Archive for the ‘Public Pensions – General’ Category

Some COLAs Protected

Rhode Island’s Supreme Court ruled this week that Providence violated the U.S. and state constitutions in 2012 when it suspended cost-of-living adjustments on retiree pensions for an indefinite amount of time, something the New Jersey Supreme Court saw differently in 2016.

So what was it that New Jersey jurists got that Rhode Island’s didn’t (aside from tenure)?

Let’s look at excerpts from the Rhode Island decision:

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Raiding Public Pensions Citing Thole

On June 1 the US Supreme Court ruled in Thole v. U.S. Bank that pension plan participants who have not seen their own benefit payments reduced or otherwise altered cannot sue their employer on behalf of the whole pension plan for failing to live up to ERISA’s fiduciary duties, drawing a direct distinction between defined benefit (DB) pension plans and defined contribution (DC) plans.

Today Caleb Durling, a trial lawyer, speculated:

This ruling may empower state and local governments, as COVID-19 wreaks havoc on their budgets, to consider raiding public DB plans, citing this opinion as the justification for their actions.

How exactly? Excerpting from the article:

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FT: Seven Major US Public Pensions To Run Out Of Money By 2028

You need a subscription to get to the Financial Times report so here is the zerohedge story which summarizes the Center for Retirement Research‘s analysis:

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The State Pension Crisis Goes Beyond the Big Blue States

That is the headline from a Steven Malanga WSJ article (that requires a subscription to see so here is a copy with typos) where New Jersey is featured prominently:

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COVID-19 pushes nation’s weakest public pension plans closer to the brink

Wirepoints released a report on that topic this morning. Here are the parts where I am quoted with some exposition.

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COVID-19 Impact on State Pension Plans

Reason Foundation and the Pew Charitable Trusts looked into it this week and below are their thoughts.

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Have Localities Shifted Away From Traditional Defined Benefit Plans?

That is a question the Center for State and Local Government Excellence explores in a new issue brief.

Excerpts below:

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Public Pension Liquidity Crunch

A Valuewalk article refers to S&P Global Ratings use of the:

Noting:

If the ratio is negative, it means the pension fund needs more money to continue operating and make all of its benefit payments. The more the ratio is below zero, the more assets will need to be converted to cash just to keep operating and paying benefits.

Some public pension funds could even be in danger of running out of money to make benefit payments, they warned. They identified several plans which they describe as “severely underfunded,” which are those that are less than 40% funded. These pension plans already had negative liquidity-to-assets ratios as of September. That means they are in extremely dire straits in this latest bout of volatility.

That list (along with my analysis of the plan at the top):
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Underfunded public plans facing a new round of woes

P&I reported on the challenges public pension funds face in this coming depression but also offered some hope for even the worst funded plans (except for one):

“From a liquidity perspective, public funds have two sources to pay for benefits: existing assets and existing contributions,” said Greg Mennis, director of public sector retirement systems for Pew Charitable Trusts in Washington. “For underfunded plans, current inflows are very important.” Mr. Mennis said that states like Connecticut and Illinois, which are already making large contributions to their plans, are better positioned to maintain liquidity and work toward their target asset allocation. But a state like New Jersey, which he said has the lowest rate of cash flow among any state, is more at risk.

For example….

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How the Coming Pension Fund Crisis Will Play Out

Aaron Brown, Bloomberg Opinion columnist and former head of financial market research at AQR Capital Management, understands the problem and suggests:

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