Source: Tyler Bond, National Public Pension Coalition (NPPC), June 7, 2016
Puerto Rico and its debt crisis remain in the news as Congress considers legislation to help the island territory restructure and manage its debt. Puerto Rico’s pensioners remain trapped in this crisis as well. Just last week, a new audit of the territory’s pension system by KPMG found that the pension system there could run out of money next year. Puerto Rico’s retirees risk being cast into poverty if the pension system is not properly funded- a risk that becomes even greater if the territory is forced to repay vulture hedge funds rather than put needed funds into its depleted pension.
Puerto Rico’s debt crisis, its causes, and its consequences are all complicated and, as a result, there is a lot of confusion about what is happening there. While we’ve written about it before, let’s cover some of the basics:
Puerto Ricans are American citizens ….
The legislation Congress is considering is not a “bailout” ….
What’s happening in Puerto Rico is not going to happen in a state …..
Puerto Rico, Pensions, and Vulture Hedge Funds
Source: Tyler Bond, National Public Pension Coalition (NPPC), March 23, 2016
Source: Heidi Kitrosser, University of Minnesota – Twin Cities – School of Law, Minnesota Legal Studies Research Paper No. 16-14, May 4, 2016
From the abstract:
In this article, I use the 2014 decision of Lane v. Franks as a jumping off point to revisit the rule of Garcetti v. Ceballos, that speech conducted pursuant to one’s public employment is unprotected by the First Amendment. I explain that Garcetti is emblematic of the Supreme Court’s failure to dig beneath the surface of its own long-standing acknowledgment that public employee speech holds special value. If one tunnels into that subterrane, one finds that the value of public employee speech is a function not just of content, but of form. Public employees play a special role under the First Amendment by virtue of their privileged access both to information and to communication channels for conveying it. The special communication channels to which employees have access – including internal channels – can be uniquely effective in supporting accountability and the rule of law, and thus in fulfilling core free speech values.
I consider how a fuller conception of special value – as well as a more sharply defined government interest in limiting employee speech – ought to impact the doctrine of public employee speech. I propose that, where work product speech can confidently be identified, courts should consider whether employees were disciplined based on a genuine, not pretextual assessment of work product quality. Crucially, in cases where employees were hired to render independent professional judgments, disappointment with those judgments, not because they reflect low quality, but because they are politically or personally inconvenient for employers, should not be deemed quality-based assessments. Only disciplinary actions based on quality-based assessments should be exempt from further scrutiny. As a second-best, but perhaps more realistic near-term alternative, I also consider means to limit Garcetti’s reach.
Source: Amy Monahan, University of Minnesota – Twin Cities – School of Law, Minnesota Legal Studies Research Paper No. 16-17, May 9, 2016
From the abstract:
Cities and states around the country have promised their workers – most often teachers, police officers, and firefighters – retirement benefits, but have in many cases failed to set aside adequate assets to fund those benefits. Several of these plans are predicted to become insolvent within the next decade and innumerable additional plans appear headed for insolvency in the decade that follows. Once insolvency occurs, pension benefits due to retirees will either have to be paid out of the government’s cash on hand, or else will simply not be paid at all. Based on their current financial positions, most jurisdictions appear unable to fund pension benefits while maintaining essential governmental services, unless taxes are raised significantly. This article is the first to examine whether and to what extent retirees will have effective legal recourse to secure the payment of their pensions in the event of retirement plan insolvency – a critical issue not only for pensioners, but also for taxpayers. It concludes that law is unlikely to provide effective recourse for retirees due to the inability of courts to force legislatures to appropriate funds, raise taxes, or incur debt. As a result, even in cities and states with apparently iron-clad legal protection for pension benefits, pension fund insolvency leaves payment of benefits in doubt, with any solution resting solely with the legislative branch. Understanding that solving the public pension problem is a political problem, rather than one that can be easily addressed through law, is critical to moving forward toward a solution that is fair to both employees and taxpayers.
Source: Nadya Dich, Jenny Head, Naja Hulvej Rod, Journal of Epidemiology & Community Health, Online First, 23 May 2016
From the abstract:
Background: The present study tested the effects of becoming a caregiver combined with adverse working conditions on changes in health behaviours.
Methods: Participants were 5419 British civil servants from the Whitehall II cohort study who were not caregivers at baseline (phase 3, 1991–1994). Psychosocial work factors were assessed at baseline. Phase 4 questionnaire (1995–1996) was used to identify participants who became caregivers to an aged or disabled relative. Smoking, alcohol consumption and exercise were assessed at baseline and follow-up (phase 5, 1997–1999).
Results: Those who became caregivers were more likely to increase frequency of alcohol consumption, but only if they also reported low decision latitude at work (OR= 1.65, 95% CI 1.15 to 2.37 compared with non-caregivers with average decision latitude), or belonged to low occupational social class (OR=2.38, 95% CI 1.17 to 4.78 compared with non-caregivers of high occupational social class). Caregivers were more likely to quit smoking if job demands were low (OR=2.92; 95% CI 1.07 to 7.92 compared with non-caregivers with low job demands), or if social support at work was high (OR=2.99, 95% CI 1.01 to 8.86 compared with caregivers with average social support). There was no effect of caregiving on reducing exercise below recommended number of hours per week, or on drinking above recommended number of units per week, regardless of working conditions.
Conclusions: The findings underscore the importance of a well-balanced work environment as a resource for people exposed to increased family demands.
