Retirement Security

Three Alarms: Direct Privatization Threat to Public Employee Retirement Security

Rep. Mike Hawker, who proposed the plan, and other proponents say it could generate $60 million for the state this year. It calls for Alaska to sell up to $2 billion in bonds for its public employee fund and another $2 billion for its teacher fund.

Hawker says the state would likely pay less than 6 percent in interest on the borrowed money. In comparison, he says pension fund investments have returned 16 percent so far this year. Hawker, an accountant, says there is little risk of losing the money.

That assurance, however, did not convince Sen. Bert Stedman, co-chairman of the Senate Finance Committee, where the measure has been blocked. Stedman, who is a financial planner, says pension bonds may be an effective way to get the state out of its pension hole, but he favors a slower, more methodical approach.

Hawker says the measure, H.B. 13, was passed unanimously by the House and is widely backed outside the Legislature. Stedman said he expects to revisit the pension bond proposal next year, but Hawker warns the investment climate may not be so favorable by then.

Starting next year, Alaska school districts and municipalities will see huge spikes in what they have to pay into the state's retirement systems. The Alaska Retirement Management Board approved the increases in employer contributions to the Public Employees' Retirement System and the Teachers' Retirement System this week. The increases are meant to whittle away at the systems' $6.9 billion shortfall over the next 25 years.

The retirement board's decision to increase the rates comes about a year after Frank Murkowski, former governor, signed a law that created a retirement tier for new employees in which they could participate in a 401(k)-style defined-contribution system. Before last year, new employees were enrolled in a more traditional defined-benefit retirement system. The change was made by the Legislature as a much-disputed first step in plugging a growing unfunded liability in the two systems, but lawmakers were unable to pass any other legislation.

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The 24-member commission will study methods to address the current unfunded liabilities accrued by these individual retirement plans, including pension and health insurance benefits. Over the coming months, the commission will develop a plan to fulfill its retirement obligations to current retirees and employees while examining the appropriate level of benefits for future employees. The plan must be presented to the governor no later than Dec. 1, 2007.

A bill in the Kentucky Legislature, aimed at changing retirement benefits for future hires stalled in the state House. The deadlock focuses on the Senate plan to sell more than $800 million in bonds for the state retirement systems and to change the pension plan for future state workers. Under the Senate proposal, workers hired after July 1, 2008, would participate in a "hybrid" pension plan. The state would contribute a smaller amount than it does now to a traditional "defined-benefit" plan, while giving workers the option of participating in a 401(k)-type plan to which both employee and employer would contribute.

The House did not act on the proposal and the bill failed. However, House and Senate leaders have acknowledged that the unfunded liabilities must be addressed and the legislature is expected to act during 2008 legislative sessions.

In March, 2007, the Senate passed a plan to borrow $538 million to help fund the new retirement plan they intend to use to shore up the state pension program. The proposal would also borrow about $290 million for KTRS. The plan calls for a decrease in the defined benefits and add a voluntary defined contribution option for state workers. Rep. Derek Graham (D) argued that lower-paid workers would be unwilling or unable to contribute in such a manner.

In Februrary 2007, Gov. Fletcher recommended using $50 million from the state’s projected surplus to ease long-term financial problems in state retirement programs, with $25 million going to the KRS and an equal amount going to KTRS.

The change Carcieri suggests would be a major departure from the state employees' current defined-benefit pension plan, which guarantees a certain pension amount regardless of what happens to the economy.

The labor unions that represent state employees are balking already, citing the increased risk inherent in defined-contribution plans, in which employer and employee both contribute money, but benefits increase or shrink along with the stock market.

Carcieri's Pension Reform plans, which he has submitted to the General Assembly, would establish the minimum age for collecting a pension as 60 years with 30 years of service, or 65 with less than 30 years of service; a maximum pension of 75 percent of their final salary of 38 years; a recalculated cost-of-living adjustment based on the Consumer Price Index; and a pledge to use any unexpected savings over $30 million to assuage the system's unfunded liabilities.

