Issue Memo - Temple University

Transcription

Issue Memo | Number 4 | June 2016
THE PROBLEM OF FUNDING PENSIONS: AN UPDATE
Center on Regional Politics
THE PROBLEM OF FUNDING PENSIONS:
AN UPDATE
Temple’s Center on Regional Politics published in June
2013 the report of a bipartisan public pension working
group that identified options for funding and reforming
public employee pensions in Pennsylvania (available on
the CORP website). A number of the ideas in the report
have been reflected in policy debates in the General
Assembly and in local governing bodies over the last three
years.These include the development of stacked hybrid
plans, repurposing existing revenue streams such as from
gaming or the Philadelphia sales tax to pay down pension
obligations, ending the use of state aid to fund municipal
pension administrative costs, and the consolidation
of municipal plans with low funding ratios into the
Pennsylvania Municipal Retirement System (PMRS).
The working group -- which included state and local
elected officials of both parties, pension and finance
experts, and representatives of business and labor -met over eight months to develop options. This report
is a compendium of actions taken or proposed in
Pennsylvania and other states and cities in the last several
years.
PENSION TRENDS
The cost of funding public pensions is undoubtedly
one of the largest financial issues impacting states
and cities today with a total unfunded liability over
$1 trillion.1 In Pennsylvania, the State Employees’
Retirement System (SERS) and the Public School
Employees’ Retirement System (PSERS) have a
combined liability of $53 billion. Philadelphia faces
$5.9 billion in unfunded liabilities.2 In Pittsburgh,
unfunded liability totaled $485 million as of January
1, 2013, producing a funded ratio of 58.2%, which
is in line with the ratios of SERS and PSERS and
significantly higher than Philadelphia’s (see Table
3). Municipalities across Pennsylvania, including
the two largest cities, have a combined liability of
nearly $8 billion.3 Pennsylvania has more than 25%
of the country’s pension plans, and only about 4%
of its population.4 Pension costs strain state and
1. The Pew Charitable Trusts. 2015. “The State Pensions Funding Gap: Challenges Persist.” July 14, accessed at http://www.pewtrusts.org/en/research-and-analysis/issuebriefs/2015/07/the-state-pensions-funding-gap-challenges-persist.
2.Vargas, Claudia. 2016. “Big pensions add to city’s retirement fund woes,” May 23, accessed at http://www.philly.com/philly/news/20160523_Big_pensions_add_to_
city_s_retirement_fund_woes.html.
3. Pennsylvania Department of the Auditor General. 2015. “Auditor General DePasquale Says Municipal Pension Task Force Recommendations Offer Realistic, Responsible Reforms.” June 30, accessed at http://www.paauditor.gov/press-releases/auditor-general-depasquale-says-municipal-pension-task-force-recommendations-offerrealistic-responsible-reforms.
4. Preveti, Emily and Lindsay Lazarski. 2015. “Mapping out Pennsylvania’s distressed municipal pension plans,” April 9, accessed at http://crossroads.newsworks.org/
index.php/keystone-crossroads/item/80274.
Temple University
Center on
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www.temple.edu/corp
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Regional
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local budgets and without increases in revenue, necessitate cuts to important services like education, safety,
and infrastructure investments.5
ABBREVIATIONS
Many pension reforms in states and cities across the
US have involved some combination of strategies to
reduce costs and liabilities, as well as increase revenues. These include:
1. Increasing employee contributions;
2. Reducing benefits for new members, and
sometimes current members, through changes
to retirement age and vesting period; final
average salary calculation term; reduction or
elimination of health benefits for retirees; measures against pension “spiking,” such as taking
overtime out of final salary calculation; and
freezing or dropping cost-of-living adjustments;
3. Changing plan structures, which include
shifts from defined-benefit (DB) to definedcontribution (DC) or hybrid plans;
ANPL - Adjusted Net Pension Liability*
COLA - Cost of Living Adjustment
DB - Defined-benefit
DC - Defined-contribution
DROP - Deferred Retirement Option Plan
MMO - Minimum Municipal Obligation
OPEBs - Other Post-Employment Benefits
PERC - Public Employee Retirement Commission
PMRS - Pennsylvania Municipal Retirement System
POB - Pension Obligation Bond
PSERS - Pennsylvania Public School Employees’
Retirement System
SERS - Pennsylvania State Employees’ Retirement
System
* as calculated by Moody’s using the market value of assets
LOCAL PENSION STRATEGIES
4. Raising taxes or creating new funding
streams for pension debt; and
Cities have attempted a variety of reforms in pension
plan structure and in some cases have also attempted
to raise taxes or secure other new revenues to fund
pension plan payments.
5. Selling assets or otherwise monetizing revenues to benefit pension funds.
The following is an overview of recent pension
changes proposed or passed in Philadelphia and other
Pennsylvania localities, as well as a selection of other
states’ and municipalities’ efforts to rein in the costs
of public pensions.
Since CORP’s 2013 report was issued, Philadelphia’s
unfunded liability has increased from $5.1 to $5.9
billion due to a variety of factors, primarily due to the
pension board reducing the fund’s assumed rate of
return from 7.95% to 7.75%, changes to mortality and
other demographic assumptions, and lower than expected investment returns in FY15 (less than 1% last
year on a market value asset basis; however it should
be noted that the fund had a strong investment year
in FY14, returning 15.7%).6
The CORP working group had suggested that a 1%
local sales tax due to expire in 2014 be dedicated to
paying down the City’s unfunded liability contingent
upon changes in plan structure to help strengthen
5. The Adjusted Net Pension Liability (ANPL) of these plans, as calculated by Moody’s using the market value of assets, which removes smoothing, is much higher: for
PSERS, $77.4 billion; for SERS, $31.4 billion; for Philadelphia, $8.1 billion; and for Pittsburgh, $1.3 billion. Moody’s Investors Services. 2016. “Limited Options for Pennsylvania to Avoid Accelerating Pension Costs.” February 4.
6. City of Philadelphia Board of Pensions and Retirement Investment Committee Meeting Minutes. February 25, 2016.
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the future viability of the retirement system. That
option was only partly implemented; the legislature
extended the tax but required the first $120 million
to be used to fund the School District of Philadelphia
with what was then a relatively small remainder of the
revenues used to fund the pension system. Due to
expected growth in sales tax revenues, however, the
City Finance Department projects that by the end of
FY 2021, the portion of the sales tax paying down the
unfunded liability will reach $50 million and that over
the course of the FY 2017-2021 Five Year Plan will
have totaled $180 million. As suggested by CORP’s
2013 working group report, sales tax payments to the
pension fund are over and above City payments to
meet the state-required minimum municipal obligation
(MMO).7
of the unfunded liability, $5.122 billion, can be attributed to obligations owed employees and beneficiaries
of a pension plan established in 1967 (Plan 67), which
was replaced in 1987 by a plan with less generous
benefits (Plan 87). Mayor Kenney’s administration and
union representatives have been exploring options to
reduce the system’s unfunded liability.
