April 3, 2020

New Law Gives More Financial Protection To Police And Firefighters

DENVER (CBS4) – Gov. Jared Polis has given firefighters and police officers killed or injured in the line of duty more protection.

He signed House Bill 20-1044 which gives the Colorado Fire and Police Association Pension Board more flexibility in adjusting contributions. That in turn makes it easier to help with financial needs those first responders and their families encounter.

It also means contributions to the fund will gradually increase for the next 10 years.

“This legislation will help ensure that the disability and retirement plans are stronger so that those who put their lives on the line for our community can retire with dignity after a career of service,” said Colorado Professional Fire Fighters President Mike Frainier in a news release.

“Now more than ever, Colorado Professional Fire Fighters are on the front lines when our communities need us most. Today, Governor Polis showed his unwavering commitment that Colorado will protect the men and women who protect all of us.”

March 27, 2020

Kentucky lawmakers agree to fully fund teachers’ pensions without caveats in budget talks

LOUISVILLE, Ky. (WDRB) – Kentucky lawmakers negotiating the state’s next two-year budget agreed Wednesday to fully fund the Kentucky Teachers Retirement System (KTRS), rejecting the Senate’s proposal to withhold more than $1 billion in funding in exchange for structural reforms to the pension program.

Lawmakers on the budget conference committee are working to put the finishing touches on the biennial spending plan as businesses across Kentucky and the U.S. are reeling from the ramifications of the novel coronavirus pandemic.

In Kentucky, thousands have applied for unemployment benefits as more and more businesses close to in-person traffic as the state tries to limit the spread of COVID-19.

Business has changed at the Capitol as well, with access to the statehouse restricted to legislators, essential staff, credentialed media and invited guests.

The Senate’s version of the two-year spending plan withheld $1.1 billion from KTRS, storing it in the state’s permanent pension fund until structural reforms were made.

KTRS funding in the amount of $551.1 million was at stake in fiscal year 2021, which begins July 1.

If reforms weren’t made by Aug. 1, the Senate’s version of the budget would have transferred that money to the Kentucky Employees Retirement System for state workers in non-hazardous positions, the state’s largest and most underfunded pension program.

That would have meant the legislature would have had mere days to enact such reforms to send that funding to KTRS from the state’s permanent pension fund.

With no opportunity for opponents to voice their concerns with pension bills given the increased COVID-19 restrictions at the Capitol, House members on the conference committee balked at the proposal.

“I don’t think we can have that discussion right now, and I think doing anything less than funding at the actuarially required – not the statutorily required, the actuarially required – (contribution level) is not good policy,” said Rep. Steven Rudy, a Republican from Paducah, Kentucky, who chairs the House budget committee.

“I think all of us can and should agree that fully funding all of our pension systems has got to be paramount as we more forward in these budget discussions,” said House Speaker David Osborne, R-Prospect.

Senate Republicans on the conference committee noted that the onus of structural pension reforms have fallen on state workers, with new hires moved to hybrid cash balance pension plans since 2013.

“Our general thought in this time was while there is uncertainty, we all know that KTRS is well, well outside of the 20-year window to even look at being in a position like KERS whereas KERS could be in a 12- to 24-month window of us questioning whether or not people are going to start getting checks directly from the Treasury rather than from the retirement system,” said Sen. Chris McDaniel, a Republican from Taylor Mill, Kentucky, and chair of the Senate budget committee.

Teachers, who get traditional defined-benefit pensions, have resisted pushes toward defined-contribution plans and staged mass “sickouts” over retirement changes in 2018 that were later overturned by the Kentucky Supreme Court because lawmakers acted too quickly on the legislation.

Rudy agreed that the topic of reforms for future KTRS hires should be discussed during the legislative interim this year.

“We have to consider structural changes,” he said.

March 20, 2020

What the Coronavirus Stock Meltdown Could Mean for Pensions

The coronavirus’ potential impact on the global economy has sent shock waves through the U.S. stock market, with successive slides that spell bad news for public pensions.

Over the last month, all the market gains made last year have been wiped away as stocks tumbled by more than 25%. That means pension funds, which rely heavily on public equities to boost investment returns, are likely to have their worst year since the 2008 financial crisis, barring a stunning turnaround in the next few months.

