Public works professionals are finally receiving raises. Yet many say the increases don’t make up for paychecks weakened by multiyear salary freezes and rising benefits costs.
From the summary:
This 2016 report of state and local government pension funding finds that most public pension plans have shown modest improvement in their funded status.
– The funded status of public pensions has increased from 73 percent in 2014 to 74 percent in 2015;
– One reason for the improvement is that plan sponsors paid a greater share of their Actuarially Determined Employer Contribution (ADEC), even though that contribution has increased as a percentage of payroll;
– Employers paid 91 percent of their required contribution in 2015 compared with 86 percent in 2014;
– The growth in the rate of pension liabilities remains low, reflecting benefit cutbacks that have been made in recent years; and
– While most pension plans are making slow, steady progress and 38 percent are more than 80 percent funded, 20 percent of the plans are under 60 percent funded.
An unexpected alignment of factors has made now a very good time for pension funds to insource some or more of their investment portfolios.
The combination of a low-return environment for the foreseeable future, far closer — and often more public — scrutiny of money manager fees and a need to better control investments is fueling interest in bringing assets in-house for the first time for some plans and expanding internal management for experienced investment departments. ….
….The average cost of internal management is eight basis points compared with 46 basis points for external management, according to the most recent survey of large pension funds by CEM Benchmarking Inc.
The dollars saved by pension plans experienced at insourcing investment management are substantial, pension fund officials said.
– State of Wisconsin Investment Board, Madison, which manages the $91 billion Wisconsin Retirement System, for example, saved $63 million in external fees in 2015. SWIB gradually has increased the proportion of insourced assets to 59% of total assets in 2015 from 51% in 2011.
– Michigan Department of Treasury, Bureau of Investments, which manages the $60 billion Michigan Retirement Systems, East Lansing, saves a net $20 million to $30 million per year through managing 35% of the total portfolio internally.
– Employees Retirement System of Texas, Austin, pays fewer than 10 basis points for investment management and administration of the $25 billion pension fund, with the cost of internally managed assets four times less than external manager fees. About 60% of ERS’ assets are managed internally.
– Michigan MERS runs its entire investment division at a cost of 1.5 basis points per year, including the 20% of assets that are managed internally. External manager costs averaged 35 basis points in 2014…..
From the introduction:
Although states have a history of making adjustments to their workforce retirement programs, changes to public pension plan design and financing have never been more numerous or significant than in the years following the Great Recession. The global stock market crash sharply reduced state and local pension fund asset values, from $3.2 trillion at the end of 2007 to $2.1 trillion in March 2009, and due to this loss, pension costs increased. These higher costs hit state and local governments right as the economic recession began to severely lower their revenues. These events played a major role in prompting changes to public pension plans and financing that were unprecedented in number, scope and magnitude.
The Annual Survey of Public Pensions provides a comprehensive look at the financial activity of the nation’s state and locally administered defined benefit pension systems, including cash and investment holdings, receipts, payments, pension obligations and membership information. Statistics are available at the national level and for individual states.
Total contributions were $180.2 billion in 2015, increasing 7.9 percent from $167.0 billion in 2014. Government contributions accounted for the bulk of them ($131.7 billion in 2015, increasing 8.3 percent from $121.5 billion in 2014), with employee contributions at $48.5 billion in 2015, climbing 6.5 percent from $45.5 billion in 2014. The other component of total revenue ─ earnings on investments ─ declined 68.4 percent, from $534.4 billion in 2014 to $168.7 billion in 2015. Earnings on investments include both realized and unrealized gains, and therefore reflect market fluctuations.
The total number of beneficiaries increased 4.3 percent to 10.0 million people in 2015 (from 9,559,956 people in 2014 to 9,971,726 in 2015). The payments they received rose 5.1 percent from $272.5 billion in 2014 to $286.5 billion in 2015.
Meanwhile, total assets increased 3.0 percent, from $3.7 trillion in 2014 to $3.8 trillion in 2015.
From the abstract:
Labor laws in twenty-two states permit government employers to compel all employees to pay “fair share fees” to support a union’s collective bargaining activities, even if the union advocates policies to which some workers are ideologically opposed. Thousands of collective bargaining agreements include provisions to this effect, and hundreds of thousands of objecting workers are forced to pay such fees each year.