Source: Michael Cembalest, J.P. Morgan, Eye on the Market, May 19, 2016
As managers of ~$70 billion in municipal bonds across our asset management business (Q1 2016), we’re very focused on the total indebtedness of US states. New GASB rules have now standardized the reporting of municipal liabilities, so we’re taking this opportunity to update our assessment of how much it will cost states to service them. Total liabilities include bonds and obligations related to underfunded pensions and retiree healthcare benefits (referred to as “OPEB”, an acronym for Other Post-Employment Retirement Benefits). Pensions and OPEB are a big part of the debt picture: while US states have ~$500 billion of bonds supported by state tax collections and general revenues, they have another $1.0-$1.5 trillion of unfunded pension and OPEB liabilities, depending on rates used to discount them.
After analyzing 330 single-employer and multi-employer pension and OPEB plans, we created a single measure for each state. The chart shows the ratio of what states currently spend on bonds, pensions and OPEB as a percentage of their revenues (blue bars), and what they would be spending assuming a 6% return on plan assets, amortizing any unfunded pension and OPEB liabilities over 30 years (total bars). For multi-employer plans, we only include the state’s share of pension and OPEB liabilities since local entities are responsible for the rest.
Source: Center for State and Local Government Excellence, May 2016
From the summary:
For the third year in a row, state and local governments are reporting an increase in hiring. Pressure on benefits continues, with employees taking on greater shares of health care costs and contributions to pensions. As the rate of retirements accelerate, there is a greater sense of urgency about recruitment, retention, and succession planning.
The ‘Silver Tsunami’ Has Arrived in Government
Source: Mike Maciag, Governing, May 31, 2016
Significantly more state and local workers are retiring or quitting, according to a recent survey.
Source: Leah Levac and Yuriko Cowper-Smith, Canadian Research Institute for the Advancement of Women, April 25, 2016
From the abstract:
Leah Levac and Yuriko Cowper-Smith explore the causes, conditions and consequences of precarity in Canada’s public sector using a gendered, intersectional analysis.
Precarious work bears significant consequences for Canadian workers, and public sector workers are no exception. Privatization, outsourcing, contract and part-time work have replaced permanent, full-time work for many Canadians, causing precarious conditions – or precarity – that leaves workers vulnerable. When precarity occurs in the Public Service, its impacts can be particularly problematic for women.
Source: National Conference on Public Employee Retirement System, May 2016
Pension funds are the great stabilizers of our economy. When individual investors run for the door during market downturns, pension funds are there to stay. They are long-term investors and remain in the market for the long haul. This provides financial and economic stability that is needed for economic prosperity….. Pensioners keep receiving their pension check in good as well as bad economic times. While incomes from jobs and investments decline during bad economic times, pension checks provide an economic cushion and keep local economies afloat. Unfortunately, we have been steadily dismantling pensions and hence undermining this economic cushion, increasing economic volatility as a result. Prevailing pension reforms increase economic volatility in another way. They contribute to the formation and bursting of asset bubbles……
Source: Pew Charitable Trusts, May 2016
From the overview:
States’ OPEB liabilities decreased 10 percent, to $627 billion, between 2010 and 2013, after adjusting for inflation. This drop resulted from lower rates of growth in health care costs and changes states made to their OPEB funding policies and retiree health plan provisions.
State-funded ratios—representing the amount of assets states have set aside to fund their OPEB liabilities—increased from 5 percent in 2010 to 6 percent in 2013.7 However, this trend varied greatly among states—the funded ratio of eight states decreased, and Oregon increased its funded ratio by 25 percentage points.
States’ actual expenditures for OPEB totaled $18.4 billion in 2013, or 1.6 percent of state-generated revenue.(See “Glossary” box.) If states had instead set aside the amount suggested by actuaries to pay for OPEB liabilities, their total payments that year would have more than doubled to $48 billion—4 percent of state-generated revenue—and spending to fully fund OPEB obligations would have outpaced what states contributed to active state employee health premiums.
The states that automatically increased their retiree health insurance premium contribution when the total cost of the premium rose had higher OPEB liabilities relative to the size of their economies in 2013, while the states that paid a fixed amount toward retirees’ health insurance premiums had relatively lower OPEB liabilities.
States varied in how they modified retiree health plan provisions. For example, between 2000 and 2015, Idaho eliminated retiree health coverage for newly hired employees; at least five states stopped making any health premium contribution for certain retirees; and over a dozen states changed the minimum age or the number of state service years required for retirees to be eligible for health benefits.
35 states have implemented Medicare Advantage or Employer Group Waiver Plans to provide health or prescription drug benefit coverage for Medicare-eligible retirees since these options were authorized as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.8 These cost-saving programs provide states with financial subsidies from the federal Medicare program to provide Medicare plus wraparound benefits.9 (See “Glossary” box.)
This report, a first-of-its-kind effort, provides data on state OPEB liabilities—the cost in today’s dollars of benefits to be paid to current workers and retirees over future years—and funding trends and how they are affected by aspects of state retiree health plans. Researchers collected and analyzed updated OPEB financial data and trends since 2010, as well as 50-state data on the eligibility criteria for retiree health plans. (To convey more clear and consistent trends, we report 50-state OPEB data only since 2010, because many states were adjusting to newly implemented GASB reporting standards in 2008 and 2009.) They found that states’ strategies for addressing OPEB liabilities vary greatly and that the methods states choose to contribute to their retirees’ health insurance premiums substantially affect the size of their OPEB liabilities. Specifically, the researchers found:
As state policymakers address challenges in providing retiree health care, this report is intended to help them better understand how their spending, long-term liabilities, and criteria for premium contributions and coverage eligibility compare with those of other states.
Source: Liz Farmer, Governing, April 28, 2016
Bad press has blurred the fact that not all public pension plans are underfunded and overly generous.