Providence Mayor David N. Cicilline announced a plan to close the city's pension system to new workers and move them into a defined-contribution plan, such as the 401(k) accounts offered at many private companies. If approved, Providence would be the first Rhode Island municipality to close its pension system in favor of a defined-contribution system. Current retirees and employees would still receive their pension benefits. The city's retirement system has a $616-million unfunded liability, which represents the money needed to pay benefits to current and future retirees over the next several decades. The proposed pension reform would enroll new employees in a defined-contribution plan beginning in July 2007.

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House lawmakers originally considered a bill that would give state employees a choice between defined-benefit plans and defined-contribution (DC) plans. The original bill was withdrawn on Friday and replaced with a substitute bill that would only put two groups of employees (Department of Transportation and Department of Technology) in the new DC plan. The substitute bill passed the House and is now in the Senate.

The Utah public employees' pension fund has grown to more than $17 billion, or nearly double the size of the state's annual budget. More than 163,000 people either contribute to it or draw from it—schoolteachers, judges, police officers, county clerks and even lawmakers and ex-governors. Neither side can say for sure how the change will impact the current retirement system. A fiscal note on the bill, basically a cost-estimate for implementing it, suggests state agencies might have to come up with as much as $18.4 million to deal with the drain on the retirement fund. It used to be that roughly one-third of state employees who leave service within the four-year period required to become vested would give up their share of the government-funded retirement. But, if those shorter-term employees are allowed to take their contributions with them, it would mean the state would have to come up with money to fill the expected gaps.

In a 2007 General Session, a bill intended to modify the Utah State Retirement and Insurance Benefit Act was brought up, proposing that new hires as of July 1, 2007, be offered the option between a defined-contribution plan or a defined-benefit plan. The chief sponsor is Rep. John Dougall (R).

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Two Alarms: Significant Threat of Undermining Retirement Benefits

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On June 21, 2007, the Keith Richman-led California Foundation for Fiscal Responsibility filed a pension and health care ballot initiative that would apply a benefits cap to the defined-benefit plans offered to all new state, local government, school district, university and special district employees beginning July 1, 2009. The advisory board for the initiative includes Mike Arno (Arno Political Consultants) and Carl DeMaio (The Performance Institute).

CalPERS and CalSTRS generate a combined annual $21 billion in economic activity for California, according to a study by the Applied Research Center at the California State University, Sacramento. The review, sponsored by the $241.1 billion California Public Employees' Retirement System, Sacramento, shows that the impact the two plans have on the state exceeds that of the forestry and fishing industry and about equals the size of the hotel industry, according to a CalPERS news release.

California Gov. Arnold Schwarzenegger (R), who previously proposed a partial privatization of state public pension funds, created a commission on Dec. 28, 2006, to study how to meet future pension obligations. The 12-member commission—six to be appointed by the Republican governor, six by Democratic legislative leaders—will have one year to study the problem, determine the extent of unfunded liabilities and devise a plan.

Warning that runaway pension benefits could steal money earmarked for schools, police and roads, the California commission launched the first statewide effort to overhaul the employee pension system on March 9, 2007. California's retirement systems for state employees and teachers have a combined unfunded pension liability of about $49 billion for pensions and $70 billion for health benefits. Local governments and school districts are facing similar multibillion-dollar deficits. The Los Angeles Unified School District is facing a long-term liability of at least $10 billion for retiree health benefits alone. The commission is expected to consider a variety of proposals, including a proposal to raise the retirement age from 55 to 65 for state employees and from 50 to 55 for public safety employees. The commission plans to hold up to five public hearings statewide. It then will work on a report and analysis of the scope of the pension and health benefits problem and recommend solutions to the governor and legislature by Jan. 1.

A recent San Diego city report notes that traditional pension plans, like the city’s retirement fund, “operate effectively if they are administered properly and the managing entity diligently contributes to the plan.” There is little question, after federal investigations and a $20 million private inquiry, that the City of San Diego failed on both counts. A practice of underfunding, while granting benefit increases, has led to a deficit of at least $1.43 billion. That is one of the reasons a City Council committee began to consider options, offered by the city's independent budget analyst, to transform the pension fund. It is the second of two pension reports the analyst's office issued in October. The first explored strategies to pay off the debt, while noting that officials have moved slowly in tackling the problem. The Council's Rules Committee heard the first report in November. The other report examines alternatives to the current system of providing employees a specific sum upon their retirements, which is known as a defined-benefit plan.

