NIRS on Costly Pension Mistakes in Alaska, Michigan and West Viginia

She said NIRS research indicates that the best way for a state to address pension underfunding is to implement a responsible funding policy with full annual required contributions. The research reveals that West Virginia, Alaska and Michigan shifted from DB pension plans to DC individual accounts only to experience higher costs. Moreover, current financial data indicate that the DB to DC switch in fact worsened pension funding issues.

Oakley also noted that public pensions help states with workforce management in terms of attracting, retaining and transitioning employees to retirement. She highlighted that a retirement plan is an “extremely” or “very important” job feature to nearly nine out of 10 public employees, and salary is less important. NIRS research finds that salary is an “extremely” or “very important” job feature to less than six out of 10 public employees. Importantly, this preference is in contrast to private sector workers. Salary is far more important than retirement benefits for private sector workers. Accordingly, changes to public sector retirement benefits could result in demands for higher salary so that public employees can achieve a secure future.

Download the testimony here.

 

HB15 1388 – The SCORE Act

UPDATE: The SCORE Act failed in the Senate Finance Committee on a 3-2 vote.

In 2010, Colorado led the nation in creating a bi-partisan solution to stabilize the funding of our public employee pension plan. In 2015, we are proposing, along with the Governor and PERA, an innovative plan to securitize PERA contributions and lock in the changes made under Senate Bill 1 in 2010.

You can read the bill in its entirety by clicking here.

Over the last year we, as Secure PERA, have been meeting with PERA, the Governor’s office, legislators and the Treasurer’s office to discuss issuing bonds that would allow us to take advantage of the current low interest rates (somewhere in the neighborhood of 4%) as well as PERA’s great record of investment returns (currently expected to be 7.5% over 30 years).

Many other states have issued pension obligation bonds or POBs unsuccessfully so we wanted to take a very cautious approach. We believe our SCORE Act puts together a deal that will work. As always, when you are dealing with the market there is some risk. But, we believe getting the income from the bonds upfront and then allowing PERA to wisely invest it along with the security of the AED/ SAED and base contribution rates being locked in provides us with greater security.

We learned from other states that POBs can’t be a solution to fixing broken pension systems but, if you make sure your system is secure first – like we did with Senate Bill 1 – and then you make sure all of the money from the bonds comes into your pension system and you top that off by making sure no one can take a payment holiday or reduce payments into the pension system you end up with what we believe will be a good bill for Colorado and for PERA employees!

The SCORE Act

Bonds are a very common financial instrument for all levels of government in Colorado and across the country. They are used for a variety of purposes and there are many types of bond financing structures that are intended to serve different financial goals.

In Colorado, Representatives from the Governor’s Office, the Treasurer’s Office, the Attorney General’s Office, the Colorado Coalition for Retirement Security, and PERA have spent almost a year in a collaborative effort studying potential bond proposals that could be used to take advantage of the spread between the low interest rates required to pay for the bonds and the potential for higher long-term returns received from investing the proceeds. Under a draft proposal, current employer and employee contributions into PERA would be used to pay for the bonds issued at a lower fixed interest rate. All income and the contributions above the amount needed to repay the bonds would flow to the PERA Trust Funds to be applied to continue shrinking the unfunded portion of the pension liabilities at no new cost to taxpayers, the state, employers, employees or retirees.

Goals of Proposed Bonds:

  • Strengthen SB 1
    • Issuance of the bonds would improve PERA’s funded status and could reduce the amortization period on unfunded liabilities resulting in potential long-term future savings for employers and employees.
    • Bonds will provide for contribution security by ensuring the necessary contributions are maintained to reach full funding.
    • Issuing the bonds would not incur any new cost to taxpayers, the state, employers, employees or retirees.
  • Ensure Fiscal Discipline
    • As proposed, the bonds could reduce the amortization period by as much as five years, saving employers $4.5 billion in today’s inflation-adjusted dollars.
    • Without bonds, employers would have to pay approximately an additional 2 – 3 percent in contribution rate increases today in order to similarly reduce the amortization period.
  • Provide Transparency
    • Bonds will only be issued upon successful completion of a legal Validation Proceeding, providing for a final, non-appealable Court Order.
    • The debt service to pay for the bonds will be known at the time of issuance because only fixed-rate bonds are permitted.
    • Proceeds will be managed by PERA investment professionals with the oversight of the PERA Board of Trustees only for the benefit of its members.

