Source: Jeff Hooke and John J Walters, Maryland Public Policy Institute and the Maryland Tax Education Foundation, Maryland Policy Report no. 2013-02, July 2, 2013
From the summary:
In this report, the Maryland Public Policy Institute and the Maryland Tax Education Foundation examine the investment fees and investment performance of Maryland’s state pension fund. We compare and contrast these items to those of other state pension funds. A similar report was prepared in 2012.
State pension funds, including Maryland, have succumbed for years to a popular Wall Street sales pitch: “active money management beats the market.” As a result, almost all state pension funds use outside managers to select, buy and sell investments for the pension funds for a fee. The actual result — a typical Wall Street manager underperforms relative to passive indexing — is costly to both taxpayers and public sector employees.
Wall Street Management Fees PR
Exhibit A. Pension Fees All Data
Exhibit B. Pension Fees All Data Largest 35 State Funds.June 30| 2012
Exhibit C. Inv Exp| Fees|Rate of Return| 35 States End 063012
Exhibit D. Top Bottom Ten States by Fees
Exhibit E. ROR of Composite Index Portfolio
For Pension Funds, Higher Fees Don’t Mean Higher Returns, Study Finds
Source: Melissa Maynard, Stateline.org, July 2, 2013
State workers are a large and diverse group. Some build roads, while others help protect children from abuse and neglect. Some inspect restaurants, while others collect taxes. The Average state employee is better educated than the average private sector employee, and important factor to consider when looking at salary data from the Bureau of Labor Statistics Quarterly Census of Employment & Wages. Still, the newly released data provide an intertesting glimples at how salaries for both public and private sector workers are recovering from the recession. State employee salaries are growing dramatically different speeds, incomparison to both their [eers in other states and private sector workers in their own states.
Source: Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Madeline Medenica, State and Local Pension Plans, SLP#32, July 2013
The brief’s key findings are:
– During 2012, using current GASB standards, the funded status of public plans declined slightly from 75 percent to 73 percent.
– This decline reflected slow asset growth, which was only partly mitigated by reduced liability growth.
– States and localities also continued to fall short on their annual required contribution payments.
– Going forward, the funded ratio is projected to gradually move above 80 percent, assuming a healthy stock market.
Source: Craig Pettibone, Public Manager, Vol. 42 no. 2, Summer 2013
The 21st century workforce consists of highly specialized knowledge workers who work for many different employers over the course of a career. The debate over federal compensation continues, particularly as it relates to salaries in government and the private sector. Furloughs as part of sequestration have magnified the issue. As reported in winter 2012 edition of The Public Manager, the Coalition for Effective Change (CEC) is exploring the issue through a series of panel discussions. In November, CEC’s second panel of experts tackled fundamental reform to the federal General Schedule system (GS). If the GS does need reform, how would that happen and what would a new system look like? …
Source: Richard E. Biddle and Daniel A. Biddle, Public Personnel Management, Vol. 42 no. 2, June 2013
From the abstract:
In June 2009, the Ricci v. DeStefano case was decided by five of the nine U.S. Supreme Court judges. This case impacts public-sector employers by expanding on the rule called a “strong basis in evidence.” Under this rule, a public-sector employer cannot engage in certain activities for the asserted purpose of avoiding or remedying unintentional disparate impact, unless the employer has a “strong basis in evidence” to believe it will be subject to disparate-impact liability. The evidence for this rule must be in place before a public-sector employer takes a race-conscious action to minimize adverse impact. This article critically evaluates the test validity discussion that occurred in the Ricci case; addresses topics relevant to the new rule not covered by the decision, such as the cutoff used, weights used, differentiating requirements of the rank-ordered list, and the rule of three; and describes guidelines for conducting a particular kind of study in an employment context, called a Croson Study, that can be used to gather a “strong basis in evidence.” This article identifies circumstances under which a Croson Study is needed, and how to do it that will allow public-sector employers to evaluate whether they may be justified—using the Supreme Court’s “strong-basis-in-evidence” rule—to institute race-conscious remedies under Title VII.
Source: Center for Effective Government, June 18, 2013
…Although the private sector is recovering, recent government policies have not been helping. The jobs situation would be substantially better if local, state, and federal governments were not cutting their payrolls. Since the start of the recession, about 528,000 government jobs have been eliminated, and a smaller percentage of the employed workforce works in government. The public sector added some jobs during the official period of the recession, but cut back more steeply since it technically ended. “Since the recovery began in June 2009, the public sector has lost nearly three-quarters-of-a-million jobs (737,000),” the Economic Policy Institute’s Heidi Shierholz pointed out. “These losses are an enormous drain on the recovery.”
The crunch in the public sector job market is exacerbating the substantial employment needs in the U.S. that are not being met. There are 11.8 million unemployed people; some 4.4 million (37 percent) have been searching for work for more than six months. Some 7.9 million are “involuntary part-time workers” – meaning they work part-time but want full-time work – and 780,000 have stopped searching for work altogether; these people are not counted in the official 7.6 percent unemployment rate….
…There is a legitimate debate about the best way government can create jobs – whether indirectly through greater spending on infrastructure and other investments that increase private sector hiring or through direct public sector hiring (school teachers, clean-up crews, etc.) – but in the last few years, the nation has not been having that debate. Instead, austerity-oriented politicians have been entirely focused on cutting down the size of government and immediate deficit reduction….While the economy has begun to slowly recover in the private sector, reductions in public sector spending over the last three years have held back growth and allowed unemployment to remain unconscionably high. The conversation should change. One of the best things we could do to reverse course is to end the slash-and-burn approach to government so prevalent since 2010….