At its core, this practice implicates a significant tension between two important principles: the First Amendment’s objective of protecting individuals from compelled support of unwanted messages, and labor law’s concern with fostering the collective benefits of worker representation. When confronted with a challenge to fair share fees nearly forty years ago in Abood v. Detroit Board of Education, the Supreme Court held that labor law takes precedence, such that the First Amendment intrusions produced by fair share fees are constitutionally justified. Twice in the past four years, however, the Supreme Court has indicated that it is poised to reverse course and strike down fair share fee clauses under the First Amendment, overruling Abood in the process. And on the last day of the 2014 Term, the Court granted certiorari in a case presenting just that opportunity.
In this Article, I challenge the conventional wisdom that public sector union financing implicates an inevitable trade-off between First Amendment principles and labor law’s core objectives. There is a simple alternative to the fair share fee union financing model that would permit public employers to pursue their broad interests in effective workplace representation without sacrificing the individual expressive interests of objecting employees: In lieu of fair share fee clauses, government employers can negotiate provisions under which they reimburse a union for its collective bargaining costs directly. Such an approach would free objecting workers of the compulsion to support an objectionable message and ensure that unions have the financial security they need to zealously represent worker interests. Moreover, the government can implement this alternative in a cost-neutral fashion, reducing future wage raises or gratuitous benefits to offset the added costs of union reimbursement.
But this government-payer alternative is not just a theoretical solution to what has been widely understood as an intractable debate—it has doctrinal significance, too. For once identified, the government-payer workaround becomes part of the constitutional analysis itself. That is to say, under First Amendment doctrine, the government’s ability to reimburse a union for its bargaining costs directly is a less restrictive alternative that renders fair share fees unconstitutional by comparison.
This Article explores the theoretical and doctrinal consequences of the government-payer alternative to fair share fees. In doing so, it proposes an answer to a longstanding puzzle in the Court’s First Amendment jurisprudence regarding the proper standard of scrutiny for compelled fees—a puzzle that the Supreme Court has explicitly recognized yet left unresolved. The Article concludes by offering a few observations concerning the impact of the government-payer alternative for the future of public sector labor unions and the First Amendment more broadly.
Public pension funds provide benefits to nearly 10 million people, invest over $3.6 trillion in assets, and are deeply underfunded. A new Rockefeller Institute report and policy brief put a spotlight on how the methods that public retirement systems and governments use to fund pensions are affected by investment return volatility. The analysis concludes that a typical 75-percent funded public pension plan has a one in six chance of falling below 40-percent funded within the next 30 years, a crisis level currently faced by only a few major plans. The research brief and associated report are the beginning of a series from the Rockefeller Institute of Government’s Pension Simulation Project.
Source: Brian J. McKenna and Nancy K. McKenna Labor Law Journal, Spring 2016
On June 30, 2015, the United States Supreme Court granted the Petition for Writ of Certiorari in the case of Friedrichs v. California Teachers Association, the third constitutional challenge in the last three years to the legality of mandatory union dues imposed upon nonmember public-sector employees. This article will examine the primary issue raised in the Friedrichs case: whether the First Amendment permits a State to compel state employees to subsidize speech on matters of public concern by a union that they do not wish to join or support. This article will not address the second issue raised in the case involving the opt-out procedures utilized in California for nonmembers requesting a refund of nonchargeable expenditures. Mandatory union dues also known as fair-share fees, agency-shop provisions or the union security issue.
From the summary:
In calendar year 2013 (the most recent data available at the time of our review), of approximately 1.2 million permanent, non-Senior Executive Service (SES) employees at the 24 Chief Financial Officers (CFO) Act agencies, GAO found that about 71.4 percent (or about 836,900 employees) were rated using a 5-level performance appraisal system. This was followed by a 2-level pass/fail system (about 12.7 percent), 3-level system (about 9.4 percent), and 4-level system (about 6.2 percent).
As figure 1 shows, about 99 percent of all permanent, non-SES employees received a rating at or above “fully successful” in calendar year 2013. Of these about 61 percent were rated as either “outstanding” or “exceeds fully successful.”
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