LEGISLATIVE REPORT: PENSION LAW AND POLICY
By Michael Karsch
The California Supreme Court finally decided on the first of the public pension cases attacking various aspects of how pensions for government workers in this state are determined, as the hiring government agencies react to mounting costs of such pensions and exploding unfunded pension liabilities. The Los Angeles Times described this as a matter about whether government pensions “can be cut.” From the conservative side, Joel Fox of Fox & Hounds, a Website focusing on California business and politics, said the court “focused on the issue immediately before it, dealing with whether particular benefits such as buying years to inflate work time on which pension benefits are calculated are vested rights and prohibiting them is a violation of the state constitution. The court said no.” The focus on the benefit of buying additional work time (air time) was deemed not to be a constitutionally protected pension benefit. The California Rule, which developed over several decades last century, generally protected pensions as of the day a person started working for a government agency (city, county, state, school district, etc.). And this rule came to be understood as protecting deferred compensation to a worker for his or her years of work for the government.
The California Rule is now viewed as generally unchanged, which is good for us retirees, but still subject to some changes that touch on some add-ons to a pension package that do not measure up to the idea of a pension being payment to a worker for his or her work performed. As summed up by the LA Times: “safeguard the reasonable pension benefits without making the excesses untouchable as well.” Those on the other side of the issue believe that not enough discretion is given to employing agencies that see rapidly escalating unfunded liabilities eating up ever-greater portions of their budgets. Mr. Fox commented that resorting to an initiative is the only way to really reform the pension issue.
Warren Buffett has warned businesses to avoid states with unfunded pension liabilities when deciding where to relocate. He added that moving to such states could mean corporate income tax boosts on the business, or personal income tax hikes on the managers and workers (Lane Report, Kentucky’s Business News).
Bloomberg reported that three new governors face three old pension disasters: Connecticut (Gov. Ned Lamont), Illinois (Gov. J.B. Pritzker) and New Jersey (Gov. Philip Murphy). Each state has less than 50 percent of assets needed to meet future liabilities, and are the only states with GO Bond grades below AA from the three biggest credit rating companies.
Armstrong Economics had this headline: “The Pension Crisis Is Starting to Explode.” Nevada Policy Research Institute says that Gov. Steve Sisolak is the latest to be enveloped by Nevada’s pension fog. Ai-cio.com (Chief Investment Officer magazine) investment research announced in late February that U.S. public pension assets tumbled in the fourth quarter. In South Carolina the Post and Courier headlined an article on Feb. 24, 2019, titled “State Pensions Still Unsustainable.”
That’s just a sampling of news around the country on pensions. California looks rather good right now