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PORTSIDELABOR  April 2012, Week 3

PORTSIDELABOR April 2012, Week 3

Subject:

Two Attacks on Pensions

From:

Portside Labor <[log in to unmask]>

Reply-To:

[log in to unmask]

Date:

Fri, 20 Apr 2012 20:17:40 -0400

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (311 lines)

Two Attacks on Pensions


Rhode Island Pension Cuts Set Chilling Precedents 

Brian Chidester |  April 19, 2012

: http://labornotes.org/2012/04/rhode-island-pension-cuts-set-chilling-precedents

Labor Notes

If you thought retiring would help you avoid the
ruination of living standards brought on by the
economic crisis, Rhode Island's pension overhaul just
proved you wrong. 

The changes to the pension system passed last November
affect every public employee--current, retired, or
prospective. The retirement age rose from 62 to 67 for
new hires, and somewhere in between for current
employees.

The overhaul moves all public employees into a "hybrid"
system, combining a defined benefit plan with a
401k-style plan, thus shifting risk for bad investments
onto workers. And it freezes cost-of-living adjustments
for all retirees and retirees-to-be for 19 years,
sending their standard of living tumbling.

The drama began in spring 2011, when newly elected
state Treasurer Gina Raimondo, a Democrat, and Governor
Lincoln Chafee, an independent, began focusing on the
state's unfunded pension liability and the looming
crisis it represented.

Both politicians had been enthusiastically supported by
the labor movement, partially on the basis that they
would not touch pensions. But now they argued that the
state had on hand only about half the money it would
need to pay pensions for state workers and teachers
over the coming decades.

The amount that the state owed but didn't have was the
"unfunded liability," and to make the fund stable,
Raimondo and Chafee argued, it had to be funded at a
level closer to 80 percent. That's the "green" level
that private sector pensions need to reach under the
federal Pension Protection Act.

But that rule doesn't have to apply to governments.
When a corporation is bankrupt, retirees run the risk
that pension funds will disappear with the company.
Thus workers seek to have much lower unfunded
liabilities.

But when a government goes bankrupt, it does not
disappear. Even if its pension fund shrinks, it can
still be raised again during better times or through
increased revenues. The concern around the "unfunded
liability" in this instance was used to cut benefits
and hurt workers. WHERE TO TURN?

In the media, free-market conventional wisdom pushed
along an argument for bolstering the fund while
avoiding increases to Rhode Island taxpayers. As the
market was not likely to perform well enough to make up
the shortfall, the only source left was workers'
pockets.

While Rhode Island teachers had always paid into the
fund at rates of 9.5 percent of income, and state
workers at 8.75 percent, the same was not true of the
state. Rhode Island had raided the fund in the 1990s
and never made up the difference.

Further problems came with Republican Governor Donald
Carcieri in the 2000s. He cut state agency staffing
levels and forced state workers into retirement early,
thus reducing the base of workers paying into the fund.

The real tipping point came in April 2011, when the
state Retirement Board voted to lower the projected
rate of return on investment from 8.25 percent to 7.5
percent. By one change in accounting, the board
suddenly increased the unfunded liability by $1.4
million and doubled the burden on state agencies and
local school districts.

Said pension policy analyst Tom Sgouros, "It's the
triumph of the technocrats who make tremendously
value-laden judgments and disguise it as technical
details."

The now-inevitable move to cut benefits sped forward in
August, when the city of Central Falls went bankrupt
and retirees there saw their pensions cut in half. WHAT
WAS LOST

Chafee and Raimondo pushed a plan aimed at cutting
benefits for all retirees while forcing current workers
to pay more into the system.

Most important, they started the shift from the
traditional defined-benefit pension toward a
defined-contribution, 401k-style plan. The hybrid plan
effectively puts more risk onto workers and retirees.
If the market does not perform well, they'll absorb the
losses.

The hybrid would pay benefits to future retirees at
40-57 percent of the average of the last five years of
pay from the defined-benefit side of the plan, plus a
portion from the defined-contribution side to lift the
overall benefit to around 70 percent of pre-retirement
income.

This is a decrease from the current 75 percent rate. Of
course, if the market crashes again, it could be much
lower.

The plan also eliminates any cost-of-living adjustments
for the next 19 years for everyone, including current
retirees already receiving benefits. The result is a
direct impoverishment of Rhode Island's public sector
workers in retirement. RESISTANCE

As the vote on the legislation neared in November,
unions mobilized to fight the impending disaster. They
launched an information campaign among members,
including a widely circulated YouTube video, brochures
in the mail urging workers to contact legislators, and
meetings around the state.

A rally drew up to 5,000 union workers to protest the
assault. Unfortunately, the unions' message came down
to "save our pensions" for the roughly 25,000 current
teachers and state workers and roughly 22,000 retirees.

