FRED NESBITT’S PENSION NEWS CLIPS
Fred Nesbitt is Media Consultant at Florida Public Pension Trustees Association (FPPTA). Fred is a legend in the field of public pensions, and regularly publishes news clips on Florida public pension issues. The news clips for December 2018 are particularly important, so we reproduced them below.
1. ST. LUCIE COUNTY AND ITS INSURANCE PROVIDER RESPONSIBLE FOR BENEFITS DESPITE FIREFIGHTER BEING ON LEAVE, COURT SAYS:
St. Lucie County and its insurer lost an appeal seeking reimbursement after it covered the heart attack of a firefighter who was no longer on active duty. The case started after a St. Lucie County firefighter suffered a heart attack in 2015. At the time, Florida Municipal Insurance Trust was the insurance provider for the county, so it paid Williams workers’ compensation leave. He also received full pay as he waited for the green light of his disability pension. He suffered another heart attack in 2016, but by that time St. Lucie’s provider had changed to PGCS Claim Services, and Florida Municipal refused to pay the benefits. Instead, PGCS initially paid via the pay-and-investigate clause of the Florida Workers’ Compensation Law, but a couple of months later denied the benefits, saying the second heart attack “was not compensable because its compensability hinges on application of the presumption of occupational causation,” according to the ruling. St. Lucie and PGCS subsequently filed a motion for indemnification, hoping FMIT would reimburse them as Williams did not meet firefighter status. The Judge of Compensation Claims denied the motion and St. Lucie and PGCS appealed to the First District Court of Appeal for the State of Florida. Charmaine Little, Florida Record, December 13, 2018.
2. FLORIDA PENSION FUND WILL KEEP GUN INVESTMENTS BUT URGE MANUFACTURERS TO ACT RESPONSIBLY:
Florida has joined a coalition of major pension funds and investment companies that have adopted a set of principles aimed at encouraging gun manufacturers and retailers to act responsibly. Ash Williams, executive director of the State Board of Administration, which oversees the state pension fund and other investments, said the agreement carries no mandates for gun-related companies. But he said it is designed to raise awareness of issues that could impact the value of investments in the firearms industry. Williams said there is an “ample history” of companies that have responded, both well and badly, when their products present safety risks. He said a good example was Johnson & Johnson’s response when tampering of Tylenol products became a problem. He said the company responded immediately, including creating a more secure package. Williams also said using the principles to encourage improvements in the firearms industry is a better step than facing calls for the pension fund to divest its gun-related investments. With a main pension fund of more than $160 billion and total investments being managed by the Board of Administration of more than $200 billion, Williams said the firearms-related investments held by Florida are “very small” in comparison to the overall funds. Williams also said the adoption of the principles is not part of any effort to restrict constitutional gun rights. Lloyd Dunkelberger, Sunshine State News, December 4, 2018.
3. EVERY STATE’S PENSION CRISIS, RANKED:
Every state has an underfunded pension. As members of the baby boom generation age into retirement -- approximately 10,000 Americans turn 65 every day -- more and more are relying on pension benefits as their main source of income. Public pension plans typically require employees to contribute a share of their salaries to a pool of funds that is invested on the employee’s behalf to be paid out to them in retirement. Mismanagement of the funds at the state and local levels as well as market volatility, however, may put pension benefits at risk for many workers entering retirement in the near future. The smallest pension funding gap -- the difference between a state's pension assets and its retirement benefit obligations -- sits at more than $335 million. Pension funding is largely a function of government policy, and failure by lawmakers to adequately manage risk, forecast return on investment, and budget for demographic changes can create large pension funding shortfalls. Best State: Wisconsin, 99.9% Pre-funded. Florida ranks #38 – Pre-funded at 79.4%, with an average benefit of state workers of $23,349 per year. Worst State: New Jersey 30.9% Pre-funded. Evan Comen, MSN Money, November 15, 2018.
4. 2019 RETURN TARGETS LOWER, LESS UNIFORM, POST-CRISIS:
Return assumptions across 128 U.S. public pension funds fell on average 65 basis points from 2008 to 2019, according to a November data release by the National Association of State Retirement Administrators. The average long-term return assumption was 7.3% based on the plans' fiscal year 2018 CAFRs, down from an average 8% in 2008 across the same plan population. Additionally, 91% of the plans reduced their return targets and none increased them over the period. Most plans now maintain targets of 7.25% or 7.5%. Charles McGrath, Pensions&Investments, December 10, 2018.