At the request of Controller Alan Butkovitz, the City
pension board’s actuary is analyzing the potential
impact of offering Plan 67 employees and retirees
full or partial buyouts with a transition to Plan 87 as
a way to reduce the City’s unfunded liability.10 The
controller withdrew an earlier suggestion that Plan
67 retirees be offered discounted buyouts to leave
the retirement system entirely, an approach that has
been studied by a number of states and cities but
never implemented by a public pension system, possibly for two reasons: the upfront costs of the buyout
are substantial and if financed by borrowing, become a
“hard” obligation in the form of debt service, and second, concern that at least some pensioners will make
imprudent decisions about lump sum buyouts and end
up without adequate retirement income and therefore dependent on need-based, social welfare benefits.
The CORP working group had suggested that a 1%
local sales tax due to expire in 2014 be dedicated to
paying down the City’s unfunded liability contingent
upon changes in plan structure to help strengthen
the future viability of the retirement system.
In 2015, Philadelphia City Council declined to hold
hearings on a proposal by Mayor Nutter’s administration to sell the Philadelphia Gas Works to private
investors, with the project’s net proceeds to be
deposited in the pension fund. In 2013, Allentown
leased its water utility to Lehigh County and used the
proceeds to improve the status of its pension funds.
However, the Lehigh County Authority and the city
are now in a legal battle over claims that the city used
improper accounting methods that have resulted in
lower-than-expected revenues for the authority.8 The
lease deal drove up funded ratio rates of the three
funds in Allentown to 89-92%. Before the infusion of
funds, the funded ratios were 39-73%.9
Philadelphia’s MMO to its pension fund is consuming
more than 15% of its budget, increasing from $492
million in fiscal 2013 to a projected $629 million in
2017.
Also in Pennsylvania, the Allegheny County Port
Authority in 2012 reached a four-year agreement
with its largest bargaining unit in a coordinated
plan that guaranteed new funding from the Commonwealth and the county. The collective bargaining
agreement included an 18-month wage freeze and an
increase in employee pension contributions from 5.5%
to 10.5% of salaries. An agreement to reduce legacy
costs was also achieved through (1) a change in the
pension asset valuation method, reducing the authority’s annual pension funding requirement; and (2) the
As indicated in Table 1, Philadelphia’s system, like SERS,
is burdened by more retirees and beneficiaries than
active members contributing to the system. The bulk
7. Interview with Philadelphia Finance Director Rob Dubow on June 2, 2016;and Center on Regional Politics. 2013. Pension Working Group Report. Accessed at http://
www.cla.temple.edu/corp/files/2012/12/Pension-Working-Group-Report-June-2013.pdf.
8. Lagaman, Andrew. 2016. “Lehigh County Authority Not Generating Enough Money to Cover Long-term Wear-and-tear on Infrastructure,” May 2, accessed at http://
www.mcall.com/news/local/mc-lehigh-county-authority-financial-questions-20160502-story.html.
9. Pennsylvania Department of the Auditor General. 2016. “Compliance Audit: City of Allentown Aggregate Pension Fund.” January, accessed at http://www.paauditor.
gov/Media/Default/Reports/Mun72486CityofAllentownAggPF012116.pdf.
10. City of Philadelphia Board of Pensions and Retirement Investment Committee Meeting Minutes. February 25, 2016.
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elimination of lifetime retiree healthcare for new
hires. New hires are now eligible for only three years
of healthcare coverage at full retirement. The agreement triggered a $30 million annual commitment in
increased operating support from the Commonwealth
for the life of the contract and an additional $3.6 million in state and federal support for a special transit
service.11
Montgomery County in 2012 shifted a large share
of its pension fund investments from Wall Street
money managers to Vanguard, which is headquartered
in Malvern. County officials thought Vanguard’s lowcost index funds would save on fees and produce better investment returns, based on return rate data in
recent years.12 In 2013, the decision seemed to have
paid off, producing return rates over 16% and edging
out performance of investments for PSERS, SERS, and
Philadelphia.13 In 2014, the rate of return slipped to
roughly 8%.14 Bucks County, which uses 20 investment
managers recommended by Public Financial Management (PFM), lost 0.3% last year, trailing Montgomery
County’s 0.6% gain.15
The idea of switching to passive investments like index
funds has also been championed by Gov. Wolf.16 In
its budget presentation to the General Assembly this
year, PSERS indicated its investment returns net of
fees over the last 25 years have outperformed its
board approved policy index by $12 billion. A new
study suggests that disclosed and undisclosed fees
cost state public pensions across the US at least
$20 billion annually, not including counties and cities.
Undisclosed fees, known as “performance fees,” were
not required to be reported under accounting rules,
unlike management fees. In 2015, Kentucky revised
reporting to include these fees, as did New Jersey and
South Carolina.17
In 2011, Wilmington, DE used another tactic by
withdrawing further from pension fund management.
The city shifted new general employees into a staterun pension plan, as it had previously done for police
and fire employees.18
In Lexington, KY, a police and fire pension reform
package culminated in 2013 after negotiations among
a task force that included labor leaders, business leaders, city officials, council members, and legislators. The
reform, which was highlighted in CORP’s 2013 report,
maintained the DB framework but required police
and firefighters to contribute a larger portion of their
pay, reduced cost of living adjustments (COLAs) for
retirees, and revised benefit formulas for new workers.19 Since the reform, the funded ratio had steadily
increased from 72.3% in 2013 to 78.4% in 2015.20
In several Texas cities, including Austin, Dallas, El
Paso, and Fort Worth, benefits have been cut for
new members. For example, in Dallas, new police and
firefighters will receive pensions that are as much as
30% less than employees hired before 2011.21
California cities have tried a number of plans to
reform their pension systems, with varying degrees
of success. In Los Angeles, city pension reforms
imposed in 2012 for new workers were rolled back
after organized labor filed an unfair labor practice
challenge and lawsuit on the grounds that the city
should have negotiated its pension reform plan with
11. Allegheny County Port Authority. 2013. “FY2014 Operating and Capital Improvement Budgets,” accessed at http://www.portauthority.org/paac/portals/capital/budgetbooks/fy14budgetbook.pdf.