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The only vocal opponents of pensions and compromise legislation are the outgoing Republican State Treasurer Coffman and Americans for Prosperity. Both call legislation a band-aid which will only delay solving “crisis," and say the PERA board must undergo more drastic reform by making board a majority of appointed, non-PERA members. Pension opponents can be expected to continue attacks on pensions and look for new opportunities to exploit.

Despite plans to close many schools, the Denver Public Schools (DPS) group has a massive pension fund shortfall that will deaden the effects. The fund, which was overfunded just 10 years ago, is now in a dire situation. The debt is $395 million and still ascending. In 2007-2008, DPS will funnel more than $80 million into the retirement plan out of a $723 million operating budget. Some are upset this money isn’t going to classrooms or to keep open schools.

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The market value of the state Employees' Retirement System's (ERS) assets climbed by more than a half-billion dollars in the final three months of 2006, helped by investments in smaller publicly traded companies and international companies. Callan Associates Inc., an adviser to the pension fund, said the 5.6 percent investment gain during the quarter brought the pension fund's total assets to $10.7 billion. That was an increase of nearly $511 million from the total at the end of September. While the ERS has been receiving healthy returns on its investments, and the fund has no problem paying retirees' current pensions, it is projected to face a shortfall in meeting its obligations to future retirees. That shortfall, known as an unfunded liability, rose 25 percent to $5.13 billion last year. Only 65 percent of its liability is funded, one of the lower percentages among state pension funds.

On Jan. 19, 2007, legislature was introduced to appropriate funds to reduce the unfunded liability of the ERS. On Jan. 22, it went to the House Committee on Public Labor and Employment. Disposition is still pending.

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The Illinois Retirement Security Initiative, which operates under the Center for Tax and Budget Accountability umbrella, says the state would be better off figuring out how to pay off the combined $40 billion funding gap in its five retirement systems. Jourlande Gabriel, who authored of the study, notes the deficit was not created by the current define-benefit systems, but rather by the state's failure to make adequate contributions.

According to the study, retirement benefits offered to Illinois public employees are around the national average. It also found administrative costs of defined-contribution programs are three to six times as high as those for traditional plans and estimated that could cost Illinois an extra $275 million to $610 million.

On July 6 2007, Gov. Blagojevich called the legislature back into session to address the states under funded pension systems. The House then rejected the governor's proposal to lease the state lottery—the proceeds of which would have gone to fund the state’s pension systems, by a vote of 78-6 with 11 members voting present. The Senate did not take up the governor’s proposal but instead passed a non-binding resolution that lawmakers should agree to "an immediate and significant infusion of funding" into state pension systems before wrapping up their legislative session. The governor's budget analyst estimates $827 million in anticipated revenue growth next year and $1.7 billion in spending pressures before any major program expansions are added to the mix. The $874 million gap does not include increases for school spending, Blagojevich's Illinois covered universal health insurance program (estimated to cost $2.1 billion), mass-transit funding or a capital program. The state's 2008 fiscal year began July 1. Lawmakers and the governor averted a government shutdown by passing a 30-day budget in June that will cover operations through the end of July. Given other competing economic objectives, its unlikely that the state will make its required contributions to the statewide pension systems—continuing years of under funding.

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The state House began taking action June 26 on a series of bills that would limit public employee health and retirement benefits, tax their pensions, limit school superintendent salaries and restrict school board elections to November. The bills are politically linked to Democrats' efforts to gain Republican votes for a tax increase to balance the state budget. Republican leaders have said they won't consider a tax hike without agreements to reduce the cost of public employees, including teachers. Gov. Jennifer Granholm (D) has insisted on a tax increase to go along with budget cuts and government reforms. The House Committee on Oversight and Investigations approved three bills that would make public employee pensions subject to the state income tax—they are now exempt—and prohibit retired state workers from collecting both pension benefits and a salary if they go back to work for the state. In April 2007, a concurrent resolution to ask the governor to require 53,000 state employees to both forgo their scheduled pay increase as well to contribute more to the cost of their fringe benefits.

