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State Controller to Headline 22nd Annual SoCal Retirement Seminar; Register Today

The 22nd Annual Southern California Public Retirement Seminar will be taking place on February 22nd in the city of Lakewood, so register now to ensure you don’t miss out on this informative event, which will feature keynote speaker Controller John Chiang. (Register Here).

The topics that will be covered include:

• Public pension reform
• Vested benefits
• Actuarial reality
• Retirement legislation
• What’s new with PERs
• The assumption rate
• New non-retirement laws
• State budget
• Labor’s perspective

Here are other key details:

Seminar Date
February 22, 2012
9AM-4PM

Location
Lakewood Civic Center
5000 Clark Avenue
Lakewood, CA 90712

Registration
$190.00 - includes breakfast & lunch and seminar materials.

Register Today
www.publicretirementjournal.org or here.

Cancellation Policy
Full refund if notified by 5PM on February 8, 2012

If you have any questions about the event or registration, call 916-341-0848.

Guv’s 12-Point Pension Plan a Bold Starting Point? LAO Says Yes in its Analysis

At the end of October, the governor released his highly-anticipated recommendations for reforming public pensions in California. The response to the 12-point plan has been a mixed bag, ranging from cautious support, blatant disappointment for not going far enough, or fiercely critical. Labor in particular did not give the proposal a warm welcome. You can see our previous coverage of the plan’s recommendations here. The Legislative Analyst’s Office has now released its response to the governor’s 12-point proposal and overall calls it a “bold, excellent starting point.” However, the report also raises many questions about the plan; in particular, a proposal to force current workers to pay more toward their pensions has been deemed by the LAO a “legal and collective bargaining minefield.” The LAO’s analysis takes the governor’s points one-by-one in an exhaustive review of each proposal’s merit, problem areas, and potential legal ramifications. It’s a long report, so we’ve selected a few highlights to give you the gist of its take:

• “Despite the strengths of the Governor’s pension and retiree health proposal, it leaves many questions unanswered. In particular, we do not understand key details of how his hybrid benefit and retirement age proposals would work. Moreover, the Governor’s plan leaves unaddressed many important pension and retiree health issues, including how to address the huge funding problems facing the state’s teachers’ retirement fund
• Raising Current Workers’ Contributions Is a Legal and Collective Bargaining Minefield. The Governor proposes that many current public employees be required to contribute more to their pension benefits. Others have proposed reducing the rate at which current employees accrue pension benefits during their remaining working years. Our reading of California’s pension case law is that it will be very difficult—perhaps impossible—for the Legislature, local governments, or voters to mandate such changes for many current public workers and retirees.
• We agree with the Governor that future public employees should be required to pay for a portion of pension contributions. We believe it would enhance public confidence in state and local retirement systems for there to be a clear, unambiguous statewide policy in this area. There is no single correct percentage of total required contributions that employees should be required to pay, but 50 percent is a reasonable starting point for the discussion."

And following the LAO's analysis is commentary on the LAO's perspective. For instance, a coalition of labor groups known as Californians for Retirement Security released the following statement in response to the LAO’s analysis:

“The LAO's mixed assessment of the Governor's pension proposals hits the nail on the head when it says that the Legislature should move forward in a deliberate and reasoned fashion to craft solutions to California's complex pension systems. There are far too many unanswered questions and lack of details to fairly and accurately evaluate the impact of these proposals. Those proposals that impair the negotiated benefits of current employees are a legal dead end. As the report points out, these are matters that should be settled at the bargaining table, not in courtrooms.”

And on the flip side to the coin, the group California Pension Reform has also released a statement critical of the LAO:

“It is disappointing that the LAO omits the most critical flaw of the Governor's proposal: By his own admission his plan only solves $4-$11 billion of what is at least a $240 billion unfunded liability. While the Governor's plan has merits, it solves less than 5% of our problem.”

Read the LAO’s full analysis here. The LAO has also released a video discussing its take on the plan if you don’t feel like reading:

Download Video as MP4

 

Cities Statewide Turn to Voters for Pension Reform

After Thursday’s release of Governor Jerry Brown’s pension plan and the beating the public pension system took during the recession, cities are planning to ask voters to help conquer the public pension problem.

In San Diego, city leaders and reformers submitted plenty of signatures to qualify an initiative to change the way the city calculates pensions, which will appear on the June ballot if it qualifies. San Jose’s mayor has said his goal is to put retirement reform before voters in a March special election. And San Francisco has now said it will appeal to voters to help with the pension problem, which is now one of the biggest causes of municipal budget shortfalls. 

