Source: Don Heilman, IPMA-HR News, Vol. 78 no. 1, January 2012
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Governmental employers are faced with many challenges in managing benefits in today’s environment. Among those challenges: static/decreasing revenues, increasing costs, future/unfunded liabilities, workforce planning and health care reform–not to mention increasing public scrutiny….[T]he benefits configuration creating many of the challenges is most valued by the baby boomers that are both contributing to the costs and who are entering their retirement phase. These employees in turn will be replaced with an employee population with a different level of expectations and values elated to benefits, and for that matter, total compensation.
Source: Katie Lee and Brian Kleiner, Public Personnel Management, Vol. 40 no. 4, Winter 2011
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“Blowing the whistle” has never been an easy decision whether an employee is from the private sector of the public sector. Laws to protect employees from the private sector had long been established while whistleblowers from the public sector may have been scrutinized. After the media aired many high profile cases in which federal whistleblowers go through a series of retaliations by their supervisors, laws have been introduced to protect government whistleblowers as well. Although these laws have significantly given courage to whistleblowers, it is not without its flaws. There are still agencies that ignore these laws or find ways around these laws in order to cover up some of their own mistakes. The government must continue to find ways to encourage more people to step up and expose wrongdoings for the good of society.
Source: Lynna Soller and Steve Burrows, American City and County, Vol. 127 no. 1, January 2012
For many years, Tempe, Ariz., provided active and retired employees — about 2,450 individuals — with a generous health plan at little or no cost. But recently, the city faced up to a hard reality: that plan simply was not sustainable.
Tempe officials had to figure out how to make good on retiree medical benefit promises in a sluggish economy marked by staggering deficits, relentless health care inflation and growing numbers of retirees. It was a huge challenge to design a plan that would stem the fiscal bleeding, be fair to all parties and that could be communicated in a clear, concise way. We had our ups and downs along the way. In the end, however, by working with retirees and unions, we achieved a consensus and achieved a long-term solution.
Here are seven lessons we learned that may be instructive to other cities and counties contemplating reform of their retiree benefits plans:
Source: Debra Brubaker Burns, Hastings Constitutional Law Quarterly, Fall 2011
Faced with the most severe budget crises since the Great Depression, many state officials and lawmakers within the United States are desperately trying to pay their bills and balance their budgets. More than a few economists, reporters, academicians, lawyers, and politicians are arguing about legal solutions for pension liabilities that are too big to pay, including possible federal bailouts for states that are deemed “too big to fail.”
States choosing to default on or repudiate any public-pension obligation would face significant legal challenges to any action that impaired those pensions. Beyond the protections of the Constitution’s Contract Clause, state constitutional and statutory laws often provide additional legal protections against unilateral reduction of pension benefits.
This note analyzes two proposed solutions to the states’ expanding pension liabilities. The first is tax-exempt and conditional pension obligation bonds. The second is a newly instituted bankruptcy code for states. Because courts have recognized Congress’s broad discretion in its spending, conditional debt obligations for state pensions would likely survive a constitutional challenge. Bankruptcy for states, however, would face many more legal, practical, and political challenges. Arguably the Bankruptcy Clause of the Constitution is worded broadly enough to allow voluntary bankruptcy for states, and would preempt contradictory state law under the Supremacy Clause. Yet, even if Congress were to establish a new chapter of bankruptcy for states and the Supreme Court found it constitutional, states may in the end determine that on a practical level declaring bankruptcy creates more social, political, and other economic problems than it solves.
Source: Nancy Mohan, Zhang Ting, Upjohn Institute Working Paper No. 12-179, November 18, 2011
From the abstract:
This paper investigates the determinants of public pension plan risk-taking behavior using the percentage of total plan assets invested in the equity markets and the pension asset beta as measures of investment risk. We find that government accounting standards strongly affect public fund investment risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and beta. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing financial constraints allocate more assets to equity and have higher pension asset betas. There also appears to be a herding effect in that a change in CalPERS portfolio beta or equity allocation is mimicked by other pension funds. Finally, the results offer mild support of a public union effect.
Source: David Madland, Nick Bunker, Center for American Progress, February 2012
From the summary:
Because many states’ public-employee pension plans are currently underfunded–meaning that current assets are less than promised retirement benefits–proposals to drastically reshape public-sector pensions or eliminate them in favor of 401(k)-style retirement plans are expected to once again be introduced this coming year in statehouses across the country. While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely.
Source: Dave Senf, Minnesota Department of Employment and Economic Development, Minnesota Economic Trends, December 2011
From the summary:
Are public sector employees overpaid or underpaid? A newly published article, “Debating Public vs. Private,” in Minnesota Economic Trends, takes a look at the issue. The analysis includes a list of public sector compensation studies; some of the studies found public sector workers to be underpaid and some found public sector workers to be overpaid. The article also compares the standard sources of state and local employment data in a chart and analyzes why the numbers vary.
Just how many public employees are there in Minnesota? The public sector is the second largest employer in Minnesota, but state and local government employment has decreased as a percentage of total employment in the last 35 years.
Source: Wisconsin Legislative Council, December 2011
This report compares significant features of major state and local public employee retirement systems in the United States. The report compares retirement benefits provided to general employees and teachers, rather than benefits applicable only to narrower categories of employees such as police, firefighters, or elected officials. Generally, the report has been prepared every two years since 1982 by the Wisconsin Retirement Research Committee staff or the Legislative Council staff.
Source: Bruce J. Perlman, State and Local Government Review, Vol. 43 no. 3, December 2011
From the abstract:
This article introduces the Governance Matters essays for this issue. It discusses the Great Recession and its effects on Labor Relations and Collective Bargaining and the effects of these on compensation practices in State and Local Governments. The Great Recession is an enduring event in American government and politics. It has had marked impact on the structure and operations of State and Local government especially on budgets. Given, the large proportion of state and local government budgets devoted to compensation the Great Recession’s economic and political effects may be greatest there. This article asks of the essays, whether changes in labor relations and collective bargaining due to the Great Recession are changing the rules for government compensation practices at the state and local level in the U.S. It concludes that they are, but the durability of these rule changes and the political impact is yet to be determined.
Source: Thom Reilly and Mark B. Reed, State and Local Government Review, Vol. 43 no. 3, December 2011
From the abstract:
The purpose of this study was to examine how local governments are responding to budget shortfalls and to explore how compensation practices across the United States are correlated to changes in service delivery. One hundred thirty-four of the largest cities and counties responded to a mail survey, for a response rate of 45 percent. A large percentage (95 percent) of local governments reported experiencing budget shortfalls. In response, local governments are reducing their workforces, laying employees off and/or utilizing reserves rather than raising taxes and/or scaling back wages and benefits. Type of government (county or city) and collective bargaining were associated with budget shortfalls. Despite the fiscal distress of governments, average cost of living increases were between 2 and 3 percent for each of the two years surveyed and nearly half of respondents reported increases in employee benefits (fewer than 10 percent reported any decreases). Collective bargaining was significantly associated with higher increases in benefits, increased cost-of-living adjustments, and responses to budget shortfalls.