Category Archives: Public Sector

Public Employee Unions and Pensions

Source: Posted on January 22, 2016 by Catherine Fisk and Brian Olney, OnLabor blog, January 22, 2016

Advocates of weakening public sector unions, both some who have filed briefs in the Friedrichs case and others who support anti-union legislation in Wisconsin and other states, assert that public sector unions contribute to state budget deficits and that public employee pensions are a main culprit. The truth is more complicated. Unionization doesn’t cause either budget deficits or unfunded pension liabilities. Bad governance does. Some unions may contribute to bad governance but they are not the sole cause, and unions can help solve the problem.

Although labor costs consume a relatively larger share of revenues in the public sector than in the private sector, studies show this is because government tends to provide more labor-intensive services, and also services that require a higher level of education and training (e.g., teachers and public health workers). Collective bargaining, in the states that allow it, is only one aspect of a complex web of law that, in every state, regulates compensation and working conditions for public employees. A bewildering array of state and local constitutional or charter provisions, statutes, and administrative rules specify pay, benefits, and pensions for government workers by job category. Elimination of collective bargaining will not eliminate the budget or pension funding deficits that exist. But it may eliminate the last defined benefit pension plans, which would be bad for workers and bad for the economy as a whole…..

GASB 68: How Will State Unfunded Pension Liabilities Affect Big Cities?

Source: Alicia H. Munnell, Jean-Pierre Aubry, Center for Retirement Research at Boston College, SLP#47, January 2016

From the key findings:
– New accounting provisions – GASB 68 – require localities in state cost-sharing plans to report their share of the plan’s unfunded liability on their books.
– This change severely increases the unfunded liabilities of the affected cities, though the states’ unfunded liabilities drop by a corresponding amount.
– The impact on our full sample of 173 cities is much more modest, because the 92 affected cities are small.
– The big question is whether cities with a portion of the state plan’s burden on their books have a greater interest in reducing the unfunded liabilities.

State and Local Government Unfunded Pension Liabilities Rise by $268 billion in the Third Quarter of 2015

Source: Donald J. Boyd and Yimeng Yin, Nelson A. Rockefeller Institute of Government, By the Numbers Brief, January 2016

Investment shortfalls in the July-September quarter of 2015 caused unfunded state and local government pension liabilities to increase by $268 billion, reaching $1.7 trillion, according to Federal Reserve Board data examined in a By the Numbers Brief of the Rockefeller Institute. The increase was a full 1.4 percent of the nation’s gross domestic product (GDP), bringing unfunded liabilities to 9.5 percent of GDP —- undoing about one and a half years of improvement. In the last 25 years, unfunded liabilities have increased by 1.4 percent or more of GDP in 13 quarters, while these liabilities have fallen by 1.4 percent or more in just two quarters. These issues are particularly important given the significant stock market declines since the start of the year, suggesting that further substantial increases in unfunded liabilities are likely.

Examining Inequities in Teacher Pension Benefits

Source: James V. Shuls, University of Missouri at Saint Louis – Department of Educational Leadership and Policy Studies, EDRE Working Paper No. 2016-02, December 1, 2015

From the abstract:
From funding to teacher quality, inequities exist between school districts. This paper adds to the literature on inequities by examining the impact of pension plan formulas on pension benefits. Using data from the salary schedules of 464 Missouri school districts, this paper analyzes how various final average salary calculations would impact the benefits of teachers in different districts. All of the schools in this analysis belong to Missouri’s Public Employee Retirement System, which is a defined-benefit pension plan. A teacher’s benefit in this plan is based on her years of experience and her final average salary. The system uses a three-year final average salary calculation. This captures salaries when they are most inequitable, at the end of the schedule. When more years of service are used in the final average salary calculation, inequities in benefits are reduced, but not eliminated.

Public-sector workers are paid less than their private-sector counterparts—and the penalty is larger in right-to-work states

Source: Jeffrey Keefe, Economic Policy Institute (EPI), Economic Snapshot, January 14, 2016

State and local government employees already earn less than similar private-sector workers. The wage and compensation gaps between public- and private-sector workers are significantly higher in right-to-work states, which allow “free-riders” to enjoy the benefits of collective bargaining without paying their fair share of fees to support the union’s ability to negotiate on their behalf. Friedrichs v. California Teachers Association could effectively render the entire public sector right to work, pushing down wages for workers in the public sector and beyond….

Can Public Pensions Be Saved? A Perspective From Oregon

Source: Ed Lamb, HR News, Vol. 81 no. 11, November 2015
(subscription required) (scroll down)

…Thomas spoke realistically about the need to alter how Oregon PERS gets funded because implementing cost-containment measures has already failed. One change he advocates has the potential to address criticisms nonparticipants have that beneficiaries enjoy retirement security solely at the expense of taxpayers…

Fiscal 2014 Pension Medians – US States

Source: John Lombardi, Timothy Blake, Jack Dorer, Emily Raimes, Nicholas Samuels, Marcia Van Wagner, Thomas Aaron, U.S. Public Finance, Sector In-Depth, January 15, 2016
(subscription required)

From the Pensions & Investments article:
Twenty-seven states saw a decline in pension fund liabilities in fiscal year 2014, boosted by strong investment returns, said a report from Moody’s Investors Service.

The median annualized return for the period ended June 30, 2014, was 16.1%.

Across all 50 states, however, adjusted net pension liabilities rose to an aggregate $1.3 trillion, as 23 states reported liability increases due in part to accounting changes or lagged reporting, which did not yet reflect 2014’s strong investment performance.

Looking at adjusted net pension liability as a proportion of government revenue, Moody’s found the median ratio dropped to 59% in fiscal year 2014 from 60% in 2013 thanks to state revenue growth. Illinois, Connecticut and Kentucky continued to report the highest ratios of pension liability to revenue at 297%, 213% and 185%, respectively. Nebraska, Wisconsin, New York and Tennessee continued to report the lowest liabilities-to-revenue ratios at 11%, 14%, 23% and 23%, respectively…..

The Supreme Court Case That Could Gut Public Sector Unions

Source: Elizabeth Bruenig, New Republic, January 11, 2016

A case going to oral arguments today will have implications far beyond that of free speech. ….

….At the core of the case are “agency fees,” sometimes called “fair share fees.” Agency fees work like this: Public sector unions are required to cover all employees in a given bargaining unit, whether the employees opt into union membership or not. Public sector employees (which include EMTs, firefighters, public school teachers, social workers, and more) thus pay agency fees to their respective unions even if they are not union members, because public sector unions work on behalf of everyone in their bargaining unit, not just union members.

Agency fees do not fund unions’ political activities, but rather strictly the costs of union grievance-handling, organizing, and collective bargaining. In the 1977 case Abood v. Detroit Board of Education, the Supreme Court upheld the right of public sector unions to extract agency fees from public sector workers, and found that agency fees do not violate employees’ freedom of speech, so long as they do not fund unions’ political activities.

But conservative Supreme Court Justice Samuel Alito has long signaled that he would attempt to overturn Abood given the chance. With Friedrichs, his moment may have arrived…..