12. Corkery, Michael and Kirsten Grind. 2013. “Pension Fund Takes Neighborly Advice,” June 20, accessed at http://www.wsj.com/articles/SB100014241278873233000
04578557850449451318.
13. The Times Herald. 2014. “Pa. Auditor General Calls for Pension Reform While Commending Montgomery County,” November 20, accessed at http://www.timesherald.com/general-news/20141120/pa-auditor-general-calls-for-pension-reform-commends-montgomery-county.
14. HayGroup. 2015. “Montgomery County Employees’ Retirement System: Report on 2015 Actuarial Valuation Including Determination of County Actuarially Determined Contribution for 2015.” June 1, accessed at http://www.montcopa.org/ArchiveCenter/ViewFile/Item/2406.
15. DiStefano, Joseph N. 2016. “From Eagles tight end to pension investor: John Spagnola works for the longball investor,” May 29, accessed at http://www.philly.com/
philly/business/20160529_From_Eagles_tight_end_to_pension_investor__John_Spagnola_works_for_the_longball_investor.html.
16. Smith, Randall. 2015. “Pension Funds Trail Individuals in Embracing Index Funds,” March 3, accessed at http://www.nytimes.com/2015/03/04/business/pension-fundstrail-individuals-in-embracing-index-funds.html?_r=0.
17. Farmer, Liz. 2016. “The Hidden Wall Street Fees That Could Be Costing Pensions $20 Billion a Year,” May 24, accessed at http://www.governing.com/topics/finance/
gov-pensions-come-terms-with-hidden-fees-some-say-annual-exceeds-20-billion.html.
18. The Pew Charitable Trusts. 2013. A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care. Washington, D.C.: The Pew Charitable Trusts.
19. Center on Regional Politics. 2013. What to Do About Public Pensions? Options for Funding and Reform. Philadelphia: Center on Regional Politics.
20. Musgrave, B. 2015. “Lexington Police and Fire Pension Funded at 78.4 Percent, Up from Previous Years,” December 9, accessed at http://www.kentucky.com/news/
local/counties/fayette-county/article48805150.html.
21. The Pew Charitable Trusts. 2013. A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care.
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In Chicago, a 2014 effort to cut COLAs and increase
employee contributions was ruled unconstitutional in
Illinois state court last year.25 The ruling was upheld
in March 2016 by the state Supreme Court.26 Meanwhile, Mayor Rahm Emanuel’s approved 2016 budget
included the largest property tax hike in modern
Chicago history, the justification for which came from
ballooning pension plan contributions. The estimated
2016 tax increase on a $250,000 residential property
was about $300. For a $500,000 business property
the increase was estimated at $1,670. The city also
imposed a series of new taxes, including a garbage
hauling fee and a tax on electronic cigarettes.27 Similarly, Bridgeport, CT raised property taxes by about
$224 for the median homeowner in the 2012-13 year,
largely to fund pension debt.28
the unions. The city opted to seek settlement by
negotiating a scaled-back reform. The original 2012
reform increased the retirement age from 60 to 65,
capped total benefits at 75% of a retiree’s salary, and
imposed cost-sharing on employees when the pension
fund’s earnings are too low. The negotiated scale-back,
approved in 2015, set the retirement age at 63, capped
total benefits at 80% of salary, and removed the costsharing component of the 2012 reform.22
A new study suggests that disclosed and undisclosed
fees cost state public pensions across the US at least
$20 billion annually, not including counties and cities.
To avoid another property tax hike for Chicago citizens of about $300 million, the pension funding schedule for police and firefighters was changed in late May
2016 by the Illinois General Assembly through an
override of the governor’s veto. The new legislation
delays the deadline by which the police and fire funds,
now below 30% funded, must attain 90% funding from
2040 to 2055. Although the override saves taxpayers
in the short-term, it adds $18 billion in long-term obligations for pensions.29 Chicago’s unfunded pension
liability, which was $29.8 billion before the veto override, is the largest among local governments, according
to Moody’s.30
California cities also have tried using citizen initiatives to alter pension benefits. A 2012 citizen initiative in San Diego that replaced traditional pensions
with a 401(k)-style plan for most new city workers
is facing a legal challenge by labor unions. The state
Public Employment Relations Board ruled against
the city in December 2015, but the city was planning
an appeal.23 In San Jose, California, voter-approved
pension changes would have required existing public
employees to increase their contributions significantly
or opt out for a less generous plan. However, California treats pensions as contractual, meaning retroactive
changes to pension terms for existing members are
not allowed. The part of the 2012 ballot measure that
affected existing members was struck down in Santa
Clara County Superior Court.24
New Orleans voters on April 9 rejected Mayor
Mitch Landrieu’s plan to increase the city property tax
rate to fund a negotiated agreement with the firefight-
22. Los Angeles Times Editorial Board. 2015. “L.A. Rolls Back Pension Reform,” December 8, accessed at http://www.latimes.com/opinion/editorials/la-ed-la-city-pensions-20151208-story.html.
23. Garrick, David. 2016. “Labor Relations Board Rules Against San Diego’s Pension Cutbacks,” January 1, accessed at http://www.latimes.com/local/cityhall/la-mepension-rules-20160102-story.html.
24. Onishi, Norimitsu, and Rick Lyman. 2013. “Cut Salaries, Not Pensions in San Jose, Judge Rules,” December 23, accessed at http://www.nytimes.com/2013/12/24/
us/a-mixed-ruling-on-san-jose-cuts.html?_r=0.
25. Kilroy, Meaghan. 2015. “Chicago Defends Pension Reform Law before Illinois Supreme Court,” November 17, accessed at http://www.pionline.com/article/20151117/ONLINE/151119885/chicago-defends-pension-reform-law-before-illinois-supreme-court.
26. Spielman, Fran. 2016. “Emanuel Determined to Craft New Pension Deal after Court Ruling,” April 7, accessed at http://chicago.suntimes.com/politics/emanueldetermined-to-craft-new-pension-deal-after-court-ruling/.
27. Dardick, Hal. 2015. “2016 Brings Tax Hikes for Chicago, Cook County, city schools,” December 31, accessed at http://www.chicagotribune.com/news/local/politics/
ct-illinois-new-taxes-fees-20151231-story.html.
28. Staff Reports. 2012. “Bridgeport Council Sets Higher Mill Rate,” June 4, accessed at http://www.ctpost.com/news/article/Bridgeport-council-sets-higher-millrate-3608637.php.
29. Garcia, Monique, Kim Geiger, and Celeste Bott. 2016. “Lawmakers Unite Against Governor to Give Chicago Some Pension Relief.” Tribune News Service, May 31,
accessed at: http://www.governing.com/topics/mgmt/tns-chicago-pension-rauner-override.html; and “State lawmakers override bill veto to ease Chicago pension payments” Reuters, May 31, accessed at.: http://www.reuters.com/article/us-chicago-pensions-idUSKCN0YL1ZT.