Pension funds won’t officially record their market values for financial reports until the fiscal year ends, which is on June 30 for most. But given the market’s reaction to the economic slowdown forced by the coronavirus, retired investment expert Girard Miller says he expects by this summer most fund assets will be where they were back in December of 2018.

“So it’s probably not going to be as dramatic as the loss we’ve seen over the last month,” he says. “If this continues for another 18 months, and stocks go down 40 to 50%, that’s a different story. But we’re not there yet.”

What would it mean to return to 2018? CalPERS, the largest plan in the country, reported a $337.2 billion market value in December 2018, according to plan financial documents. That’s 9.5% less than its reported value of $372.6 billion at the end of the last fiscal year in June 2019.

The worst-funded plan in the nation, the Kentucky Employees Retirement System, reported a $1.9 billion balance in December 2018. That’s 13% below the reported value of $2.2 billion at the end of the last fiscal year, according to plan financial reports.

How much plans stand to lose depends on how much of their assets are invested in stocks and other potentially volatile holdings. The average plan has about 40% of its portfolio invested in equities, according to the Boston College Center for Retirement Research (CRR). CalPERS follows closely to that. Kentucky’s plan is severely underfunded at 13%, so it has a smaller share in stocks and a higher-than-average share (about 30%) invested in bonds.

Ultimately, the market dynamics over the last 20 years and the low return from bonds has meant that pension funds can’t rely on the stock market to reach their target annual return of more than 7%. Jean-Pierre Aubry, the CRR’s associate director of state and local research, said pension investment returns have averaged well below that—just 5.6%—since 2001. The current downturn puts a fine point on that fact.

“Plans are facing a reckoning in terms of the cost in benefits,” says Aubry. “They have to put in more money to meet benefit goals if they’re going to get more returns like this going forward.”

While these are potentially daunting numbers for pension plans, they won’t directly translate to a budget strain for state and local governments just yet. First of all, the markets could stabilize and even start inching back upward before the fiscal year ends. That would help cut the current losses.

In addition, because of the way pension accounting works, any annual losses or gains are smoothed out over several years so that governments don’t get a huge jump in their annual pension bill. So, it likely won’t be until next year or even 2022 before the numbers begin to hit state and local government budgets.

Following the 2008 crash, for example, many plans lost about one-quarter of their actual value over the course of a year. But the annual funded level of plans as a whole stepped down from 86.5% funded to 78.4% in 2009, and continued down until stabilizing at 72.4% by 2012.

Plans, on average, haven’t gained any of that ground back. They have stayed at or near 72% funded, despite the record stock market run over the last decade and even as many governments have significantly increased their contributions. There are several reasons for this stagnation, but much of it has to do with the fact that the average plan has more retired members than active ones still contributing. That means more money out the door in retiree payments than is coming in from worker contributions. It also may mean that it will be once again difficult to regain any ground that’s currently being lost in the funded status.

According to a Moody’s analysis conducted before the current volatility, a loss of 6.2% in assets in a single year would require a 32% increase in contributions (likely smoothed over a few years) just to keep a plan’s funded status the same.

“The hit, if there is one, will not be felt all at once,” says senior analyst Tom Aaron, who authored the analysis. “Some of the strong returns from a couple years back are still being smoothed in so that’ll help offset it a bit.”

For plans like Kentucky’s that are already low on assets, however, Aaron says the picture isn’t as dire as it seems. The low funding has forced the state to ramp up its annual payments so much that it’s essentially become a pay-as-you go plan: contributions coming in slightly exceed the money going out in payments.

Most other plans are relying on investments to help cover payouts, meaning their decline in assets will factor more into determining the new upcoming payment for governments.

There is a silver lining, notes Miller. Stock prices are abnormally low and so are borrowing costs. Governments could issue pension obligation bonds and put the proceeds into their systems to take advantage of what will hopefully be a market rebound over the next year or so.

“If there was ever a time this made sense for an underfunded plan,” he says, “it would probably be now.”