Other bills in the committee to limit public employee benefits were discussed but no action has been taken yet.

State Rep. Brian Palmer continues to support converting the Michigan Public School Employees Retirement System into a defined-contribution (DC) plan. In 2005, Palmer introduced a bill offering DC plans to new hires. It never made it to the Senate. If there is no action taken by the end of the year, Palmer will have to reintroduce the bill.

On Jan. 25, 2006, Gov. Granholm unveiled a proposal to allow small business employees to invest in a state-run 401(k) program. There are more than 100 public defined-benefit (DB) plans in the state, with combined assets of more than $60 billion. Increasingly, these local- and county- level plans have been targeted for privatization (Wayne and Oakland counties, Ann Arbor, Livonia and Warren). The Michigan Office of Retirement Services administers four DB plans: one each for state employees, school employees, state troopers and judges. In 1997, the Legislature closed the state employees plan to new entrants. The current shortfall is $15 billion.

In June 2007, WILX-News reported that a plan to save Michigan millions of dollars was proposed. The plan calls for state employees to pay for 25 percent of their health care premiums. Rep. Lorence Wenke (R) believes the plan, which he proposed, can save the state "upwards of $400 million a year."

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The revelation was part of a much larger evaluation of retirement benefits for public employees that said they appear better funded than they really are. The auditor's office, for example, said funding-ratio calculations by statewide public pension plans don't take into account a $4 billion deficit in the Minnesota Postretirement Investment Fund used to pay benefits to retirees. Among other things, the office said the Legislature should fully fund it and require those plans' funding ratios to reflect the actual value.

The auditor's office also said Minnesota's seven local pension funds are underfunded by $748 million, with the St. Paul plan facing the greatest risk of serious future funding problems as it is funded at a lower rate than the others.

For St. Paul and Duluth, which has a $51 million deficit, the office recommended the Legislature change the postretirement benefit formula to disallow certain automatic increases during deficits. It also said lawmakers should consider replacing existing formulas with ones tied to inflation and increasing contributions to St. Paul's fund. The problem goes back to the 1970s and 1980s, when the state didn't contribute enough money to the plan, according to Phillip Kapler, executive director of the St. Paul Teachers' Retirement Fund Association.

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It is alleged the pension fund manipulated its records by immediately recording investment gains when the market was up but postponed the posting of losses when the market dropped. Health care cost contributions were recorded as pension fund contributions, while the state said it had excess assets that allowed it to direct pension contributions to other areas in need of financial aid, such as schools. Analysis shows no excess funds existed.

Questions regarding the amount that is actually in the pension fund are now being raised. Officials admit the fund is in a desperate state and is carrying a huge deficit. New Jersey’s Constitution prevents the state from reducing earned pension benefits. Thus, the only way out of the mire is to increase contributions. It is alleged New Jersey has diverted billions of dollars from the pension fund to other state needs for the past 15 years through transactions authorized by the Legislature and governors from both political parties.

Meanwhile, The New Jersey Education Association has sued the state for failing to make adequate contributions to the teachers’ pension fund. The case is scheduled for trial in May.

Leaders of the Communications Workers of America, representing 40,000 state employees, recently reached agreement with Gov. Jon Corzine over his second state budget. The agreement provides for 3 percent raises this July and next, and raises of 3.5 percent in 2009 and 2010. Employee pension-fund contributions will rise from the present rate of 5 percent of pay to 5.5 percent. In addition, the New Jersey Education Association has agreed that teachers and other school employees will contribute another half of 1 percent of pay into their pension fund, matching the 5.5 percent that state workers will be paying into theirs.