30. Corfman, Thomas A. 2015. “How bad are Chicago pensions? The worst in the nation,” August 14, accessed at http://www.chicagobusiness.com/article/20150814/
NEWS02/150819889/how-bad-are-chicago-pensions-the-worst-in-the-nation.
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ers union that would stabilize its pension fund.31 The
deal called for payment by the city of back pay owed
to firefighters, increased city contributions to the pension plan, and elimination of COLAs for retirees until
the pension system became nearly fully funded. Currently, the system has only about 20% of the money it
needs to meet its liabilities.32
New Orleans, Chicago, and Bridgeport were not alone
in looking to increased revenues to help fund public
pensions. In 2010, Omaha added a new restaurant
tax that was projected to bring in $15 million per year
to help with pension contributions. Restaurant-goers
pay a separate 2.5% tax on their bills, on top of the
7% sales tax.33 The tax has significantly outperformed
expectations, bringing receipts of $26 million and $28
million in 2013 and 2014, respectively. The tax is not
legally tied to the pension fund, but it was pitched as a
pension debt mitigation strategy.34
It took two tries before Springfield, MO voters
approved a three-quarter cent sales tax increase in
2009 to help close a $200 million gap in the public
safety pension fund.35 The passed version lowered
the increase from an initial proposal of one cent, and
included a renewal requirement after five years. The
overall sales tax rate in Springfield is now 7.6%. Voters renewed the tax in 2014.36 The funded ratio had
hit an all-time low of 39% in 2009, and has increased
to more than 70%.37 The fund had a total liability of
roughly $450 million in June 2015.
In Illinois, the Cook County Board in 2015 approved
a percentage point increase in sales tax (from 0.75%
to 1.75%) to fund pension debt. The tax increase was
not explicitly tied to the pension fund, but leaders said
90% of proceeds would go to funding pensions. The
tax hike was expected to raise $473 million in 2016.
This brought the overall tax rate on general merchandise in Chicago to 10.25%, while the sales taxes
in other areas of Cook County are between 9% and
10%.38 The county tax applies only to general merchandise, which does not include groceries. The Cook
County pension fund was 54% funded in 2014.
STATE PENSION CHANGES
In recent years, several states have successfully transitioned to hybrid or mandatory DC pension systems
for all workers or new workers, while others have
maintained traditional DB systems but changed the
terms of those systems. Other states have tried to
alter the terms of their systems, only to have their
efforts overturned in courts. The New York State
Assembly in March 2012 passed a bill that retained
the DB system for state and local public employees
but created a tier for new hires that substantially
increased the employees’ contribution rates and cut
their promised benefits in retirement. The plan requires new “Tier 6” members to contribute 3 to 6%
of their salary to the system, with the lowest paid
employees contributing 3% and higher paid employees contributing at higher rates. It also increased
the retirement age from 62 to 63 and increased the
average salary calculation period from three to five
years, again only for new employees. The state’s public
employee unions fought the changes, and in order to
pass the proposal, Gov. Andrew Cuomo had to scale
back some aspects of his original plan, which included
creating an optional DC plan, similar to a 401(k). In
the approved legislation, this new plan was created
but made available only to nonunionized workers
31. LaRose, Greg. 2016. “New Orleans Voters Reject Property Tax for More Police, Firefighter Backpay,” April 9, accessed at http://www.nola.com/politics/index.
ssf/2016/04/new_orleans_property_tax_for_p.html.
32. Farmer, Liz. 2016. “Mediation Ends Longstanding Firefighter Pension Dispute in New Orleans,” January 14, accessed at http://www.governing.com/topics/finance/
gov-mediation-ends-longstanding-firefighter-pension-dispute-new-orleans.html.
33. City of Omaha. 2013. “City of Omaha Restaurant and Drinking Places Occupational Privilege Tax,” accessed at http://finance.cityofomaha.org/images/stories/pdfs/
Revenue%20pdf/Q%20A%20for%20restaurant%20tax%2020130401.pdf.
34. Golden, Erin. 2014. “Omaha Restaurant Tax Receipts are Big and Getting Bigger,” August 10, accessed at http://www.omaha.com/news/metro/omaha-restaurant-taxreceipts-are-big-and-getting-bigger/article_71543a74-941d-5a76-95ea-51e8cc6ebc23.html.
35. The Pew Charitable Trusts. 2013. A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care.
36. Hartley, Gene, and Paula Morehouse. 2014. “Springfield voters easily renew sales tax for pension fund,” April 8, accessed at http://www.ky3.com/news/local/springfield-voters-renew-sales-tax-for-pension-fund/21048998_25386880.
37. Bridges, Amos and Jess Rollins. 2014. “Police-fire Pension Tax Renewed,” April 9, accessed at http://www.news-leader.com/story/news/local/ozarks/2014/04/08/pollsclosed-fate-fire-pension-tax-decided/7485457/.
38. Lissau, Russell. 2016. “Shoppers not bothered by Cook County sales tax increase,” January 2, accessed at http://www.dailyherald.com/article/20160102/
news/160109856/.
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earning $75,000 or more. The bill also did not significantly change retirement benefits for police officers
or firefighters.39 Despite these concessions, unions
vigorously opposed the legislation, which was backed
by Cuomo, New York City Mayor Michael R. Bloomberg, and other local government leaders. Estimates
in 2012 suggested the bill would save $80 billion over
30 years.40 In 2011, New York state’s pension system
was 87% funded.41 While New York City’s pension is
fully funded, the costs are significant, with state and
local governments paying out $20.5 billion to retirees
in 2009. For New York City, payments into the pension
fund went from $1.5 billion in 2002 to $8 billion in
2012.
lature in 2011. The new system involved a mandatory
hybrid plan, whereby public workers had to exchange
part of their existing DB plan for a DC plan, in which
they share investment risk. The overhaul also suspended annual COLAs for public retirees.43 Unions fought
the changes, and were able to scale back the reform
through a settlement with the state through closeddoor negotiations beginning in 2012. The negotiated
settlement, approved by a Rhode Island Superior
Court judge in 2015, included two one-time stipends
to current retirees, an increased COLA cap for current retirees, and lowering the retirement age depending on years of service.44 In Rhode Island, unlike
most states, the pension system is strictly statutory
and not contractual. In most states, pension systems
are regarded as contractual, and therefore cannot be
retroactively changed to remove or diminish promised
benefits.
