Pension Law and Policy,
By Michael Karsch, Legislative Representative
The new year presents continuing challenges to public pensions as more and more of those systems face a growing need to pay more and more into the pensions. As many know, of course, pension checks will continue on time to most retirees, but the increased need to shell out more money just for those pensions means increased tension in public budget planning. For example, Ohio is considering a freeze on cost-of-living adjustments for its public pension plans for two years, and a two-year delay of those increases for all new retirees. The legislature of that state may enact a freeze, but not all states can do that. The unfunded liability for the main Ohio plan stands at $24 billion. The cost of living increase (COLA) is 3 percent, hence freezing it would mean reducing a monthly pension check of $1,000 in 2021 by $720 in 2023. In addition, Ohio’s health benefit for retirees is facing benefit cuts soon, to become effective in January 2022 (as reported by the Columbus Dispatch).
NBC Miami reports that Puerto Rico retirees are facing cuts of 8.5 percent in pensions, just in time to top off three years of disasters, such as the hurricane, government corruption problems, and the more recent earthquake.
California cities see the near future as pressure to cut budgets to support the higher pension bills to CalPERS (the City of LA does not belong to CalPERS), according to Bloomberg. The percentage of payroll that a typical city must pay for pension costs for its police and fire is reaching 56 percent, with some cities paying more than 70 percent. Low interest rates are hurting some investment tools, and the stock market is always vulnerable to downturns. The health crisis from the coronavirus in China is shaking up many markets due to the closing of businesses and a marked downturn in air traffic around the world. CalPERS believes that the past years’ hopes of 7 percent to 8 percent expected returns are not likely to be continued, leaving realistic goals of 3.3 percent to 6.4 percent. Heading the list of pessimistic factors is declining interest rates, followed by the health crisis, China-US trade relations, climate risks, etc.
In mid- January, the Wall Street Journal reported that the U.S. dollar is forecast to fall, which would mean a lift in commodities, since a lower-value U.S. dollar means that commodities (such as oil) monetized by the dollar will be cheaper to other markets. Commodity prices have climbed up in copper futures and U.S. crude futures, and gold traded at its highest level since 2013.
Keeping a steady hand on pension investments is an awesome duty for our officials running the systems. As recently reported by LACERS, our 10-year return growth was 8.77 percent. Solid investment decisions and no use of fads or “get rich quick” schemes is advice to heed. In our LACERS group we have had steady guidance from our LACERS Board. The RLACEI director to the LACERS Board, Michael Wilkinson, has been a firm and serious hand since 2013. He is up for re-election this March and I recommend his re-election.
Opinions expressed in this column are those of the author and not necessarily those of Alive! or the Employees Club of California.