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    Entries in pensions (47)

    Thursday
    Aug032017

    Pension Plans Had a Great Year, But Retirees Likely Won't Benefit From It

    One good investment year isn't enough to fix struggling systems' problems.
    BY  AUGUST 3, 2017
    A trader works on the floor of the New York Stock Exchange.
    A trader working on the floor of the New York Stock Exchange. (AP/Richard Drew)

    Public pension plans are reporting double-digit investment returns, and some are even finishing with record highs this year.

    The high earnings are due to a robust stock market and are welcome news after two straight years of below-average returns for most pension plans. But finance experts say the investment boost likely won’t translate into an equally impressive reduction in pension debt because of the increasing cost of pensions.

    "Government contributions tend to be insufficient to reduce unfunded liabilities -- even if the plans meet their target," says Tom Aaron, vice president and senior analyst at Moody's Investors Service.

    Pension plans rely heavily on investment earnings because annual payments from current employees and governments aren’t enough to cover yearly payouts to retirees. As it stands, roughly 80 cents on every dollar paid out to retirees comes from investment income.

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    Wednesday
    Jul192017

    States Get Creative on Pension Funding

    The latest plans in California and New Jersey have observers asking: creative solution or accounting gimmick?
    BY  JULY 19, 2017
    New Jersey Gov. Chris Christie
    Gov. Chris Christie has hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. (AP/Seth Wenig)
     

    Most states have enacted some type of reform over the past decade to shore up their pension funds for the future. But such changes have typically done little to make a dent in the liabilities that governments already have on the books.

    As those liabilities increase, states and localities are turning to more creative solutions to ease the burden.

    California and New Jersey are moving forward with plans that would boost respective pension assets, dramatically decrease unfunded liabilities and reduce payouts for the immediate future. But critics of the plans say the two states are doing nothing more than moving numbers around on paper.

    In New Jersey, the state is pledging its lottery -- which an outside analysis determined was valued at $13.5 billion -- as an asset to state pension funds. The action would reduce the pension system's $49 billion unfunded liability and improve its funded ratio from 45 percent to about 60 percent, according to State Treasurer Ford Scudder. The roughly $1 billion in annual lottery proceeds, which currently go to education and human services, among other programs, will now be divvied up among state pension funds. The largest share -- nearly 78 percent -- will go to the teachers' pension fund.

    Although unions grumbled about the plan, it passed with little public debate as lawmakers were preoccupied by budget negotiations. Gov. Chris Christie and Scudder have hailed the lottery legislation as a foolproof way to immediately boost the health of the pension fund. But others have been less enthusiastic about the plan.

    Municipal Market Analytics' Matt Fabian dubbed it an accounting scheme, noting it also places a roughly $970 million burden on New Jersey's general fund budget to pay for the programs formerly covered by the annual lottery proceeds. "We believe that, at best," Fabian wrote, "this transaction delays honestly confronting the pension liability problem."

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    Friday
    Jul072017

    The Week in Public Finance: Late Budgets, Illinois' First in Years and Risky Pension Investments

    BY  JULY 7, 2017
    New Jersey Gov. Chris Christie walks from the podium following a news conference about the government shutdown that had closed state parks and beaches to the public. (AP/Mel Evans)

    Better Late Than Never

    They may be late, but both Maine and New Jersey finally have budgets for fiscal 2018 after shutting down their respective governments for three days.

    Early Tuesday, New Jersey Gov. Chris Christie signed a $34.7 billion budget agreement and ended a shutdown. That same day, Maine’s shutdown wrapped up when Gov. Paul LePage signed a $7.1 billion budget. The deal eliminated a lodging tax increase opposed by LePage in exchange for allocating an additional $162 million to public education.

    Delaware also reached a budget deal early Sunday morning. Gov. John Carney signed a $4.1 billion budget that preserved funding for nonprofits, public health programs and schools by raising taxes on real estate transfers, tobacco and alcohol.

    The Takeaway: A whopping 11 states started their fiscal 2018 this month without a budget deal, an unusually high number that reflects the growing divisiveness of tax and fiscal policy. Be it dealing with budget deficits or juggling a demand to bring funding for services back to pre-recession levels, more and more of these conflicts are resulting in statehouse stalemates.

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    Friday
    Jun232017

    The Week in Public Finance: Bleak Pension Forecasts, Down on Stadium Debt and More

    BY  JUNE 23, 2017
    The 49ers stadium. (Flickr/Travis Wise)

    Pensions: Best Case, Worst Case

    In the best-case scenario, governments' pension costs will significantly increase over the next two years, concludes a new report by Moody's Investors Service. The report, which analyzes 56 state and local pension plans with liabilities totaling more than $778 billion, finds that under the best circumstances governments' pension bills would increase by 17 percent assuming investment returns totaling about 25 percent over three years.

    Meanwhile, total unfunded liabilities would remain relatively flat, shrinking by about 1 percent. The paltry progress is in part due to some major pension plans changing their accounting assumptions which have increased their reported liabilities.

    In the worst-case scenario, pension plan returns would continue to look a lot like they have in the past two years. That is, eking out a little more than a 2 percent return between 2016 and 2019. If that were the case, Moody's predicts unfunded liabilities could go up by nearly 60 percent and governments' bills would swell by roughly half.

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    Friday
    Jun022017

    The Week in Public Finance: Pension Reform in Texas, Fitch Lowers Expectations and Illinois Downgraded Again

    BY  JUNE 2, 2017 

    Even the Pension Deals are Big in Texas

    There has been a big break in Houston's and Dallas' pension crises over the past week: The Texas Legislature approved reforms that require all sides to pony up big.

    In Houston, the changes will cut the city’s $8 billion unfunded liability in half. Municipal and public safety unions agreed to $2.8 billion in benefits cuts. Meanwhile, Houston will issue $1 billion in pension bonds to boost the system’s balance. It will also stick to a payment plan -- that includes capping the city's future pension costs -- to pay off the remaining unfunded liability over 30 years.

    Similarly, Dallas’ police and fire workers will shoulder $1.4 billion in benefit cuts over the next 30 years and more than $1 billion in additional contributions from their pay. For its part, the city will be required to significantly boost its annual payments into the fund, starting with more than $150 million next year. Mayor Mike Rawlings will also get to pick six of the 11 trustees on the currently union-dominated pension board, whose poor investments contributed to more than $1 billion in losses.

    The Takeaway: The common theme to these reforms is shared sacrifice. While unions and officials are happy to have a plan in place, no one is pleased about what comes next. "This is not a time to high-five," Dallas Police Association Vice President Frederick Frazier told the Dallas Morning News. "This is a time to pull the boots up and get back to work."

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