In recent years, several states have successfully transitioned to hybrid or mandatory DC pension systems for all workers or new workers, while others
have maintained traditional DB systems but changed
the terms of those systems.
In contrast, Illinois legislation passed to rein in pension costs in similar fashion was declared unconstitutional by the state Supreme Court. The Illinois Constitution explicitly treats pension systems as contractual,
stating that accrued and future benefits of plan members are protected. In Pennsylvania, pension plans are
contractually protected, but not explicitly constitutionally protected, as they are in Illinois. Retroactive
changes to pension plans in states with this type of
implied contractual protection have been defeated in
state and local courts.45
In New Jersey, pension reform legislation approved
in 2011 had two major components: it required higher
contributions from workers, as well as higher retirement ages; and second, it required the state to make
increased annual contributions to the system to make
up for years of shortchanging payments. However,
to deal with a major revenue shortfall, Gov. Chris
Christie reduced the state’s annual payments by more
than half for fiscal years 2014, 2015, and 2016. A legal
challenge by unions was defeated last year in the state
Supreme Court, which sided with Gov. Christie, ruling
that the budget process trumps the 2011 requirement
for higher state contributions.42
Like Rhode Island, the Virginia legislature has established a new hybrid pension system, but this applies
only to employees hired on or after January 1, 2014.
The legislation requires members to contribute 5%
of their salary to the retirement system, which for
new hires includes both a DB and DC plan. However,
the new plan currently applies to less than 10% of the
234,000 teachers and other public employees, including judges, prison guards, and bureaucrats. Additionally,
In Rhode Island, Gov. Gina Raimondo spearheaded
major pension reform that was approved by the legis-
39. Kaplan, Thomas, and John Eligon. 2012. “In Albany, Lawmakers Approve Pension Cuts and Redistricting.” The New York Times, March 15.
40. Gralla, Joan, and Dan Burns. 2012. “New York Cuts Pension Benefits for Public Workers.” Thomson Reuters, March 15, accessed at http://www.reuters.com/article/
us-newyork-pensions-idUSBRE82E0OF20120315.
41. The Pew Charitable Trusts. 2015. “The State Pensions Funding Gap: Challenges Persist.”
42. “New Jersey Court Sides with Christie on Pension Contributions.” Associated Press, June 9, 2015, accessed at http://www.cbsnews.com/news/new-jersey-courtsides-with-christie-on-pension-contributions/.
43. Sorkin, Andrew Ross. 2015. “Rhode Island Averts Pension Disaster without Raising Taxes.” September 25 [Web log post]. Retrieved from http://nyti.ms/1iQWqq8.
44. Comtois, James. 2015. “Judge gives final approval to Rhode Island pension lawsuit settlement,” June 11, accessed at http://www.pionline.com/article/20150611/ONLINE/150619957/judge-gives-final-approval-to-rhode-island-pension-lawsuit-settlement.
45. Farmer, Liz. 2014. “Finance 101 Special Series: How Are Pensions Protected State-by-State?” January 28, accessed at http://www.governing.com/finance101/govpension-protections-state-by-state.html.
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7
in order to pass the measure, the bill included provisions to increase base salaries for new hires to maintain take-home pay amounts.Virginia House Speaker
William J. Howell (R-Stafford) has proposed a new
commission to come up with solutions that would extend the reach of the previous legislation.46 The plan
also reduced benefits for some employees with fewer
than five years of service.47
retirement age, decreased multipliers to determine
retirement income, increased number of years used
to calculate final average salary, and removal of a
25-years or “25-and-out” option.
• The Kansas legislature passed provisions that
require higher contributions from most employees in
the DB plan. That plan was closed to new members
and replaced with a cash balance plan for those hired
on or after January 1, 2015. The cash balance plan
provides each member with an account to which the
employee and the employer contribute. The member
has no control over investment options and is guaranteed a minimum return on investment, though additional dividends are possible.
Another pension overhaul – this one for new public
employees in Oklahoma – was signed into law in
May 2014. The system moves all state employees (excluding firefighters, police, and teachers) hired on or
after November 1, 2015 to a mandatory DC plan. The
law requires new members to contribute at least 3%
of their income to retirement, with the state matching
up to 7%.48
• Act 278 in South Carolina increased employee
and employer contribution rates for the state retirement system. The increases affected current members
and new hires. Employee contributions increased
from 6.5% to 8% in 0.5% increments beginning on
July 1, 2012 with the final increase effective on July 1,
2014. The legislation also increased age and service
requirements for retirement benefits, and reduced
benefit levels. The term for calculation of final average
compensation was increased from three to five years.
Future cost-of-living increases were capped at $500 a
year.
In 2013, Kentucky passed legislation that created a
hybrid cash balance plan to reduce risk to the state.
A cash balance plan has aspects that make it in some
ways like a DB plan and in others like a DC plan. It is
similar to a DC plan in that it determines the value
of benefits for each member based on individual accounts. However, as in a traditional DB plan, the assets
remain in a single investment pool. Both members
and employers are required to contribute to the plan.
Enrollment in the cash balance plan is mandatory
for state and local employees (including state police)
in the three systems administered by the Kentucky
Retirement Systems and hired on or after January 1,
2014.49
• A pension reform package in Wyoming halted
cost-of-living increases until the system returned to
fully funded levels and cut retirement benefits for
members hired after August 31, 2012. Final average
salary calculation shifted to highest paid five years of
continuous service from three years. Normal retirement age increased to 65 with four years of service
from 60 with four years. The multiplier for calculating
benefits decreased, except for firefighters.
Several other states approved major pension reform
in 2012:50
• Alabama approved legislation that created a new
tier for public employees hired after January 1, 2013.
The new tier involves reduced employee contributions and significantly reduced retirement benefits.
Newer public employees, including those in law
enforcement and fire services, are subject to a higher
46. The Washington Post Editorial Board. 2015. “Bridging Virginia’s Pension Gap,” December 2, accessed at https://www.washingtonpost.com/opinions/bridging-virginiaspension-gap/2015/12/02/e7fb5596-97ac-11e5-8917-653b65c809eb_story.html.
47.Virginia Retirement System. 2013. “Member Notes,” Winter 2013 edition, accessed at http://www.varetire.org/members/newsletters/2013-winter.asp#three.
48. The Okie. 2014. “Fallin Signs Major Pension Reform Bill,” May 30 [Web log post], accessed at http://www.theokie.com/fallin-signs-major-pension-reform-bill/.
49. Kentucky Retirement Systems. 2014. “Cash Balance Plan,” June, accessed at https://kyret.ky.gov/Handbooks/Cash%20Balance%20Guide%20revision%20June15.pdf.