While the economy was booming years back, pension funds were so flush that some city employees didn’t have to pay into their retirement programs at all. Now, in a time when such a concept is unfathomable, pension reformers say voters support efforts to roll back enhanced retirement benefits. 

Pension reforms have been difficult to make, however, because courts have consistently defended existing retirement contracts, citing employees’ vested rights. Negotiations are possible, but difficult, as described in the San Jose Mercury News: 

“The state requires public employers to negotiate in good faith with their employees under the Meyers-Milias Brown Act. Even if a union agrees to concessions, cities often have charters that dictate how retirement benefits are accrued and handed out. Those kinds of changes require voters to weigh in, driving a string of local ballot measures.”

Voters in Los Angeles, San Luis Obispo, and Redding have all approved pension cost measures, and in November, San Francisco voters will be able to choose between two pension proposals. The two proposals have many differences, but aim toward the same goal: current city workers should contribute a larger portion of their salaries now. 

Read more about Governor Brown's proposal here. 

 

Local Govt Groups Urge GASB to Slow Down on Proposal to Change Reporting Requirements

We’ve relayed recently that the Governmental Accounting Standards Board is pursuing changes regarding how states and localities report pension liabilities. GASB contends the objective is to improve accountability and the transparency of financial reporting, but the proposal has ruffled the feathers of many public pension plan and government employee groups. In fact, representatives of public pension plans in 37 states have expressed their concerns to GASB and are pushing for more time before the new rules are implemented. The major factor that seems to be drawing so much concern is that for the first time local governments will have to report unfunded pension liabilities on their balance sheets. Twenty-one organizations have also sent letters to GASB about the timeline it is following, as it is set to finalize the proposal by next summer. The Bond Buyer reports on the following pushback:

“But the congressmen and issuers stressed the proposal would subject state and local governments to a new accounting system for which they had insufficient resources and time to prepare. ‘While changing accounting standards as you have proposed would be destructive, counterproductive, and unjustified during any economic circumstances, it would be particularly damaging now,’ wrote Reps. Gerald Connolly, D-Va. and Edolphus Towns, D-N.Y., in a two-page letter, dated Aug. 11, to GASB chairman Robert Attmore. The congressmen said the proposed changes were unnecessary, “given the reliability of most public pension plans and their sponsors.” Specifically, they said, public pensions over the past 25 years have generated average annual returns of 9.25%, with very low default rates among cities and counties.”

Congressmen Connolly and Towns also stressed that local governments are capable of managing their money just fine without having arbitrary and destructive new standards imposed on them by GASB. The types of groups that have pressured GASB to retool its proposal include the Government Finance Officers Association, the National League of Cities, the U.S. Conference of Mayors and the American Federation of State, County and Municipal Employees.

Pension News Round-Up: Gov Hints at Plan; Lockyer’s Speech; New Cmte; Bureau Stats

At a recent event in Los Angeles, Governor Brown briefly mentioned that he would announce plans soon for addressing public pension reforms. Talk has swirled for months that Brown would turn his attention to pensions after a budget package was patched together in June. Now that it is autumn, impacted parties have awaited any signs for potential details, but it looks like we’ll have to wait a little longer. Brown commented that “You'll get all the details very soon.” What seems to be certain is that constitutional changes will be necessary for some of Brown’s upcoming proposals as well as a public vote. It is believed that Brown still wants to pursue a package of tax increases (although Republican opposition remains just as strong), so it’s not clear whether a measure on taxes would be joined with a measure on pension reforms.

State Treasurer Bill Lockyer was giving a speech of his own on pensions at a Northern California Public Retirement Seminar, and he commented the following about Brown’s proposals:

“I hope his plan will help bring long-term liabilities down significantly and soon, so that retirement security remains adequate and defensible, and that retirement costs get lower quicker. It sounds as if the Governor will be looking at a hybrid, including a somewhat lower guaranteed defined benefit (perhaps better integrated with Social Security than today's model for those who are covered by Social Security), and a defined contribution plan.”

Lockyer also criticized proposals to change the benefits of current employees. You can read the Treasurer’s full speech here.