At the same time, business groups poured more than
$500,000 into television ads supporting the pension
cuts. The same groups also contributed the maximum
amount to major legislative leaders, all Democrats,
after the legislation was approved.

It passed overwhelmingly, with 77 of 94 legislators
approving. A Brown University poll released shortly
after showed 60 percent support for the bill among the
voting public, a clear indication that the business
campaign had succeeded in vilifying public workers.

Ironically, just as the overhaul was being pushed
through, the Occupy movement was refocusing the public
discussion around "we are the 99%." It was not enough
to stop the attack on public workers. PRECEDENT SET

According to the Pew Center, Rhode Island was one of 35
states to enact pension changes in 2010 and 2011. But
while most of those attacks affected only employees yet
to be hired, Rhode Island's was unprecedented in its
scope and depth--hitting both current employees and,
through the COLA freeze, current retirees.

Chillingly, Fitch Ratings, a major credit rating
agency, speculated that "the sweeping nature of the
reform may inspire similar efforts in other states
grappling with large unfunded pension obligations."

In the aftermath, Raimondo has garnered national
attention. She has the highest approval rating of any
Rhode Island politician. Her campaign fund grew by over
$200,000 last summer, to over $500,000 total, during a
time in which she did not organize any fundraisers.

Like Andrew Cuomo in New York and Deval Patrick in
Massachusetts, she emerges as a well-known pro-business
Democrat, the sort of politician who can get the job
done for the corporations--without the clownish rhetoric
of a Tea Party Republican. GOING LOCAL

The battle now moves to the field of municipal
pensions.

The state's cities and towns face massive budget
crises, precipitated by a systematic and catastrophic
decrease in state aid to municipalities over 20 years.
Chafee announced a plan in March that would shift city
governments' financial pain to workers, driving down
their compensation and eliminating jobs while cutting
services, such as trash collection and care for the
elderly.

While the number of workers affected will be smaller,
the effects will likely cut deeper.

The plan would give municipalities the freedom to
freeze COLAs for current retirees, as well as reducing
the amount of tax-free benefit on accidental disability
pensions. It would hand municipalities power to
disregard an expired contract and impose conditions, or
refuse to pay newer teachers their step raises.

The story of pension "reform" in Rhode Island is a
cautionary tale for the labor movement. While the
state's unemployment rate is now 11 percent--the
second-highest in the country--94 percent of
corporations here pay nothing in taxes. The name of
this game is austerity, and it's supported by both
parties as well as the sometimes "independent"
governor.

In order to fight it, our unions will have to demand
the real solution to this crisis: tax the corporations
and the rich!


Brian Chidester is a teacher and member of the
Bristol-Warren Education Association. He blogs at
riredteacher.wordpress.com.






Illinois governor proposes raising employee pension contributions, retirement age 

By: Rob Kozlowski

http://www.pionline.com/article/20120420/DAILYREG/ 120429988

April 20, 2012

Pensions and Investments Online

Illinois Gov. Pat Quinn on Friday announced a reform
proposal for the state's five retirement systems that
includes increases in employee contributions and the
retirement age.

The Public Pension Stabilization Plan, which maintains
the existing defined benefit plans, would replace the
current statutory funding schedule, with a 30-year
"closed" actuarially required contribution.

The five pension plans have a combined unfunded
liability of $83 billion, according to the governor's
office.

Other parts of the proposal include a three percentage
point increase in employee contributions and an
increase in the retirement age to 67, to be phased in
over several years.

"Unsustainable pension costs are squeezing core
programs in education, public safety and human
services, in addition to limiting our ability to pay
our bills," Mr. Quinn said in a prepared statement.
"This plan rescues our pension system and allows public
employees who have faithfully contributed to the system
to continue to receive pension benefits. I urge the
General Assembly to move forward with this plan, which
will bring a new era of fiscal responsibility and
stability to Illinois."

The plan also would phase out the state's
responsibility for pensions paid to retirees from local
school districts, community colleges and public
universities, which the governor's office says now
accounts for 78% of the state's pension costs.

Mr. Quinn on Feb. 22 committed to making the statutory
$5.2 billion contribution to the five state retirement
systems for fiscal 2013, beginning July 1, which makes
up 15% of the state's general revenue fund spending for
that year, according to a news release.

The five pension plans are the $36 billion Illinois
Teachers' Retirement System, Springfield; $13 billion
Illinois State Universities Retirement System,
Champaign; and the three retirement systems whose
combined $10.3 billion in assets are overseen by the
Chicago-based Illinois State Board of Investment --
Illinois State Employees' Retirement System, Illinois
Judges' Retirement System, and Illinois General
Assembly Retirement System, all based in Springfield.

Mr. Quinn said in a news conference Friday that he
wants the General Assembly to consider his proposal
before it adjourns on May 31.

A phone call to Kelly Kraft, spokeswoman for Mr. Quinn,
was not returned by press time.

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