50. All of the following bullet points are taken from: Snell, Ronald. 2012. “Highlights of State Pension Reform in 2012,” July 17, accessed at http://www.ncsl.org/research/
fiscal-policy/highlights-pension-reform-2012.aspx.
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8
30 years. Gov. Wolf proposed a similar idea during the
budget negotiations of 2015-16, but with a salary cap
of $100,000.53
PA LEGISLATION
During the budget negotiations of 2015-16, Gov. Wolf
zeroed out the appropriation for the Public Employee
Retirement Commission (PERC), stating he believed
the work could be done more efficiently within other
agencies or offices of state government. Lawmakers
have squabbled over this decision, fighting to keep the
small organization in place and taking the administration to Commonwealth Court. Opponents of the
decision say the governor has no authority to unilaterally close a commission established by state law, and
affirm the importance of independent review of public
pensions by PERC. Gov. Wolf later withdrew the attempt to close PERC, and the lawsuit was rescinded.54
However, it appears that PERC will be dissolved by
legislation after the distribution of Act 205 subsidies
this year.
In July 2015, Gov. Wolf vetoed SB 1, legislation to
create DC plans for all new state and school employees. According to the Public Employee Retirement
Commission (PERC), it would have saved $10 billion
over 30 years in payments. However, Wolf and public
unions claimed the switch would not have addressed
the looming unfunded liability in the near term. New
hires’ contributions would not help grow the pension
fund in a DC plan.51
HB 414, currently in the Senate Finance Committee,
embodies reforms called for by the Governor’s Task
Force on Municipal Pensions, which was led by state
Auditor General Eugene DePasquale...Nearly half of
Pennsylvania’s municipal plans are in some level of
distress.
HB 414, currently in the Senate Finance Committee,
embodies reforms called for by the Governor’s Task
Pension reform continued to be a sticking point
Force on Municipal Pensions, which was led by state
throughout the budget negotiations for the FY 2015Auditor General Eugene DePasquale.55 These changes
16 cycle. Key to garnering Republican votes for a tax
include: calculating final average salary on the last 60
increase in order to fund educational priorities was a
months of service; excluding pensions from collective
proposal to place new state and public school workbargaining; having those plans funded at 90% or higher
ers in a hybrid pension system. This component of
the so-called “framework” budget broke down in late given the option of their current plan or a cash-balance DB plan or DC plan; and moving those municiDecember as the House rejected it 149-52.52
palities under the 50% funded ratio into management
by PMRS. Although the task force recommended that
In May 2016 the House State Government CommitPhiladelphia and Pittsburgh be permitted to join PMRS
tee approved a proposal for a stacked hybrid penor maintain their own funds with specific consequencsion plan (HB 1499). Applying only to new state and
es for failing to achieve reforms, HB 414 would not
school employees, this legislation includes a DB for
exempt the two largest municipal systems from being
the first $50,000 of salary and a DC component for
forced into PMRS should they remain below 50%
the next $50,000 or after 25 years. In the following
years, the DC salary threshold would move up by 1%. funded. Nearly half of Pennsylvania’s municipal plans
are in some level of distress. The task force recomAccording to an actuarial analysis, such a plan could
save $10 billion on the unfunded liability over the next mended many other changes to the state’s municipal
51. Bumsted, Brad. 2015. “Pennsylvania Gov. Wolf Vetoes Republican-crafted Pension Bill,” July 9, accessed at http://triblive.com/news/adminpage/8709401-74/wolfbudget-public.
52. Palmer, Chris. 2015. “Wolf, Senate: No Stopgap Budget,” December 22, accessed at http://articles.philly.com/2015-12-22/news/69215659_1_stopgap-budget-houserepublicans-temporary-spending-plan.
53. Thompson, Charles. 2016. “Public employee pension reform gets a fresh look in Pennsylvania,” May 18, accessed at http://www.pennlive.com/politics/index.
ssf/2016/05/public_employee_pension_reform.html.
54. Thompson, Charles. 2016. “Wolf administration settles dispute with lawmakers over Public Employee Retirement Commission,” March 4, accessed at http://www.
pennlive.com/news/2016/03/wolf_administration_settles_di.html.
Temple University
9
pension systems, some of which had also been identified by CORP’s 2013 working group report. The following are recommendations from the task force:55
“Increasing transparency and accountability for all
municipal pension plans by:
• increasing penalties for municipalities that do not
pay their full minimum municipal obligation (MMO);
• ending the current practice of allowing state municipal pension aid to be used for administrative expenditures;56
• adopting standards to require municipalities to disclose pension liability and requiring the public posting
of municipal pension costs; and
• excluding municipal pensions from collective bargaining.
Helping with the recovery of underfunded pension
plans by:
• requiring underfunded pension plans to adopt new
investment and benefit standards including controlling
management fees, capping overtime and excluding accumulated leave from pension calculations, eliminating lump-sum Deferred Retirement Option Program
(DROP) payments, adopting realistic rates of return
on investments and limiting benefit enhancement;
• shifting management responsibility for underfunded
plans to a shared investment manager; and
• possibly creating a new statewide defined benefit
structure for all new hires in underfunded plans.”57
Other pension changes proposed include using yearend surpluses to pay down liabilities; a cash balance
plan for all new hires and removing OPEBs; using
funds from legalized gambling machines in clubs and
bars to fund pensions; taxing Marcellus Shale and using proceeds to fund pensions and education; phasing
out the higher benefit levels of Act 120 of 2010; and
consolidating all municipal plans for saving on administrative costs. See a partial list of introduced bills for
the 2015-16 Session following in Table 2.
55. DePasquale, Eugene A., Susan Hockenberry, Mary Soderberg, and Janet Yeomans. 2015. “Pennsylvania’s Municipal Pension Challenges.” June 30, accessed at http://
www.paauditor.gov/Media/Default/Print/2015/FINAL_Pension_Taskforce_Report_June%2030_FINAL2.pdf.
56. For almost 40% of Pennsylvania’s municipal plans, the state’s Act 205 subsidies cover all pension costs. Moody’s Investors Services. 2016. “Limited Options for
Pennsylvania to Avoid Accelerating Pension Costs.”
57. Pennsylvania Department of the Auditor General. 2015. “Auditor General DePasquale Says Municipal Pension Task Force Recommendations Offer Realistic,
Responsible Reforms.” June 30, accessed at http://www.paauditor.gov/press-releases/auditor-general-depasquale-says-municipal-pension-task-force-recommendationsoffer-realistic-responsible-reforms.