In other pension news, Senate President pro Tempore Darrell Steinberg (D-Sacramento) and Assembly Speaker John A. Pérez (D-Los Angeles) have appointed legislators to the newly formed Joint Legislative Conference Committee on Public Employee Pensions. The committee will be comprised of Michael Allen (D-Santa Rosa), Warren Furutani (D-South Los Angeles County), and Jim Silva (R-Huntington Beach). Senate appointees are Gloria Negrete McLeod (D-Chino), Joe Simitian (D-Palo Alto), and Mimi Walters (R-Laguna Hills). The first hearing will be held on Wednesday, October 26, 2011, at the City of Carson council chambers. There will be three separate hearings to examine the current public pensions systems, the efficacy of recent reforms, and options going forward.

Finally, the U.S. Census Bureau has released the results of its Local Public Employee Retirement Systems Survey. According to the data, California's state and local public employee retirement systems lost 27 percent of their assets in 2009. In 2008 the systems had $643 billion in assets and that number dropped to $470 billion in 2009. The Bee reports that “Nationwide, state and local government retirement systems saw their cash and investments lose a collective $726 billion, falling to $2.5 trillion in 2009. The 23 percent drop in 2009 followed a $177 billion loss for the funds in 2008.” More on the pension fund data can be found here.

GASB Extends Comment Period for New Pension Accounting and Financial Reporting Proposals

It was announced back in July that the standards for pension accounting and financial reporting would face significant improvements under a proposal from the Governmental Accounting Standards Board. The sweeping new accounting rules were subject to weeks of public comment, but GASB has now extended the deadline to October 14th in response to requests for more time. The goal of the changes, according to GASB, is to provide more disclosure and Pensions & Investments points out that “plans will highlight their net unfunded liabilities instead of contributions, limiting plans with more benefits owed than assets to a more conservative index rate, and reducing the amount of time that plans can expense their unfunded liability.”

While critics contend changes will create volatility and confusion, the existing standards have reportedly been in place since 1994 and GASB posits that there is an increasing need among the users of governmental financial reports for comparable information about pensions and that concepts regarding what constitutes a liability and an outflow of resources need continual development.

GASB Chairman Robert H. Attmore commented the following on the deadline extension:

“The Board believes that it must balance the need to address significant financial reporting issues on a timely basis with the multitude of competing priorities of the financial statement preparer community, including the successful implementation of any final pension standards. Based on the due process response periods provided for other major projects in the past, the Board concluded that this two-week extension would better achieve that balance."

After field studies and public hearings, GASB reportedly plans to finalize the proposals by  next summer. You can find more information about the proposals and submitting input here.

Study Compares Retirement Wealth of Public and Private Sector Workers

We bring you news of another study that compares the wealth of public vs. private sector workers. The Center for Retirement Research and Boston College examined whether or not state and local government workers are richer during their retirement years, and the report ends up concluding that “In short, as a group, couples with state-local workers, all else equal, do not end up richer than couples with private sector careers." In order to draw this conclusion, the researchers studied couples to see how government employment affected wealth for those over 65. Here’s the root of the issue, according to the Bee: “People who spent more than half their career in the public sector -- about one-third of the total group -- had 11 percent to 18 percent more wealth at age 65 than similar private-sector couples. The other two-thirds with a state or local government employment history who spent less than half their career as a public worker ended up with less wealth than private sector employees.” You can read the full study below:

Comparing Wealth in Retirement: State-Local Versus Private Sector Workers

Pension Round-Up: Changes and News in Sacramento, Carlsbad and San Diego

The following is a small rundown on pension news or reforms in several cities:

Sacramento: Generous severance pay has been taken off the table for Sacramento city workers, many of which leave with an average of $33,000. New City Manager John Shirey said the city could simply no longer afford the policy, as unused sick time and vacation allowed some employees to rake in an additional $100,000. The buyouts, or “Golden Handshakes” have been defended as providing long-term savings, but budget shortfalls have changes perspectives. Shirey commented that “Like a lot of things, if somebody doesn't go back and revisit the purpose of the program, it can just sort of stay on the books without notice. I think that's what happened here." Read more here.

Carlsbad: The council recently approved a 3 percent raise for management employees to offset the higher pension contribution rate that such workers will face in December. Managers will pay 3.5 percent more into their retirement funds. Cost-wise, the Union Tribune points out that “While the [pension] change will save the city about $400,000, the salary increases are estimated to cost $430,000. The council also approved a motion to pay an additional $31,000 for employee health insurance for 2012.” However, only employees who scored well on their last performance review will receive a raise. For more, see here.