5. WHEN REHIRING RETIRED PUBLIC WORKERS, GUIDELINES CAN BE KEY:
Hiring employees who are returning to the workforce after retirement can be a helpful option for state and local government employers with tough-to-fill job openings. But across the U.S. the practice is subject to a wide range of restrictions meant to prevent problematic practices that can arise when retirees draw public pension benefits while also earning taxpayer-funded salaries—which is sometimes characterized as “double dipping.” The Center for State and Local Government Excellence and the National Association of State Retirement Administrators released a report that they say offers the first comprehensive analysis of post-retirement employment policies for 83 state pension plans. Their report explains that restrictions imposed under post-retirement employment policies are generally designed to balance two key goals. One is protecting the integrity of pension plans. The other is giving employers the leeway to hire the qualified employees that they need. Some of the restrictions in place on post-retirement employment include “break in service” rules, which establish how long someone must be retired before they can return to work. The rules vary between states. The Florida Retirement System has a year-long threshold. A copy of the report can be found here. Bill Lucia, Route Fifty, December 2, 2018.
6. PUBLIC SECTOR PENSIONS ASSUME RECORD-HIGH INVESTMENT RETURNS:
“Public Pension Return Assumptions Fall to All-Time Low,” reads a recent headline in the trade journal Chief Investment Officer. In fact, nearly the precise opposite is the case: never before have public sector pensions assumed such high investment returns, and they have done so through actuarial sleight-of-hand that few outside observers would notice. All of this in service of minimizing government pension costs, a goal that potentially violates pension trustees’ fiduciary obligation to work on behalf of public employees and retirees. The National Association of State Retirement Administrators reports that three-quarters of public pensions have reduced their investment return assumptions since 2010 alone. Even if pension return assumptions remain too high, as many independent experts believe, pension plans seemingly have been responsive to financial reality. The interesting question is why: why would pension trustees, with a fiduciary duty to act in the best interests of pension participants and presumably a bias toward conservative assumptions, instead squeeze the numbers to keep assumed investment returns high and government pension contributions low? Why wouldn’t pension trustees tell governments that, yes, they do need more money to keep their plans full-funded? Instead, pension trustees cut governments a break. The answer is that public sector pensions have become political animals. Many pension boards include political appointees who, in serving two masters, wish to cushion government budgets from rising pension costs. Union and employee representatives also serve on pension boards and are aware that higher pension contributions could mean lower salary raises for workers. Pension plans themselves are engaged in a broader public relations battle to defend the affordability of their benefits and to push back against reforms that might shift public employees to 401(k)-like defined contribution plans. The pension trustees’ job is to tell government officials the true cost of the pension benefits promised to employees. Government officials should either pay that cost or stop making the promises. Pension plans’ manipulation of actuarial assumptions to hide pension costs is a disservice both to government employees and to the broader public. Andrew Biggs, Forbes, December 4, 2018.
7. WHY PENSION FUNDS MAY BE DRIVING THE STOCK MARKET’S POST-CHRISTMAS BOUNCE:
Beleaguered investors may want to thank pension funds for the stock market’s biggest daily jump in nine years last Wednesday, which helped set the stage for Wall Street’s first weekly gain in an otherwise gloomy December. Strategists at Wells Fargo said that the market’s last-gasp rally last week may have been driven by buying from pension funds who needed to rebalance their portfolios toward stocks and out of bonds in to keep asset allocations in line. Defined-benefit pension funds were in the opposite spot back in January when they were sitting on fat gains from the stock market, which repeatedly notched fresh highs, as bonds struggled to keep up. Yet the past two months have seen a reversal of their positions, with pension plans now needing to top up their investments in equities after bonds outperformed in a down year for both asset classes. Pension funds need periodic readjustment as outperformance or underperformance in one corner of the pension fund’s assets can put its allocation out-of-kilter with its target weighting. Sunny Ho, Market Watch, December 31, 2018.
8. DID YOU KNOW BENJAMIN FRANKLIN SAID THIS?:
“If all printers were determined not to print anything till they were sure it would offend nobody, there would be very little printed.”
Why doesn't glue stick to the inside of the bottle?
10. INSPIRATIONAL QUOTES:
I have learned over the years that when one's mind is made up, this diminishes fear. – Rosa Parks
11. TODAY IN HISTORY:
On this day in 1790, 1st US President George Washington delivers 1st state of the union address.
12. REMEMBER, YOU CAN NEVER OUTLIVE YOUR DEFINED RETIREMENT BENEFIT.