STUMP » Articles » Public Pensions Round-up: What's in meep's Mailbag? » 20 April 2016, 12:57

I have several people sending me links through email, which I greatly appreciate. Keep ‘em coming! Tweeting at me is also fine.

In other news, I’m working through a GK Chesterton book on Eugenics. That prior is a link to a free kindle version, and you can also read it here at the Gutenberg project.

I will not comment on the applicability of a book written almost 100 years ago. Yet.

I will be pulling out juicy quotes as I come to them.

First:

If something which has been discovered at last by the lamp of learning is something which has been acted on from the first by the light of nature, this so far as it goes) is plainly not an argument for pestering people, but an argument for letting them alone.

Too true, too true.

But now for our lunchtime pension posting.

CHICAGO TEACHERS AND TOTAL COMPENSATION

Nick Bilotti takes a dive into the numbers of the Chicago Teacher pick-up at Citizen v. Machine:

CPS teachers are required to pay 9% of their gross salary towards pensions. CPS pays 7% of that 9% on behalf of the teachers – henceforth known as the “pick-up” – thereby requiring teachers only pay 2% of their gross wages towards their own retirement. CPS teachers, like all other teachers in the state, are not eligible for Social Security benefits – as they are wont to remind you, to which I calmly retort – because they do not pay into Social Security. So the pension is their retirement nest egg.

The terms of the pension pick-up are outlined in each contract under Salaries.
….

The pension pick-up is not a benefit in perpetuity. It is subject to negotiation each and every contract, a fact oddly absent in CTU diatribes, considering how keen they are in observing contract terms . That’s important to note as CPS attempts to discontinue the benefit altogether as they are not legally bound to offer it once a contract expires. But rolling it back is not that simple, both psychologically and mathematically, as we shall see.

Math follows. I will share one table:

See, the pick-up can be more-or-less revenue neutral….but….

The argument that CTU gave up something – anything – in exchange for the pension pick-up is dubious at best. Quite frankly, any outfit that would pilfer from their own retirement fund for raises today doesn’t seem to put much consideration in anything.

Go read the whole thing. There’s a history there — one year of raises given up for a career-long pick up? Yeah, the teachers made out pretty well with that one.

I like how Nick lays out the numbers as expenditures by the employer — that’s really the total compensation. I recently got a total compensation statement from my employer, laying out not only the cash paid directly to me, but also all the $$ paid for my benefits. As well as a split out of how much I had taken out of that total comp to pay for certain benefits (like 401(k)).

For these pension pick-ups and the like, it would be more honest to do this split out from the employer side, rather than talk about the employee side (from the point of view of taxpayers).

How much is it going to cost the taxpayers, the putative employers/paymasters of these public employees?

Also, does any of this look like 9% to you?

I don’t know if the pick-up is included in these numbers. If the pick-up “counts” as employee contributions, I’m going with no.

This is also a little old, but you see that undercontributions form a large part of the Chicago Teachers pension shortfall:

SOMEONE WHO SHOULD KNOW BETTER MOUTHING A MYTH

This article is actually about something else, but I want to point out ex-CalPERS general counsel Richard Koppes made the following remarks, according to this piece:

The fund returned to roughly $288 billion in value by year-end 2015 but In the interim, the number of retirees increased as had the average age of covered workers. Budget cuts around the state have resulted in fewer young workers being hired. Medical and prescription costs have skyrocketed. As a result, CalPERS has only 77% of the funds that it will need to pay future benefits. More than 1.8 million government employees and their dependents are counting on CalPERS for their retirement and benefits now and in the coming years. See: Giant push is on in Washington to create a nation of savers.

But 77% isn’t so terrible, argues Koppes.

“I’m not sure the fund needs 100%,” he says, adding that there are those who say 90%, or even high 80s, is very good for a fund its gargantuan size.

Koppes adds: “Clearly, 65% funding was not [good].”

…. well, that’s a new one to me.