March 13, 2020

House OKs cost-of-living increase for public pensioners

OKLAHOMA CITY (AP) — Most retired school teachers, firefighters and other public workers would receive their first pension increase in 12 years under a bill that sailed through the Oklahoma House on Tuesday.

Members voted 99-0 for the bill to give a 4% cost-of-living allowance, or COLA, to about 85% of public retirees. Under the bill’s tiered approach, those who retired between two and five years ago would see a 2% boost, while those retired for less than two years would get no increase.

Medical insurance, prescription drugs and utilities have all increased dramatically in the last decade, said retired mental health worker Dixie Jackson of Norman.

“Other retirees have had to get other jobs to pay for these things,” she said. “That’s not retirement.”

The bill now heads to the Senate, where lawmakers have been more cautious about the impact a cost-of-living allowance will have on the solvency of the state’s pension systems.

Senate President Pro Tem Greg Treat said this week he personally supports the tiered approach, but there’s not a consensus among Senate Republicans.

Oklahoma’s pension systems were among the worst-funded in the nation about a decade ago, when lawmakers approved a new law requiring any COLAs to be fully funded. That change improved the health of the pension systems but also left retirees without a pay hike to cover rising costs.

March 6, 2020

Public Pension Benefit Spending Provides Substantial Economic Impact On Rural Communities And Small Towns Across U.S.

WASHINGTONMarch 3, 2020 /PRNewswire/ — As many small towns and rural communities across America face shrinking populations and slowing economic growth, a new report finds that one positive economic contributor to these areas is the flow of benefit dollars from public pension plans. In 2018, public pension benefit dollars represented between one and three percent of gross domestic product (GDP) on average among the 1,401 counties in 19 states studied.

These findings are detailed in a new study released today by the National Institute on Retirement Security, Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America.

Download the report here.

Watch here via Facebook a live webcast of the conference proceedings today, beginning at 9:15 AM ET.  Download the full conference agenda here.

Register here for a webinar on Thursday, March 12, 2020, at 1:00 PM ET with a review of the findings.

This new report finds that public pension benefit dollars also account for significant amounts of total personal income in counties across the nineteen states studied. For all 1,401 counties in this study, pension benefit dollars represent an average of 1.37 percent of total personal income, while some counties experience more than six percent of total personal income derived from pension dollars.

In Mississippi, for example, several less populated counties have pension benefit dollars that represent more than three percent of total personal income in the county. Oktibbeha County, home to Starkville and Mississippi State University, has one in twenty dollars in total personal income coming from a public pension plan.

The analysis indicates that less populated counties with smaller economies experience a greater relative economic benefit from the flow of public pension benefit dollars into the county as compared to more populated, urban counties. This larger relative impact helps to sustain the economies of small towns during this period of economic transition in rural America.

“America’s broader economic trends have been tough on many small towns and rural areas across America that are struggling with population declines and lagging economies. Often, the largest local employer in these communities is a public entity such as a school system or city, which employs teachers, police officers and firefighters. These public employees spend their career providing public services in their community at a time when more and more young people are leaving their hometowns to seek better job opportunities in more populated areas,” said Dan Doonan, NIRS executive director.

“Eventually, these public employees become retirees, staying in their communities and spending their pension checks in these small towns. The pension benefits serve as a stable source of economic support in these areas, with retirees spending their retirement income on goods and services like housing, food, medicine and clothing. It’s clear from our analysis that this pension spending provides a substantial economic impact on struggling small towns and rural communities across the nation,” Doonan explained.

The report’s key findings are as follows:

  • Public pension benefit dollars represent between one and three percent of GDP on average in the 1,401 counties studied.
  • Rural counties and counties with state capitals have the highest percentages of populations receiving public pension benefits.
  • Small town counties experience a greater relative impact both in terms of GDP and total personal income from public pension benefit dollars than rural or metropolitan counties.
  • Rural counties experience more of an impact in terms of personal income than metropolitan counties, whereas metropolitan counties experience more of an impact in terms of GDP than rural counties.
  • Counties with state capitals are outliers from other metropolitan counties, likely because there is a greater density of public employees in these counties, most of whom remain in these counties in retirement.
  • On average, rural counties have lost population while small town counties and metropolitan counties have gained population in the period between 2000 and 2018, but the connection between population change and the relative impact of public pension benefit dollars is weak.