Temple University
10
Table 1: PSERS, SERS, and Philadelphia Pension Funds 2013-2015
PSERS
SERS
Philadelphia
2015
2014
2013
2015
2014
2013
2015
2014
2013
Members
(Active)
259,868
263,312
267,428
105,025
104,431
105,186
27,951
27,065
26,778
Members
(Retired/Other
Beneficiaries)
219,775
213,900
209,204
124,689
122,249
120,052
34,827
34,661
34,407
Market Value of
Assets
$51.7B
$53.1B
$49.1B
$26B
$27.3B
$27.4B
$4.6B
$4.9B
$4.4B
Actuarial Value
of Assets
$57.4B
$57.3B
$57.5B
$26.9B
$26.6B
$26B
$4.9B
$4.8B
$4.8B
Unfunded
Liability
(Actuarial)
$37.3B
$35.1B
$32.6B
$19.5B
$18.2B
$17.9B
$5.9B
$5.7B
$5.3B
Funded Ratio
(Actuarial)
60.6%
62.0%
63.8%
58.0%
59.4%
59.2%
45.0%
45.8%
47.4%
Employer
Contributions
$2.7B
$2.1B
$1.6B
$1.4B
$1.1B
$791M
$577M
$553M
$552M*
Assumed Rate
of Return
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.8%
7.85%
7.95%
Real Rate of
Return Net of
Fees
3.04%
14.91%
7.96%
.5%
6.4%
13.6%
.29%
15.70%
10.94%
B=billion; M=million
* or $782M with deferred payment
PSERS data are for FYE 2015, 2014, 2013
SERS data are for CY 2015, 2014, 2013
Philadelphia data are for FYE 2015, 2014, 2013
Data was obtained from comprehensive annual financial reports, actuarial valuation reports, and other publications for each pension
system.
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11
Table 2: PA Pension Legislation 2015-16
Sponsor
Description
Bill No.
Status
Rep. Greiner and
Rep. Grove
Cash balance plan for all new hires in
municipal systems (except Philadelphia); full vesting at 12 years, partial at
8, retirement age to 55, no OPEBs
HB 316
Laid on the Table (House) Nov.
4, 2015
Rep. Briggs
Final average salary calculated on last
HB 414
60 months of service; exclude pensions
from collective bargaining; those plans
funded at 90% or higher given the option of current or cash-balance DB plan
or DC plan; under 50% funded ratio
would be managed by PMRS
Re-referred to Senate Finance
Committee May 17, 2016
Rep. Simmons
50% of year-end surplus to pay down
pension liabilities
HB 426
Referred to House Finance Committee Feb 9, 2015
Rep. Kampf
Mandatory DC plan for all new state
and school employees
HB 727
Removed from the Table (House)
March 21, 2016
Rep. Daley
Early retirements for state and school
employees
HB 861 and HB 862 Referred to House Education
Committee April 1, 2015; Referred to House State Government Committee April 1, 2015
Rep. McGinnis
Amortize the current unfunded accrued HB 900
liabilities and new UL of SERS and
PSERS over 20 years with level dollar
funding
Referred to House State Government Committee May 13, 2015
Rep. Petri
Requires severely distressed municipal- HB 974
ities to move to moderately distressed
through cooperation with PERC in
maximum of 10 years
Referred to House Urban Affairs
Committee April 15, 2015
Rep. Frankel
Separate PSERS funding from K-12
budget; refinances $3 billion, debt service paid through modernizing liquor
HB 1149
Referred to House State Government Committee June 5, 2015
Rep. Pashinski
Video gaming machines in bars, clubs,
etc. to fund pensions
HB 1462
Referred to House Gaming Oversight Committee July 21, 2015
Rep. Tobash
Stacked hybrid plan for all new state
HB 1499
and school employees; DB plan on
first $50,000 of salary; salary above
$50,000 (or after 25 years) is a DC plan
Removed from the Table (House)
May 18, 2016
Rep. Petri
Marcellus Shale tax of 5% on market
HB 1536
value, funds to pay pensions and education
Referred to House Environmental Resources and Energy Committee Sept. 4, 2015
Rep. Millard
DC Plan for all new state and school
hires
HB 2041
Rep. Saccone
Phase out higher benefit class under
Act 120 of 2010 (2.5%); assumptions
for rate of return have been too high,
no longer revenue neutral as an option
HB 2049
Sen. Corman, Sen.
Browne, Sen. Scarnati, Sen. Gordner,
and Sen. Eichelberger
DC for all new employees; GA members SB 1
in DC plan upon election or re-election;
increased contribution levels; antispiking to last 5 years of service; Public
Pension Management and Asset Investment Review Commission, etc.
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12
Governor’s veto message, Laid on
the Table July 13, 2015 (Senate)
Table 2 (Continued): PA Pension Legislation 2015-16
Sponsor
Description
Bill No.
Status
Sen. Blake
Governor’s package: $3 billion POB;
reduce administrative fees of fund
managers; no “double dip” by charter
schools
SB 113
Referred to Senate Finance Committee May 14, 2015
Sen. White
Mandatory DC plan for PA legislature,
new and current members
SB 401
Re-referred to Senate Appropriations Committee April 22, 2015
Sen. Haywood
Marcellus Shale tax of 8% on extraction, 40% of revenue toward pension
liability
SB 415
Referred to Senate Environmental Resources and Energy Committee April 6, 2015
Sen. Eichelberger
DC plan for all newly hired municipal
SB 755
fire and police employees; no pensions
in collective bargaining; eliminate spiking
Re-referred to Senate Appropriations Committee June 28, 2015
Sen. Blake and Sen.
Rafferty
Consolidate statewide pension system
for police officers (currently over 900
exist); eliminate pensions in collective
bargaining; no COLAs
SB 903
Referred to Senate Finance Committee June 18, 2015
Sen. Browne
Hybrid plan for new hires; was to cut
school and state pension payments in
the 2016-17 fiscal year
SB 1082
Referred to House State Government Committee December 10,
2015
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13
Temple University
Set at 62 for
most employees,
56 for police.
Prior to this bill,
vested employees
(10 years) could
retire at any age
after 25 years of
service.
Alabama
(2012)
Kentucky
state and
municipal
(2013)
Kansas
(2012)
Retirement
Age
State
For Tier II
existing members, increased
for future and
past service
from 1.75% to
1.85%. For Tier
I members, rate
remains 1.75%
for past service,
but increased to
1.85% for service
after Jan. 1,
2014.
Benefit cap set
Decreased.
at 80% of final
average salary.
Anti-spiking
measures, including increase
in FAS calculation from highest
3 years to highest
5 years.
Final Avg.
Multiplier
Salary Terms
Benefits Changes
Table 3: State Pension Reforms
14
COLAs may be
approved annually by the Legislature, but only if
there is sufficient
funding to pay
for them upfront,
either from pension fund surplus
or other state
appropriation.
