow

By Chip Barnett, The Bond Dealer, May 1, 2018

Sluggish growth in pension contributions looks likely to put financial pressure on municipalities for the foreseeable future. A report by Fitch Ratings Tuesday adds to the evidence that defined benefit pension contributions represent a growing burden on state and local government finances. While actuarial contributions to state and local government defined benefit pensions will continue to grow over time, the rate of growth has slowed in the past few years after rapid increases following the Great Recession, according to Fitch. Pension contribution growth has been far faster than the growth in state and local tax resources, Fitch said. State and local tax resources are about one-third higher than a decade ago, while pension ADCs are 74% higher.

 

State Debt Burdens Are Improving, But Pension Situation Only Getting Worse

By Michelle Jones, Value Walk, May 2, 2018

Most signs are point to economic recovery, and now Moody’s is forecasting that state debt burdens are set to decline this year, which is another good sign that things are moving in the right direction. However, there’s still one major expense some state and city governments are struggling to pay. While the improvements in state debt burdens are a positive for government pension, the overall pension situation is straining budgets across the country. Some state and city governments have turned to pension obligation bonds to pay their unfunded liabilities in their pension programs, and Moody’s lists these bonds as a part of net tax-supported debt. To deal with the staggering and steady increase in unfunded pension liabilities, many states are now turning to pension reforms involving a switch from the traditional defined benefit plan to hybrid plans instead.

 

 

Cutting Public Pension Benefits Would Hurt the Economy

By Rebecca Moore, Plan Sponsor, May 16, 2018

The impact of investment of assets plus spending of pension checks by retirees in 2016 yielded a $1.3 trillion contribution to the economy and $277.6 billion to state and local revenues, according to research from NCPERS. In its study, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk,” NCPERS found the economy grows by $1,088 for each $1,000 of pension fund assets. While the figure sounds small on the surface, the size of pension fund assets—$3.7 trillion in 2016—means that the impact of this growth is greatly magnified. The economic and revenue impact of pension assets in high-population states like California, Florida, New York, and Texas are particularly significant. However, economies and revenues of even some small states benefit significantly from investment of their pension fund assets. While some funding of public pensions come from taxpayers, it should be understood that it is part of the compensation of workers providing public services, the report says.

 

Report: Public Pensions Boost Government Revenues

By Michael Katz, Chief Investment Officer, May 22, 2018

According to a new study from the National Conference on Public Employee Retirement Systems (NCPERS), public pension funds contributed $137.3 billion to state and local governments in 2016.

“Our findings are a powerful rebuke to the popular argument that taxpayers cannot afford public pensions,” Michael Kahn, NCPERS’s research director said in a release. “The evidence shows that if public pensions did not exist, taxpayers not only wouldn’t save money; they would have to cover a severe annual revenue shortfall.”  The study found that pensions are net contributors to revenue in 38 states. In the other 12 states, the report said pensions were either revenue neutral, or taxpayer contributions were greatly subsidized by state and local revenues generated by public pensions.

Editor’s Note:  Watch a short video clip of the NCPERS Executive Director/Counsel Hank Kim talk about the results of their study.

 

Public Pension Cuts Hit Recruitment

By Kim Blanton, Squared Away Blog, May 24, 2018

Pensions have traditionally been the great equalizer for governments trying to recruit people from the higher-paying private sector. But benefit cuts, which had been fairly uncommon, gained momentum after the 2008 stock market crash that battered pension funds’ already declining finances. The pace of cost-cutting reforms peaked in 2011, when 134 state and local government plans made some type of cuts that year. They run the gamut from increasing the tenure requirement or retirement age applied to new employees’ future pensions to trimming the cost-of-living adjustment on all pensions. Pension cuts “appear to reduce the ability of public-sector employers to compete with the private sector,” the researchers said.

Editor’s Note:  Based on a study from the Center for Retirement Research at Boston College.

 

Time for politicians to keep their promises and invest in pensions

By Tyler Bond, The Hill, May 14, 2018

Public pensions are an investment in the public sector workforce. They come with a simple promise that for every year a public employee works serving their community, their employer will contribute toward their retirement. At the end of their career, public employees will have the security and reliability of a defined benefit pension waiting for them. They have earned this part of their compensation over the years and contributed to it themselves out of each and every paycheck. Pensions are an explicit part of the deal when they become public servants. Politicians do not always hold up their end of the bargain. State legislators have underfunded public pension plans by skipping or deferring payments. Every time a city or state government skips a pension payment, public employees not only lose that sum, but also the returns it would have earned. Pensions are an important workforce management tool for recruiting and retaining the best workers. Pensions also provide a secure and dignified retirement for our public employees. Poorly funded pensions represent a lack of investment in the public sector, the same as meager education funding and inadequate teacher pay. These inadequate investments threaten future generations, and taxpayers across the nation are beginning to recognize that.

Editor’s Note:  Tyler Bond is program manager of the National Public Pension Coalition.

 

Performance-Based Pensions for Politicians

By Dambisa Moyo, Project Syndicate, May 16, 2018

When the Speaker of the US House of Representatives, Paul Ryan, retires at the end of his term in January, he will likely qualify for an annual government pension of more than $80,000. Ryan’s case – and that of the dozens of other members of Congress – highlights the chasm between the financial benefits available to politicians and those available to the vast majority of citizens they are supposed to serve, regardless of how well they actually perform in office. Confident that their own generous pensions will be paid out no matter what, politicians often advocate measures that weaken the government’s fiscal position. To restore fairness, the government should follow the private sector’s lead and link politicians’ pensions to their performance. Link that long-term reward (pension) to the long-term effects of the policies they supported while in office. A version of this scheme is already in place in Singapore, where ministers receive bonuses if the government hits targets for GDP growth, income growth (including a measure of how earnings are progressing for the bottom 20%), and unemployment. If they are truly confident that the policies they support will benefit the public, politicians should be willing to put their pension – or, at least part of it – on the line.

 

Is My Pension Safe?

By Matthew Cochrane, The Motley Fool, May 28, 2018

Pension assets consist of a combination of employee and sponsor (employer) contributions and investment gains. Because the power of compounding is so cool, the vast majority of all pension payments consist of investment gains. In public sector pension plans, for instance, investment earnings make up about 62% of pension assets, employer contributions 26%, and employee contributions 12%, according to the National Association of State Retirement Administrators. The big takeaway is that if you are fortunate enough to be covered by an employer-sponsored pension plan, congratulations! Fewer American workers are afforded this luxury every year and a pension plan is a wonderful financial vehicle to help you retire. No pension plan is bulletproof, though, despite the laws and regulations that federal and state governments have enacted to protect them. If a local government entity or private corporation falls on hard times, there is not necessarily a happy ending if you were placing all your hopes on your pension plan. It certainly appears that some of our country's largest municipality pension plans are currently showing signs of stress.

Editor’s Note:  Excellent overview of defined benefit plans and related issues.