 How This Proposal Differs From Other Bond Issuance:

  • Other States
    • Unlike in many other states, these bonds would not cost anyone any new money, nor would they free-up money to pay for other short-term state budget priorities.
    • These bonds do not provide for a contribution “holiday.” Under the proposal, an issuance of bonds secures the bond payments through an explicit bond covenant designed to maintain the existing employer and employee contribution rates into PERA.

 Additional Information:

  • Colorado PERA is sustainable today and into the future as a result of the reforms passed in SB 1. As proposed, the issuance of bonds could improve the funded ratio and shorten the timeframe for PERA to become fully funded by taking advantage of low interest rates and PERA’s investment program.
  • As proposed, the issuance of bonds is intended to result in a funded status of approximately 70-80 percent in the State and School Divisions, and ensures PERA will remain one of Colorado’s best investments.
  • The bonds would be issued by the Colorado Housing and Finance Authority (CHFA), under the direction of the Governor and State Treasurer.
  • Colorado PERA would invest the funds as it does today – in a globally diversified portfolio with an investment time horizon that matches the fiscal discipline of the bond issuance.

HB15 1235 – Colorado Retirement Security Taskforce

Sponsors: Representatives Buckner and Pettersen and Senators Steadman and Todd

Read the bill in its entirety by clicking here.

What the bill does: The Colorado Retirement Task Force bill creates a task force comprised of experts that will study the factors affecting Coloradans ability to save for retirement, make recommendations for increasing the number of Coloradans working in the private sector saving for their retirement and assess the feasibility of creating a Secure Savings Program.

Why we need this bill: For decades, Americans have built their retirement with traditional pensions, Social Security and personal savings. Saving through a workplace retirement plan is the easiest and best way for most workers to save, yet almost half of Colorado private sectors workers currently do not have any type of retirement savings plan at work.

Consider the facts:

  • 45% of Colorado’s private-sector workers or 765,717 Coloradans have no retirement savings plan at work.
  • Younger workers are disproportionately affected. 53% of Colorado workers aged 25 -29 and 47% of those aged 30-34 have no retirement savings plan at work.
  • About 8 out 10 Coloradans working in small businesses have no workplace retirement plan – 75% of those in businesses with less than 50 employees and 81% of workers in firms with less than 11 employees have no workplace plan.
  • 74% of Colorado’s lowest paid workers have no retirement plan at work.
  • 58% of Hispanic, 47% of African American and 46% of female workers in Colorado have no retirement plan at work.

Coloradans need to save more for their retirements. Adequate savings can mean the difference between making ends meet in retirement or living in poverty and depending on public assistance.

How a Secure Savings Plan works:

  • Workers can save a portion of their wages through a simple, opt-out payroll deduction
  • Savings plan is portable – can be taken from job to job in Colorado
  • Investments are professionally managed and fees are capped
  • Helps small business owners provide their employees with access to a retirement savings plan
  • Makes it saving easier for Coloradans who are self-employed, on contract or working multiple jobs

How the bill works:

It creates, bi-partisan appointed task force comprised of 15 experts directed to accomplish two tasks:

  1. Study and report on the factors that affect Coloradan’s ability to save for a financially secure retirement. It shall consider: the barriers people face in saving for retirement, access to and types of employer sponsored retirement plans, how much Colorado would save on public assistance if more Coloradans have adequate retirement savings, estimates of the amount of retirement savings Coloradans currently have and the amounts needed for a financially secure retirement.
  1. Study and report on the feasibility of creating a Secure Savings Plan for private sector employees. A public private effort that would: pool all employee contributions, hold them in trust and invest them; provide for professional management of the investments; be portable between jobs in Colorado; include options to disburse retirement benefits through a lifetime annuity and shield the state and employers from any financial obligation or liability.

The task force will begin its work by August 1, 2055, report on the factors affecting Coloradans’ ability to save for retirement by March 1, 2016 and report on the feasibility of creating a Secure Saving Plan for private sector workers by September 20, 2106.

The work of the Task Force will provide legislators, other policy makers and Coloradans with solid information on the problem and solutions for helping Coloradans better save for a financially secure retirement.