COLAs eliminated for existing
Tier II members,
hired on or after
July 1, 2009 but
before Jan. 1,
2015.
COLA
Changes
For existing
Tier 1 and Tier
II members,
increased to 6%.
Tier III rate set
at 6%.
Decreased rate
from 7.5% to 6%
for new hires (on
or after Jan. 1,
2013). Existing
members had
their contribution rate increased from 5%
to 7.5% in 2011
legislation.
Contribution
Increases
Y
New
Only
Hybrid cashbalance plan
that guarantees
members a 4%
return and splits
any gains over
4% between the
employee and
a pension fund
rainy day account. Mandatory for employees
hired on or after
Jan. 1, 2014.
N
N
For new Tier
III members,
creates hybrid
cash-balance
plan that guarantees members
a 5.25% return
and allows for
sharing of additional earnings
with employees when the
fund is healthy.
Mandatory for
employees hired
on or after Jan. 1,
2015.
Structure
Members
Affected
Passed with bipartisan
support: 32-6 in the
Senate and 70-28 in the
House. A separate bill
to raise an extra $100
million annually for the
purpose of making full
payments to the pension
plan passed 35-3 in the
Senate and 82-17 in the
House. Both bills were
signed by Gov. Steve
Beshear, a Democrat, on
April 4, 2013.
Also included commitment for increased state
contributions to pay
down unfunded liability over 20-year period.
Passed unified Republican government: 35-2
in the Senate, 74-42 in
the House, and signed
by Gov. Sam Brownback
June 1, 2012.
Passed under unified
Republican government
in May 2012: 25-8 in
the Senate, 69-33 in the
House and signed by Gov.
Robert Bentley.
Context
Temple University
Several antispiking measures.
Suspended, but
2015 settlement
restored some
COLA with adjustments every
4 years, depending on funded
ratio of plan.
Graduated scale
based on salary,
3-6%.
Structure
Y
Y
New
Only
Hybrid plan for
N
all, but 20-year
plus members received increased
DB in settlement.
Increased: 62
with 33, 63 with
32, 64 with 31,
65 with 30, 67
with 5; Police &
Fire: 50 with 25,
or any age with
27 years.
Decreased.
Contribution
Increases
Rhode Island
(2011 legislation, 2015
negotiated
settlement)
Increase from
3 to 5 years for
FAS calculation.
COLA
Changes
Defined contribution plan with
minimum 3%
employee contribution; employer
match up to 7%
for employees
hired on or after
Nov. 1, 2015.
62 to 63.
New York
state and
municipal
(2012)
Final Avg.
Multiplier
Salary Terms
Members
Affected
Oklahoma
(2014)
Retirement
Age
State
Benefits Changes
Table 3 (Continued): State Pension Reforms
15
Designed and championed by then-Treasurer
Gina Raimondo (D) and
supported by then-Gov.
Lincoln Chafee (Indep.),
the reform bill included
major changes for
employees and retirees.
In Nov. 2011, the Rhode
Island Retirement Security Act easily passed
the House 57-15, and
the Senate 35-2. After a
three-year legal battle,
the state and unions
negotiated a settlement
that scaled back some
changes. The settlement
passed the Legislature as
part of the 2016 budget.
Firefighters, police, and
teachers are excluded.
Bill passed unified Republican government in
May 2014, passing the
House 58-33, the Senate
35-11, and signed by Gov.
Mary Fallin.
Estimated to produce
savings of $80 billion
statewide over 30 years.
Backed by Gov. Andrew
Cuomo (D), Mayor Michael Bloomberg (Indep.), opposed by unions.
Passed R-controlled
Senate 32-5 while most of
the Democrats were not
present due to walkout
over another bill. Passed
D-controlled Assembly
92-46.
Context
Temple University
For new members, excluding
police, created
“Rule of 90,”
which states
that employees
may retire when
combined age
and years of
service equal 90
(e.g., age 60 with
30 years). Police
pension for new
hires increases
minimum years
of service from
25 to 27.
South
Carolina
(2012)
For new members, increase
from 3 to 5 years
for FAS calculation.
Wyoming
(2012)
16
For new members, multiplier
set at 2%, compared to 2.125%
for first 15 years
and 2.25% for
additional years
for existing
members. Excludes firefighters, for whom
rate remains
2.5%.
Decreased for
nonvested members.
For existing and
new members,
decisions on COLAs shifted from
pension board to
the state Legislature, effectively
suspending COLAs until plan is
100% funded.
Delay for vested
members until
age 65 and cap
for nonvested
members at 3%.
For all members, 1% COLAs
capped at $500
per year.
For new members, increase
from 3 to 5 years
for FAS calculation.
Increase in FAS
calculation from
3 to 5 years for
nonvested members.
COLA
Changes
Final Avg.
Multiplier
Salary Terms
Virginia
(2012)
For new members, normal
retirement age
is 65, compared
to 60 for existing
members.
Retirement
Age
State
Benefits Changes
Table 3 (Continued): State Pension Reforms
Increased to 5%.
For all members, increased
from 6.5% to 8%
gradually over
the course of
several years.
Contribution
Increases
Hybrid plan for
employees hired
after Jan. 1 2014.
Structure
N
N
N
New
Only
Members
Affected
A pair of bills passed unified Republican government in March 2012.
Chapter 107 (SB 59) shifted COLA authority to the
Legislature and passed
the Senate 27-3 and the
House 40-16. Chapter
108 (SB 97) created a new
tier with reduced benefits
and passed the Senate
29-1 and the House 4018. Both were signed into
law by Gov. Matt Mead.
The measure passed
unified Republican government in April 2012,
passing the House 57-37,
and the Senate 33-6,
and signed by Gov. Bob
McDonnell.
Passed unified Republican government 43-0 in
the Senate and 88-9 in
the House, and signed by
Gov. Nikki Haley June
26, 2012.
Context
CENTER ON REGIONAL POLITICS - Staff
Joseph P. McLaughlin, Jr.
Director
Meghan E. Rubado
Graduate Assistant
Kelly D. Colvin
Associate Director
Kevin Lydon
Business Manager
Michelle J. Atherton
Senior Policy Writer and Publications Editor
1114 W. Polett Walk (022-02)
840 Anderson Hall
Philadelphia, PA 19122-6090
NONPROFIT ORG.
US POSTAGE
PAID
PHILADELPHIA, PA
PERMIT NO. 1044
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THE PROBLEM OF FUNDING
PENSIONS: AN UPDATE

Issue Memo - Temple University

Transcription

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