On Nov. 30, thousands of unionized state workers took to the streets at locations around the state to protest plans to trim their retirement and health benefits. They were protesting 41 recommendations from the Legislature's Joint Committee on Public Employee Benefits Reform, one of four special committees that studied ways to trim government spending and property taxes. The proposals include raising the retirement age from 60 to 62, adding co-payments for health coverage and rolling back pension benefits by about 9 percent for new employees.

After strong lobbying by state public employee unions, the FY 2007 budget included a $1.1 billion pension contribution, more than the past 10 years combined. In 1994, then-Republican Gov. Christie Whitman raided pensions to pay for a $1.2 billion tax cut for the wealthy. Whitman increased employees' contribution to the plan to 5 percent, and through a series of legal maneuvers, she and subsequent governors allowed the state to ride the stock market to cover its pension obligations, deferring payments into the plan. The state pension's director testified last fall that they had shortchanged the pension funds by $5.5 billion.

On July 25, 2007, The New York Times reported (Mary Williams Walsh) that New Jersey's retiree care funding would be around $58 billion short of what has been promised to the state's public workers. In addition, due to a decision in 1994 to terminate savings additions to the fund, the reserve funds that would help cover the cost are virtually empty.

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A Washington educational think tank says the Ohio State Teachers Retirement System is antiquated and will fail its retirees unless it switches to a defined-contribution or hybrid plan. Ohio says those conclusions are wrong, it won't consider making such a conversion and the study was conducted without any input from the state system. In its report, issued in late June, the Thomas B. Fordham Institute calls the $77 billion Ohio fund "a ticking time bomb" and cites multiple problems with the system. The institute claims that among the most harmful are the system's $20 billion unfunded liability, allowing teachers to draw a pension while continuing to work full-time and encouraging early retirement. The Thomas B. Fordham Institute says the only solution is to transition to a cash-balance or defined-contribution plan.

Ohio's pension systems face a $30 billion shortfall. The State Teachers Retirement System of Ohio estimates that at its current status, it would take 55 and a half years to become fully funded, according to a report sent to the Ohio Retirement Study Council. The fund could be 30 years from full funding by 2015 with no changes, but if it makes such administrative changes as increasing employer and employee contributions, it could get to the 30-year mark by 2009. The system had $56.4 billion in assets as of June 30, 2005.

The $9.3 billion School Employees Retirement System of Ohio (SERS) announced that its most recent annual actuarial valuation confirms existing contribution rates are sufficient to fund pension obligations while continuing to stay within the state's required 30-year funding period.

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"If this problem is left unaddressed, the systems will eventually require a cash infusion of staggering proportions to meet current payment obligations," Meacham writes. "This could result in the need for the state to raise taxes or dramatically reduce funding to vital state programs."

The state’s seven pension systems have combined assets of $16.2 billion. The seven have overall funding of 59.6 percent—well below the national average. According to Wilshire Associates data, the average public pension has about an 88 percent funding level.

The Republican-controlled state House of Representatives has authorized an interim study to determine the feasibility of changing the six public employee pension plans in the state from DB to DC. Interim Study 2006H-049, sponsored by Rep. Ken Miller, cites a combined $10.6 billion unfunded liability for the six state retirement systems as of June 30, 2005.

Democrats and Republicans unveiled competing solutions in May to the question of how to improve Oklahoma's teacher retirement system. House Democrats suggested putting $25 million a year into the system for the next two decades, increasing its fund size by $500 million. Interest earned from fund would make the fund fiscally viable. Senate and House Republicans said they would support a constitutional amendment that would redirect excess mineral income into the system. The extra income is now going to a fund with the Oklahoma Commissioners of the Land Office, which now exceeds $1 billion. Rep. Tad Jones, (R), said the money should be dedicated to the teacher retirement system until it is funded at a 90 percent level.

The system is currently funded at 49 percent, he said. Republicans also announced their support of S.B. 1894, which seeks to reform the teachers' system, as well as retirement funds for public employees and judges. Oklahoma's state pension systems are in a serious financial crisis with more than $10 billion in unfunded liabilities, according to a draft copy of an Oklahoma Pension Oversight Commission report. The state Teachers' Retirement System is in particularly bad shape with $7.1 billion in unfunded liabilities and a ratio of actuarial assets to actuarial liabilities of only 49.5 percent. It is the third worst-funded public pension system in the nation. Standard & Poor's recently ranked Oklahoma's pension funds 49 out of 50 states in percentage of unfunded liabilities. Only West Virginia fared worse.