A large fund that is underfunded is much worse than a small one that is underfunded. A couple really easy reasons to see why:

- A small underfunded fund is relatively easy to bail out by an outside party (should an outside party desire to)
- Should the fund default on its promises, relatively few people are hurt by much (similarly for any affected bondholders)

Anyway, here are some Calpers graphs:

Don’t ask me about the early 2000s right now.

BACK TO CHICAGO: THE SCHOOLS ARE BROKE

I think we all knew this:

Chicago Schools Need Line of Credit to Stay Solvent

BY ELIZABETH CAMPBELL, BLOOMBERG NEWS
The cash-strapped Chicago public schools need to borrow more money to stay solvent, according to Forrest Claypool, chief executive officer of the nation’s third-largest district.

“We have to secure a new line of credit to stay solvent,” Claypool said yesterday in response to a reporter’s question on whether the district would need a line of credit in the coming fiscal year to pay for a new teachers’ contract. “We can’t pay for anything absent a line of credit.”

The district, which has a revolving line of credit of $870 million with the banks, has reached the end of its borrowing and is in a “precarious situation,” Claypool said during a press conference to address the threat of a teachers’ strike.

I like that “stay solvent”. Assumes they’re solvent right now. Ha.

ANOTHER FUNDING TARGET ISSUE

I just don’t know what to say about this one:

Lincoln Park officials and representatives of the Municipal Employees Retirement System of Michigan are expected to meet in court Wednesday as part of a lawsuit filed by the pension operator seeking more than a half-million dollars from the city.

Last month, the Downriver city was sued for an alleged $516,000 underpayment of its employment pension contributions.

The lawsuit was filed March 8 by the state-chartered MERS. Besides the half-million-dollar payment, MERS is demanding attorney fees and court costs.

The city, which according to court documents paid more than $271,000 to MERS in two installments in March, will argue that its original agreement with MERS allowed it to spread payments over future years. Lincoln Park’s goal is to rebuild its employee pension reserve from 20% funded to 50%, city officials said. MERS, however, has argued in court documents that the city must pay up immediately.

By “employee pension reserve” do they actually mean pension funded ratio?

Because that’s what it sounds like to me.

Lincoln Park’s former emergency manager — Brad Coulter, now CEO of the Detroit-based nonprofit Matrix Human Services — said that while he ran Lincoln Park, he increased the city’s annual pension contribution from $2.1 million to $3.1 million, which according to MERS’ calculations would’ve put the plan at about 50% funded in 10 years.

Yep, that’s exactly what it is.

Dear lord. I don’t want to have to change it to the 50% fundedness myth.

“Hey, they can count on half their pensions! That’s better than 0!”

RHODE ISLAND LAWSUIT

There’s a lawsuit over Provdence, RI pension reform:

PROVIDENCE, R.I. (WPRI) – Repeating comments he has made countless times in recent years, former Providence Mayor Angel Taveras on Tuesday outlined the steps his administration took to address a financial crisis he claims was “a lot more severe” than he was led to believe before he took office in 2011.

During about 90 minutes of testimony involving the retirees who opted out of a 2013 pension settlement with the city, Taveras said he even asked a lawyer to look at whether Providence should file for bankruptcy, but maintained he considered the action a last resort.

“I thought bankruptcy would be devastating to both the city of Providence and the state of Rhode Island,” Taveras, a Democrat who later ran unsuccessfully for governor, said.
….

While the vast majority of retirees agreed to the settlement that froze 3% COLAs for 10 years, eliminated 5% and 6% COLAs forever, shifted how pensions are calculated and moved retirees over the age of 65 to Medicare, a group of 68 former public employees filed suit against the city in November 2013.

It will be interesting to see how this one shakes out.

This is not Illinois, and many Rhode Island towns have seemingly successfully cut current retiree benefits (specifically COLAs) since 2011. But we shall see if this sticks.

Compilation of Rhode Island posts