Ken Sarni

Ken Sarni

Funding Public Pensions – Is full pension funding a misguided goal?
Source: haas institute

Across the nation, public pensions are in crisis, and have been so for a long time. Funding pension costs is a political issue in cities, counties, and states from California, to Illinois, to Rhode Island. The rising expense of public employee pensions has become a political hot button justifying cuts to education and other necessary government investments, causing acrimonious debate, court cases, protest marches, and more. All the recent incidents of municipal bankruptcies have been blamed, at least in part, on pension obligations. Most famously, this was the case in Detroit, Michigan, but has also been true in the cities of Stockton and Vallejo in California, Prichard, Alabama, and Central Falls, Rhode Island.

The city of Chicago is currently feeling some of the warning tremors. According to its own estimates, the city’s various pension funds have only half the funds in hand needed to pay its pensions. This leaves a $28.6 billion difference between the assets and the present value of the debt to all the current and future retirees in the system. This difference, known as the “unfunded liability,” was cited as the primary reason that Moody’s, the bond-rating firm, downgraded Chicago’s bond rating to “junk” status in May of 2015

The other common measure of a pension system’s health is the ratio between the assets and the future liabilities, known as the “funding ratio.” Chicago’s funding ratio hovers around 50 percent, but the condition of the pension funds managed by the state of Illinois is even worse, showing a 39 percent funding ratio, with $111 billion worth of unfunded liability

 

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Welcome Elk Grove Village Fire Pension Fund to IPPFA
Source: IPPFA

Welcome Elk Grove Village Fire Pension Fund to IPPFA.

 

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Retired Benefits: Tale of 2 Cities (States)
Source: Squared Away Blog

Some of the workers and retirees around the country who count on having a government pension surely get nervous when they see headlines about the most troubled state and local plans – in places like Illinois, New Jersey, Connecticut, Chicago, and Detroit.

A broader perspective on retirement benefits, however, shows that the results are more mixed.  A study by the Center for Retirement Research, which sponsors this blog, estimated long-term costs for pensions, retiree health benefits, and general debt service as a share of revenues for the 50 states, 178 counties, and 173 cities.

The findings are summarized below:

States:

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12 Fast Facts about Gov. Rauner’s budget plan
Source: The State Journal-Register

Gov. Bruce Rauner used his third budget speech Wednesday to break his silence on the Senate’s “grand bargain” and say he is against raising sales taxes on food and medicine and wants a permanent property tax freeze to compensate for a permanent income tax increase.

But what else is in the budget plan? Here’s a quick look at 12 facts.

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Target Date Funds: What’s Under the Hood?
Source: Center for Retirement Research

The brief’s key findings are:

  • While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
  • This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
  • The results show that TDFs:
    • often invest in specialized assets (e.g., emerging markets and real estate);
    • charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
    • earn returns that are broadly in line with other mutual funds.

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Illinois budget deal hits snag after key pension bill fails
Source: Reuters

CHICAGO A bipartisan deal aimed at ending Illinois’ long-running budget impasse stumbled on Wednesday when a key pension measure failed to pass in the state Senate.

Following the passage of three other bills tied together in a legislative package, a measure to ease Illinois’ $130 billion unfunded pension liability was rejected in a 29-18 vote, with 10 members voting “present.”

Even though Senate Republican Leader Christine Radogno crafted the package with Democratic Senate President John Cullerton, she still urged her members not to vote in the affirmative because disagreements remained on some of the 12 bills, particularly on school funding and workers’ compensation.

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Pay Off Debt, Or Save To Retire: What’s A Millennial To Do?
Source: Investor’s Business Daily

Pay off debt, or save for retirement?

Never has that quandary been more acute than it is right now for the younger members of today’s workforce. Millennials are confronting often-crushing debt from student loans — more onerous than perhaps any other generation has faced — and trying to save for their eventual golden years.

Depending on the level of education, young professionals could be saddled with student loans totaling anywhere from $100,000 to as high as $400,000 for doctors and attorneys, financial planners say.

“The level of student debt this generation is shouldering is unprecedented,” said Jennifer Putney, vice president of participant engagement at Prudential Financial (PRU). “It’s huge.”

Still, those starting to weave their way through their careers need to try to figure a way to set aside money for retirement. With concerns mounting that Social Security may not survive the latter half of this century, it’s imperative that the nation’s largest demographic somehow make provisions for life after those careers are over.

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New ALEC Report Blasts “Pension Fund Cronyism”
Source: The National Council on Teacher Retirement

A new report from the American Legislative Exchange Council (ALEC), released December 14, 2016, charges that public pension funds are intentionally making “inferior investment decisions” in order to “advance political agendas” of many pension plan officials and lawmakers. Instead of managing pension fund investments for the exclusive purpose of providing retirement benefits to government employees, ALEC charges that many state and local government pension fund assets are being invested in “a misguided attempt to boost their local economies, provide kickbacks to their political supporters, reward industries they like, punish those they don’t and bully corporations into silence and behaving as they see fit.”

ALEC is a nonprofit organization of conservative state legislators and private sector representatives that drafts and shares model state-level legislation for distribution among state governments. It has been described by The Guardian as “a dating agency for Republican state legislators and big corporations, bringing them together to frame rightwing legislative agendas in the form of ‘model bills.’” According to The New York Times, “special interests effectively turn ALEC’s lawmaker members into stealth lobbyists, providing them with talking points, signaling how they should vote, and collaborating on bills affecting hundreds of issues like school vouchers and tobacco taxes.” And Bloomberg Businessweek has described the organization as a “bill laundry” that “offers companies substantial benefits that seem to have little to do with ideology.”

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Pension Problems: Breaking down state pension liabilities
Source: The Mining Journal

The first in a six-part series on the state of pensions in Michigan

– At just 61.6 percent funded, Michigan ranks 39th nationally for the health of its public pension system, according to a report by the Wall Street Journal

MARQUETTE — A perfect storm has converged around public pension plans, putting municipalities, schools, administrators and legislators in a bind over how to rebuild and fund benefits sustainably into the future.

With costs rising to meet the growing liability, public entities are facing difficult decisions.

“You start playing this game of, well, what’s more important — should we pave this road or pay this extra retirement contribution?” said Marquette City CFO Gary Simpson.

Unfunded accrued pension liability is the difference between the total amount due to both retirees and current employees upon retirement, and the actual amount of money the system has on hand to make those payments.

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Attacks on Pensions Keep Happening Again and Again
Source: National Public Pension Coalition

Today is Groundhog Day. Everyone’s favorite groundhog- Punxsutawney Phil- will stick his head out of the ground and look for his shadow. Legend has it that if Phil sees his shadow, we’ll have six more weeks of winter. Many of you may also remember a film called Groundhog Day, which stars Bill Murray as a man who repeats February 2 over and over and over again. If you’ve been keeping up with pension news and policy, you may feel a lot like Bill Murray. Every year, we see the same attacks on pensions repeated over and over and over again.

Last year in Lincoln, Nebraska, Chuck Reed, the president of the anti-pension Retirement Security Initiative, testified before the Pension Review Committee and encouraged them to switch from a defined benefit pension to a 401(k)-style plan. Lincoln rejected this idea. So this year, John Arnold is funnelling money through the Retirement Security Initiative to hire a $10,000 per month lobbyist to persuade the Nebraska state legislature to force Omaha and Lincoln to abandon their pensions for firefighters and police officers. Lawmakers in Lincoln must feel like they’re reliving 2016 all over again.

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