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The reforms are: the revision of outdated life-expectancy tables used to set worker pensions, and the shifting of the "employee contribution," amounting to 6 percent of public employees' salaries, from workers' PERS accounts into 401(k)-style accounts.

The two reforms were part of a larger package passed in 2003 after PERS' long-term shortfall reached $17 billion. At the time, actuaries estimated the two reforms would shave $3.5 billion from that shortfall, saving taxpayers $1.6 billion by updating the life-expectancy tables and $1.9 billion by shifting the employee contribution. Circumstances have changed since then, so it's not known if the current price tags would be higher or lower, said Paul Cleary, PERS executive director.

Public employee unions filed suits in state and federal courts to overturn several of the 2003 reforms. They won a partial victory before the Oregon Supreme Court last year. The court nixed the freeze on cost-of-living adjustments for recent retirees and preserved workers' right to 8 percent annual increases in their accounts from investment earnings for those hired before 1996. Now the unions are trying to overturn two major surviving reforms in federal court, with two suits known as the Henderson and Robertson cases.

Pension bonds have worked well in Oregon, and the state has seen a projected $17 billion pension gap shrink to $6 billion through bond sales. But a state Supreme Court ruling in March invalidated other cost saving measures. Republicans hold a majority in the state House, while the Democrats hold the state Senate and governor's mansion.

In June 2007, a Multnomah County Circuit Judge barred the Public Employees Retirement System from trying to obtain payments from retirees from April 2000 through March 2004. In addition, they were told to return the payments they had already procured.

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The Virginia Retirement System, citing robust results from investments in private equity and real estate, said its return on investment for the fiscal year ended June 30 surpassed what it earned in fiscal 2005. The Richmond-based pension fund reported a 12.4 percent return for the year, slightly exceeding its 12 percent return a year earlier and its internal benchmark. However, the retirement system cautioned in a presentation to the General Assembly's Joint Legislative and Audit Review Commission last month that it expected more subdued results in coming years. It said in the presentation that it had lowered its assumed annual return on investment to 7.5 percent from the 8 percent it had been using.

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The alliance thinks some $62 million can come from a combination of pension underfunding; health care changes; a 4 percent increase in property taxes, the maximum allowed under state law; a bigger contribution from local hospitals to the county's General Assistance Medical Program; and other moves, said Jack Norman, an alliance spokesman.

Walker has sharply underfunded the pension system to balance his proposed budgets without tax increases, but he has been criticized for pushing off those costs with interest. For 2007, Walker is likely to revive a new version of a borrow-and-invest plan that would fully fund the pension system. The GMC likes the concept; the alliance says it could be part of a long-term solution. The County Board has balked at the idea in the past as too risky.  Last year, the county voted to put $27.4 million of the tax levy into the pension fund.

There is potential for a serious threat of conversion to a DB plan in Milwaukee County, where the County Executive is threatening to convert the system.

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One Alarm: Potential Threat Through Legislative Uncertainty or Funding Shortfall

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Nappier's office oversees some $23 billion in retirement assets in the state's six large pension plans, of which the $12 billion teachers' fund is the largest. Over the past three years, she says, the funds have delivered annual returns of more than 12 percent, which beats market benchmarks and the estimated actuarial return of 8.5 percent.

"The teachers' pension fund has a funding gap of more than $5 billion. The pension was only 60 percent funded as of 2004. That's compared to 83.5 percent on average for other states. Connecticut teachers are not part of the Social Security system, but they contribute 7.25 percent of their salaries to the retirement fund. The unions for Connecticut teachers continue to lobby for the state on this issue and they were successful in getting a commitment in the new budget for the legislature to meet 100 percent of its annual obligations for each of the next two years."