This new study builds on previous research and adds a deeper level of data and analysis. This research examines data from nineteen geographically diverse states representing every region of the country. The analysis utilizes data from a majority of public pension plans in those states and the data was collected directly from those plans to guarantee its accuracy. To compare the results to those of previous studies, this report considers pension benefit dollars as a percentage of total personal income in each county.

This study also offers a major new element that is possible because of newly-available data. In December 2018, the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) made available for the first time ever Gross Domestic Product (GDP) by county data. Initially, this data only covered four years, but in December 2019, BEA released a new set of GDP by county data covering the years 2001-2018. This study uses this new 2018 data as it is the most recent data available. In addition to this economic data, the report examines changes in a county’s population from 2000 to 2018 to determine if there is a connection between the economic impact of pension benefit dollars and growth or loss of population in the county.

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at Follow NIRS on Twitter @NIRSonline.

SOURCE National Institute on Retirement Security

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February 28, 2020

COLA compromise: Public pension boost based on longevity

A compromise over how much to hike payments to retired public employees would provide different cost of living adjustments based upon how long individuals have been receiving benefits.

Called a COLA, a cost of living adjustment has not been approved for teacher, police, firefighter, judicial and other retired public employees in 12 years. The issue stalled during last year’s legislative session as the State Senate sought an actuarial study to analyze the financial effects of a 2 percent or 4 percent COLA on each employee group’s pension fund.

“This year we came back, and my understanding is that the House leadership has an agreement with the Senate leadership (…) to move this hopefully all the way to the governor’s desk,” said Rep. Avery Frix (R-Muskogee) when presenting HB 3350 this afternoon.

HB 3350 advanced out of the House Rules Committee by a 8-0 vote. The bill would approve a 4 percent increase in monthly pension payments for those retired for five years or more as of July 1, 2020, and a 2 percent increase for those retired at least two years but not five years. Anyone retired for less than two years as of July 1, 2020, would receive no increase in their monthly pension payments. It also would include increases for retired volunteer firefighters.

“At one time, our systems were some of the worst-funded pension systems in the nation,” Frix said. “They’ve come a long way, mainly because of the sacrifices that retirees have made, and also because of some tough decisions this body has made. Now it’s my opinion that these retirement systems can support this.”

Sabra Tucker, executive director of the Oklahoma Retired Educators Association and spokesperson for the Keep Oklahoma’s Promises advocacy group released a statement after Thursday’s vote.

“Oklahoma’s retired public employees have waited for a COLA for 12 years,” Tucker said. “Year after year, costs have gone up while our retirees have been left behind. [Our organization] is united behind HB 3350, which ensures retirees can live in retirement with dignity.”

Scott VanHorn, president of the Oklahoma City Firefighters Local 157, also issued a statement.

“OKC Firefighters greatly appreciate the House Rules Committee unanimously approving a COLA bill today. This bill would provide much needed assistance to our retirees while keeping our system’s funding ratio moving in a positive direction,” VanHorn said. “We look forward to the full vote on the House floor, and appreciate all of the support House members have shown toward our retired firefighters, police officers, teachers, and public employees.”

For the past two sessions, Mike Mazzei, secretary of budget for Gov. Kevin Stitt, has encouraged lawmakers to be conservative if they fund a COLA out of the state’s pension systems. In the governor’s proposed FY2021 executive budget, system funding rates were noted:

COLA for pensions
A summary of pensions’ financial positions was included in Gov. Kevin Stitt’s FY 2020 proposed executive budget. (Screenshot)

Advocates for the various retirement groups have argued that the funded ratios are high enough to withstand a 4 percent COLA, and it’s possible the compromise within HB 3350 could become a litmus test for determining the impact of future COLA proposals.

(Editor’s note: The Oklahoma City Firefighters Local 157 is a sponsor of NonDoc’s Oklahoma public resources page. This story was updated at 3:55 p.m. Thursday, Feb. 27, to correct reference to the Keep Oklahoma’s Promises organization.)