Source: Monique Morrissey, Economic Policy Institute, Briefing Paper #363, June 20, 2013
From the summary:
…This briefing paper provides an overview of the cuts to Rhode Island’s pension system since 2005. It begins by analyzing the cumulative effects on DB benefits of these cuts. It then examines ERSRI’s normal cost and unfunded liability, as well as benefit levels, prior to the cuts. Following this, the paper analyzes the changes ushered in by the first rounds of cuts (those in 2005, 2009, and 2010) and by RIRSA (which took effect in 2011). This narrative description of the changes since 2005 is followed by a timeline of the changes, which includes conservative estimates of the impact of successive cuts on benefits (see Appendix B for methodological details).
Principal findings include:
• Rhode Island was slower than most other states to fund its pension system. As a result, the Employees’ Retirement System of Rhode Island (ERSRI) had a shortfall even at the peak of the dot-com bubble, despite providing relatively modest benefits. Indeed, workers—many not covered by Social Security—contributed more toward these benefits than their counterparts in other states.
• While workers shouldered most of the cost of current benefits, employers failed to pay even their full (smaller) share, leaving ERSRI among the most underfunded plans in the country.
• Between 2005 and 2010, three rounds of cuts reduced pension benefits for a prototypical 30-year employee by 23 percent. Despite these cuts, the plan’s funded ratio declined further as a result of the 2008 stock market downturn.
• The funded ratio was further reduced by changes in accounting assumptions in 2010 that appeared timed to justify draconian changes to the system.
• The Rhode Island Retirement Security Act of 2011 (RIRSA) slashed defined-benefit pension benefits by roughly half (less for short-tenure workers, more for long-tenure workers) and introduced a supplemental defined contribution plan.
o This hybrid plan costs taxpayers more than the old system despite providing a less valuable and less secure benefit to workers.
o When taking into account the supplemental defined contribution plan, a prototypical 30-year worker would experience a cumulative 34 percent reduction in benefits between 2005 and 2012, with a quarter of 30-year workers experiencing cuts of 40 percent or more, depending on investment returns.
o The savings from RIRSA come not from switching to a hybrid system, but rather from cutting accrued benefits—a move that is being challenged in court.
Source: United States Conference of Mayors, Volume II, June 2013
…This report, the fourth in the Conference’s series on city pension systems,… describes efforts undertaken in 19 cities of all sizes to reform unsustainable pension plans in which they are participants or which they administer for themselves. It builds on the report published by the Conference of Mayors in June 2012 which described responses being made to pension problems in 16 cities. Across the cities in that report, actions taken on pension problems included:
• increasing annual pension contributions for both cities and employees;
• eliminating benefit increases for current employees and offering fewer benefits for new employees;
• offering new employees defined contribution, not defined benefit, programs;
• lowering or deferring cost of living adjustments for both current employees and retirees;
• lowering benefit multipliers and benefit accrual rates;
• increasing retirement age and service requirements;
• increasing years of service used to determine final average salary for benefit determination; and
• modifying medical options and benefits offered.
The cities in this year’s report, as a group, describe approaches to pension problems that apply, in various ways, these same cost-cutting reforms…
In the majority of these cities, some or all public employees are enrolled in state-administered pension plans, and their reports reflect the fact that, while their ability to motivate and shape reform within these plans may be limited, they have been actively engaged in efforts to do just that. The individual city reports which follow were drafted by officials in the cities submitting them to the Conference of Mayors. They were edited for internal report consistency only; content and tone of the individual reports were not altered in this process. Following at the end of this report are brief summaries of the new public pension financial reporting standards developed by the Governmental Accounting Standards Board, and the new Moody’s Investor Service approach to adjusting public pension assets and liabilities for use in the firm’s independent credit analysis….
Source: Dara Zeehandelaar and Amber M. Winkler, Fordham Institute, June 2013
From the summary:
When it comes to pension reform in the education realm, it’s hard to stay positive. Here, we’re saddled with a bona fide fiscal calamity (up to a trillion dollars in unfunded liabilities by some counts), and no consensus about how to rectify the situation. No matter how one slices and dices this problem, somebody ends up paying in ways they won’t like and perhaps shouldn’t have to bear. All we can say is that some options are less bad than others. In The Big Squeeze: Retirement Costs and School-District Budgets, we analyze and project how big an impact the pension and retiree health care obligations will have on the budgets of three school districts: Milwaukee Public Schools, Cleveland Metropolitan School District, and the School District of Pennsylvania. The Big Squeeze: Retirement Costs and School-District Budgets is a summary report by Dara Zeehandelaar and Amber M. Winkler, based on three technical analyses performed by Robert Costrell and Larry Maloney to be released by the end of Summer 2013.
Source: Thomas L. Gais, Paul J. Yakoboski, TIAA-CREF Institute and the Rockefeller Institute of Government, June 2013
From the press release:
A report released today by the TIAA-CREF Institute and the Rockefeller Institute of Government shares expert considerations for public sector pension reform. The new report —- Public Sector Pension Reform: Addressing Pressing Fiscal Realities from a Long-Term Perspective —- is a culmination of insights and experiences from state and local officials and researchers from across the nation
that highlights the issues and considerations impacting public sector pension reform….
The report highlights several key considerations for public pension reform, including:
• Pension reform should evaluate individual defined benefit and defined contribution plan elements and consider hybrid arrangements of both plan designs that leverage complementary characteristics of each;
• Pension reform must take into consideration changing lifestyle and workforce patterns and should be designed to enable the public sector to compete with private employers for top talent;
• Plan reform must consider both short-term fiscal challenges as well as long-term human resource trends and objectives. While underfunding issues must be addressed on a state-by-state basis, reform also needs to be considered from a national perspective.