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"A funded status of 80 percent or greater represents a reasonably funded plan," Douglas Todd, senior actuary at McCready and Keene, the system's actuary, said in a statement on the report. "The fact that PERF's combined funded status is 96.8 percent means that the system may be considered to be very well funded."

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For more than a decade, legislators have worried about a gap between what the pension is collecting and the total, 30-year cost of benefits. Among the changes, employees will be eligible to collect a state pension after five years of service instead of ten. But they'll have to contribute six percent of their paychecks to their pensions instead of the current four percent.

The Kansas Legislature is examining the state retirement system and considering a recommendation (S.B. 281) that all new hires after July 1, 2007, will be placed in a defined-contribution plan. PERS system unfunded liability reached $4.74 billion in 2004. State is finding more money to contribute to the fund, and pension officials predict the shortfall will start contracting in 2020.

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The 2007 regular session of the Louisiana Legislature concluded June 28, yielding some results affecting TRSL. The TRSL Board can now grant a supplemental COLA of .5 percent for a maximum adjustment of 3 percent or to grant a 3 percent COLA payable from the employee experience account. In addition, legislation requiring public retirement system to adopt an investment policy of "constructive engagement" and to join a "terror-free index fund."

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Maryland's teachers and state employees will get better retirement pensions thanks to $120 million in improvements signed into law Tuesday. The pension bill allows people hired after 1998 to retire with 54 percent of their pre-retirement income, up from about 42 percent. The new law calls for the workers to contribute more money toward their retirement, from 2 percent to 5 percent over three years. It raises the multiplier, or the percentage of the average salary that is paid for each year of service, from 1.4 percent to 1.8 percent.

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As a trio of their former colleagues fight for higher pension payouts, lawmakers are pushing back with a series of proposals to stop future state retirees from padding their monthly paychecks. Lawmakers backing a pension overhaul say that recent high-profile controversies underline the need to keep officials from "gaming" the system. The state retirement board is scheduled to vote Feb. 22 on whether former state representatives Marie J. Parente, Susan W. Pope and Thomas N. George should be allowed to include perks such as parking spaces, office stipends and travel expenses as part of their income for the purpose of pension calculations. Pensions are based on an employee's age, years of service and salary during the three highest-earning years.

Concerned about the implications of the Bulger lawsuit, Treasurer Timothy P. Cahill has been working with Sens. Michael W. Morrissey, a Democrat from Quincy, and Robert A. Havern, a Democrat from Arlington, on legislation to narrowly define "compensation" as salary, not fringe benefits. Cahill said officials do not make pension contributions on their perks, as they do on their salaries, so they should not ask the pension system to pay them returns on money it never had a chance to invest. The state Supreme Judicial Court agreed, granting an increase in Bulger’s pension by $17,000.

The managers of local public pension funds are criticizing suggestions that the state's network of 106 retirement systems be combined to save taxpayers' money and provide better oversight. They would be folded into the state's largest pension fund, run by the State Treasurer and the Pension Reserves Investment Management Board, or PRIM, which has $41 billion in assets while the 104 other funds had about $15 billion combined. Already PRIT manages $2.5 billion from 70 of the smaller systems, including 28 that give PRIT all of their money to invest.

In July 2007, Massachusetts Gov. Deval Patrick signed a bill that will allow the state to seize the assets of municipal funds that are underperforming. The seizure does have an appeal process and as of July 27, 25 funds had been forced to hand over control to the state. The Pension Reserves Management Board gains control of seized funds.

A recent study conducted by the Government Efficiency and Accountability Review Committee led to 61 recommendations, reported TheState.com on Aug. 2, 2007. Among the recommendations, which targeted the State Budget and Control Board, were methods to reduce state employee health care costs, raising the time of service for new employees to receive full benefits, and making it easier for state agencies to pay for and receive services and materials from the State Budget and Control Board.