San Diego: Proponents of a ballot initiative that will switch new city hires a 401(k)-style plan have turned in their signatures 17 days early, which may be a sign that they’re confident they will successfully get the issue on the ballot. Labor groups have been strongly opposed to the proposal and there have been heated confrontations at petition-gathering locations. For more, see here.

5 Unions Offer Concessions in San Jose to Save $450 Million; CalPERS Applauds Efforts

CalPERS is applauding the efforts of San Jose’s labor leaders, as representatives from five organizations recently announced pension concessions that will reportedly save the city around $450 million over the next five years. The reductions will affect current and future employees and while union officials hope the offer will put to rest a costly legal battle with the city, Mayor Reed’s commitment to a controversial pension reform ballot measure is sure to throw cold water on the idea. While city officials signaled initial support for the offer, they also cautioned that time would be needed to completely study the concessions. Retired police officers and firefighters also offered concessions when it comes to annual cost-of-living raises. Mercury News reports on the economic woes of the city:

“City leaders hailed the proposals as the first significant retirement reform offers from any of the city's 11 employee unions since they began negotiating in late June on ballot language that Mayor Chuck Reed wants to put before voters in an attempt to shrink pension costs. San Jose's annual pension bill has ballooned from $73 million a decade ago to $245 million today. And it's expected to hit $430 million in four years as the result of benefit increases, market losses and flawed assumptions. The soaring costs have forced San Jose to cut some 2,000 positions in a decade and led to the city's first police layoffs in June, when 66 young officers lost their jobs.”

So while the city appears pleased that labor agrees reforms are necessary, it appears to have its doubts that the concessions go far enough in light of San Jose’s major budget issues. More on the mayor’s pension reform measure and the controversy around it can be seen here. And while Mayor Reed appeared skeptical of a proposal to use CalPERS for police and firefighter pensions, the pension fund was quick to commend the idea as a viable solution. Anne Stausboll, CalPERS Chief Executive Officer, released the following statement:

“We applaud the San Jose firefighters, police officers, engineers, architects and all those who are proactively working together to find solutions during these difficult budget times. Pensions are a shared responsibility, and this effort to join together to address the pension issues facing the City of San Jose can only benefit all parties involved. At CalPERS, we welcome the opportunity to be part of a solution that secures the retirement future for public workers and retirees while helping local governments confront the financial challenges ahead.”

CalPERS Chief Raises Concerns about Low-Return Environment; Upcoming Forum

The 7.75 percent return rate is overly optimistic this year, according to CalPERS Chief Investment Officer Joe Dear. The lagging economy has put a damper on expectations and Dear believes overall the next few years will be tough for the pension fund. The officer commented that “This low-return environment is structurally driven, and there’s not a lot of policy to move it.” While losses and gains are spread out over 15 years, Bloomberg reports that “Even with gains in fiscal 2011, the pension fund has earned 3.41 percent annually on average in the past five years, 5.36 percent in the last 10 and 6.97 percent in the last 15. It has only beat its assumed rate of return with a 20-year average of 8.38 percent annually.” Back in the spring, the Board of Directors rejected a proposal to reduce the assumed rate of return. While the pension fund was fully funded before the recession, it is now at about 70 percent.

And in other CalPERS-related news, from October 24th to the 26th, the pension fund will hold its annual educational forum in the city of Long Beach. The three-day learning and networking event for public agency employers will include workshops, exhibits, leadership training and keynote speakers. This year’s two featured speakers are former North Dakota Congressman Earl Pomeroy, a leading expert on retirement and health, and Dennis Snow, a former Walt Disney Executive, will discuss proven techniques to create customer service excellence. Anne Stausboll, CalPERS Chief Executive Officer, commented that “CalPERS staff looks forward to meeting with employer representatives at exhibits and workshops. The Forum offers an excellent opportunity to strengthen our partnership in managing health and pension benefits.”  Here is the pension fund’s description of the event:

“This year’s offerings include updates on popular topics such as Social Security and payroll reporting, actuarial basics, reportable compensation and membership eligibility. In the exhibit hall, participants can meet one-on-one with an actuary, and visit booths to learn more about CalPERS customer contact center, retirement estimates, supplemental retirement plans, and electronic fund transfers. The Leadership Policy Series provides up-to-date information on a variety of topics including public pension reform and health care benefits, and will also offer an opportunity to ask questions of CalPERS Chief Actuary.”

Key details:
Location: Long Beach Convention Center
Registration Fee: $300
Registration Deadline: Friday, October 7, 2011

Registration information can be found here. A video on the event can be viewed below:

Download Video as MP4