 

SB15 80 – Participation in PERA’s Defined Contribution Plan

STATUS: SB 80 has been killed in House State Affairs

UPDATE: Senate Bill 80 passed out of Senate Finance on February 10th on a 3-2 party line vote – even after the fiscal note becoming public that morning showing the bill would cost $4.2 BILLION – click here to see the fiscal note for yourself.

On February 13th, the Senate passed the bill on 2nd reading.

Senate Bill 80 was introduced by Senator Owen Hill (R – Colorado Springs)

This bill would allow all PERA employees the option to choose the PERA pension plan or the 401(k) style plan. Currently, State employees have this option. This bill would expand that option to all divisions.

Secure PERA opposes this bill. Retirement security for our employees is of the utmost importance and this bill erodes that security.

Read the entire bill here.

SB15 97 – Supplemental Needs Trust for PERA Benefits

UPDATE: The Governor has signed SB 97

Senate Bill 97 was introduced by Senator Aguilar (D – Denver) and Representative Landgraf (R – Fountain).

This bill fixes the law to protect dependents who are disabled from losing access to needs-based government benefits because of their designation as a beneficiary and protects those rights upon the death of the PERA recipient.

Secure PERA supports this bill.

Read the entire bill here.

HB14 1377 – Retirement Security Task Force

Update: The bill was lost on the Senate floor during Second Reading.

The Colorado Retirement Security Task Force bill creates a legislative task force that will make recommendations for increasing the number of Coloradans working in the private sector who have invested for their retirement and are enrolled in a retirement plan. The task force will analyze options to promote retirement security for Coloradans.

The bill specifies various areas of study for the task force, including, but not limited to:

  • existing barriers to retirement;
  • lack of access to employer-sponsored retirement plans;
  • the types of employer-sponsored retirement plans and individual retirement products currently offered in the state;
  • options that may include a defined contribution structure for retirement savings;
  • estimates of the average amount of retirement wealth state residents have upon retirement; and estimates of the average amount of retirement wealth recommended for a financially secure retirement in the state.

Appointed task force members must have sufficient financial and fiscal expertise. The state demographer will also be an ex officio member of the task force. The task force will also analyze any potential state savings in public assistance expenditures that a potential statewide secure retirement plan may provide. The task force will hold its first meeting by August 1, 2014, and will meet as necessary through December 2015. Members will serve without compensation or reimbursement. The task force will submit a final report and make recommendations for legislative action by December 1, 2015. The task force repeals on June 30, 2016. Legislative Department staff will provide support to the task force.

HB14 1201 – Changing the Highest Average Salary Calculation

Update: This bill was killed in committee

HB14 1201 is sponsored by Representative Kevin Priola (R-Henderson). He sponsored a nearly identical concept last year in HB13 1040. This bill would change the Highest Average Salary (HAS) calculation from three years to five years. Secure PERA opposes HB14 1201.

SB14 68 – Increase Retirement Age

Update: This bill was postponed indefinitely on February 5th by the Senate State Affairs Committee.

Senate Bill 68 is sponsored by Senator Kent Lambert (R-Colorado Springs) and Representative Kevin Priola (R- Henderson) Secure PERA opposes Senate Bill 68 and on January 17th the PERA board voted to oppose the bill as well. The bill changes the minimum age and service requirements for most members hired on or after December 31, 2016. Under current law, PERA members are eligible to retire with a full benefit if they have reached age 60 and the sum of their age and years of service is at least 90. Under the bill, in order to qualify for a full retirement benefit, all PERA members would need to be at least 65 years of age and have the sum of their age and years of service be at least 95. The bill does not affect service retirement requirements for state troopers.

New GASB Accounting Standards

The Governmental Accounting Standards Board (GASB) issued two new statements that will change the way a public retirement system like Colorado PERA discloses its pension information. All financial disclosures made by PERA are contained in the audited Comprehensive Annual Financial Report (CAFR) that is published every June.

Statement No. 67, Financial Reporting for Pension Plans, affects the financial statements in Colorado PERA’s CAFR. This new statement replaces the requirements of the existing Statement No.25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and is effective for fiscal years beginning after June 15, 2013. PERA will include these new requirements in the year-end 2014 CAFR.

Statement No. 68, Accounting and Financial Reporting for Pensions, affects the financial statements of Colorado PERA-affiliated employers. PERA is a cost-sharing multiple-employer defined benefit pension plan and serves as the retirement plan for more than 500 public employers in Colorado. Statement No. 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. This reporting requirement applies to Colorado PERA-affiliated employers and is effective for fiscal years beginning after June 15, 2014.