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Just a little more than a year ago, there was so much consternation over the state's pension system that a special session of the Legislature was called to deal with the problem, as well as the equally perplexing issue of school funding. Now state pensions are barely a blip on the radar screen. A $100 million blip, but one that, if the silence on the matter is any indication, scarcely bears mentioning. What a difference a year—and a nearly $1 billion surplus—makes. Last year, the state's pension system faced a long-term deficit of more than $1 billion. As with several other states, Montana's system took a hit from lower-than expected returns on investments. The state was also feeling the pinch from increases in benefits it had made during years when coffers were flush with cash. The Legislature was told it could face a lawsuit from public employees if the system wasn't fully funded. Last December's two-day special session provided a fix, albeit temporary, in the form of a $125 million infusion into the retirement system. That would keep the system actuarially sound for up to 20 years, said Sen. Joe Tropila (D), who chaired the State Administration and Veterans Affairs Interim Committee. Now, Gov. Brian Schweitzer is proposing another one; this time for $100 million. The second infusion would keep the system sound for nearly 30 years, Tropila said.

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On Aug. 20, 2006, the New York Times reported that New York City's pension actuary has prepared a little-noticed set of alternative calculations showing that the gap in the pension funds could be as wide as $49 billion. Every year since 1999, New York City has reported that it has all the money it needs to pay for the pensions that have been promised to city workers. Senior city officials vehemently dispute the suggestion that their pension funds are weaker than the official numbers claim and point out they are contributing more money to them every year.

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The right-wing group Commonwealth Foundation recently issued a highly questionable report, which found Pennsylvania taxpayers' costs to fund SERS and PSERS, assuming an annual investment return of 8.5 percent, will increase from $693 million in Fiscal Year 2005-2006 to an estimated cost of $4.742 billion in Fiscal Year 2015-2016 and $5.583 billion in Fiscal Year 2020-2021. The group called on legislators to move new employees into a defined-contribution system.

Pennsylvania officials, including Sen. Jane Orie and chairwoman of Pittsburgh’s state oversight board have stated they are trying to avoid sending financial assistance as the main method to help Pittsburgh’s struggling pension fund. Pittsburgh’s fund is about 45 percent funded, based on what will be needed to pay liabilities. Many other Pennsylvania towns and cities are experiencing similar problems, and the state doesn’t want to set a "horrible precedent."

Pennsylvania announced on Sept. 28, 2007, that they would change the health care benefits of 52,000 state retirees, with savings estimated at $94 million annually. The new plans affect those who retired before July 1, 2004, and places them on the same plan as employees hired after that date. Changes take place Feb. 1, 2008.

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In July, 2007, a report by the Government Efficiency and Accountability Review Committee (GEAR) offered recommendations to avoid deficits in relation the state's retirement plan. They were as follows:

1) Discontinue applying unused annual leave and sick leave to retirement benefit or length of service.
2) Use average of give most highly compensated years of service to determine average final compensation (ARC).
3) Return to 30 -ear length of service requirement for normal retirement.
4) Closely look at limiting inclusion to our state's defined-benefit retirement plan to current employees and only offering a defined-contribution plan in the future.

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Lawmakers will have to weigh the interests of public pension plans, retirees and taxpayers. The state's largest pension association staunchly opposes a quarterly reporting system being developed by the Texas Pension Review Board. The system is being proposed to flag potential problems with pensions so that the state can intervene before a collapse. Cities including Dallas and Houston have had to take on additional debt to address pension shortfalls. The committee's recommendations will be part of an interim report to be presented to House Speaker Tom Craddick by Jan. 1.

An actuary hired by the city of Fort Worth recommended that employees pay an extra 2 percent of their salaries, that the city kick in an extra 3 percent and that the city eliminate automatic cost-of-living increases for new hires. Houston's pension gap at one point was almost $2 billion, forcing the city to take on significant debt to cover the shortfall.

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Gov. Joe Manchin and lawmakers put nearly the entire projected surplus ($718 million) over the next two years toward paying off a $5 billion shortfall in the retirement fund. Lawmakers recently closed a DC retirement plan for teachers and re-opened a long closed defined benefit plan. In a March election on whether to accept the new DB plan, 61 percent voted to return to a DB plan and both Legislative thresholds were met.

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