PERA has put together a website that explains the new GASB accounting standards in greater detail. Visit it by clicking here

Right-wing pension-cutters get humiliated by their own survey data

Right-wing pension-cutters get humiliated by their own survey data

TUESDAY, NOV 19, 2013 09:06 AM MST

Conservative ploy to slash public employee benefits runs into trouble when its own poll shows an unexpected reality

Late last month, the Pew Center on the States began ratcheting up its now-infamous campaign to slash public employee retirement benefits. As damaging stories about its partnership with former Enron trader John Arnold swirled through the media, the organization convened a two-day conference for politicians, lobbyists and activists at the swanky Mandarin Oriental Hotel in Washington, D.C.With pension-slashing politicians like San Jose Mayor Chuck Reed (D) rallying the troops, the event’s goal seemed obvious: to reinvigorate the Plot Against Pensions and gear up for yet another push for big retirement benefit cuts in the upcoming state legislative sessions. Yet, there was one big embarrassing problem: When the organization released its new poll at the conference in support of its pension-cutting agenda, the survey data showed that the American public is powerfully rejecting the right’s anti-public-worker crusade.Salon has obtained a copy of the results of the Pew-commissioned poll, which was jointly conducted by the Democratic-aligned Mellman Group and the GOP-aligned Public Opinion Strategies. You can review the full results of the survey here. The key findings include:
  • Though the anti-pension coalition has spent millions of dollars on ads and public campaigns to portray public employees as greedy parasites, the pollsters found that “voters have generally favorable views of public employees” and that those favorable views are found among voters of both political parties. Poll respondents gave teachers, police officers and state public employees net favorability ratings of 88, 86 and 60 percent, respectively.
  • Anti-pension activists have cited places like Detroit and California as proof that retirement benefits are too generous and unsustainable, even though average public employees in those locales make an annual $19,000 and $26,000 in retirement benefit, respectively. Pew’s poll shows that Americans are seeing through the anti-pension propaganda and appreciating the reality of those numbers. In all, 55 percent of poll respondents believe public pension benefits are currently about the right amount, or too small.
  • Pew and other anti-pension activists have claimed that a 30-year $1.3 trillion pension shortfall is a huge crisis, even though according to the Center for Economic and Policy Research the shortfall only represents about 0.2 percent of projected gross state GDP. Though modest adjustments may be required, the situation is hardly a crisis, especially with the shortfall being far less than the amount states, counties and towns are currently spending on corporate subsidies. Pew’s poll shows that the majority of Americans seem to understand the reality of the situation. In all, 50 percent of poll respondents said that public pensions face minor problems or no problems, while just 33 percent believe anti-pension activists who say public pensions are facing major problems.
  • Anti-pension activists (backed by Wall Street firms that stand to financially gain) have insisted that public pensions should be changed from defined benefit systems into defined-contribution plans like individually managed 401(k)-style accounts. Yet, Pew’s poll shows that in the eyes of taxpayers, traditional defined benefit plans for public employees are far superior to defined contribution plans. That makes sense as actuarial data prove defined-benefit systems are far more cost-effective for taxpayers and stable for retirees than 401(k)-style systems.
The overarching takeaway from these numbers is pretty straightforward: The political class’s assumptions about the politics of public employees, budgets and pensions are way off the mark. Indeed, as much as operatives, ideologues and moneymen may think it is great politics to demonize teachers, firefighters and police officers, and as much as they may think it is great politics to pretend radical cuts to retirement benefits are needed, Americans clearly aren’t buying that propaganda.Of course, that doesn’t mean the Plot Against Pensions won’t move forward. Between money from billionaires, cash from Wall Streeters looking to profit from pension conversions, and support from conservative activists who ideologically oppose the idea of guaranteed retirement income, the plot has vast resources behind it.Will those massive resources be able to manufacture a sea change in public opinion? Will they make Americans hate public employees and punish those employees by stripping them of the retirement benefits they were promised? It is certainly possible — but it looks like it is going to be a lot harder (and probably more expensive) to engineer such a scam than the anti-pension activists once thought.
David Sirota is a nationally syndicated newspaper columnist, magazine journalist and the best-selling author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future.”
E-mail him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.