1. STATE OF FLORIDA COMMITTED UNFAIR LABOR PRACTICE, BUT THERE IS NO EFFECTIVE REMEDY: The union appealed a final order by the Florida Public Employee Relations Commission dismissing an unfair labor practice charge. The charge was based on a claim that the state had violated the union's right to collective bargaining by failing to negotiate a condition in the agreement pertaining to retirement benefits. The First District Court of Appeal concluded the state was required to negotiate the provision at issue, and that the Governor's action in referring the matter to the Florida Legislature without further negotiations with the union amounted to a denial of the right to collective bargaining. Accordingly, the appellate court reversed the Commission's order with directions to sustain the unfair labor practice charge. A condition of the subject contact provided that employees in the bargaining unit were not required to make financial contributions to the state retirement fund. The contract, in effect for a period of three years from July 1, 2009 to June 30, 2012, included a provision that would enable the parties to negotiate a change in the article pertaining to wages and to propose changes to a limited number of other articles during the second and third years. During the negotiations, neither party proposed any change to the parties' agreement as it pertained to the issue of pension benefits. The state then informed the union of its intent to reopen negotiations on the above matter, which had been previously settled by the contract. The state proposed to change “all bargaining unit members shall continue to participate in the Florida Retirement System (FRS) at no cost to the employee” to “the State agrees to administer the Florida Retirement System (FRS) in accordance with any statutory provision, or Act affecting the plan or its operation.” The following business day, the Governor submitted his proposed budget to the Florida Legislature, which, by operation of law, created an impasse in contract negotiations on all matters that had not been resolved by that time. The Legislature resolved the impasse by passing a General Appropriations Act that required public employees, including union employees, to contribute 3% of their salaries to the Florida Retirement System. The union refused to ratify this change, and filed an unfair labor practice charge against the state. It alleged that the manner in which the Governor had effected this change violated the union's right to collective bargaining over pensions, under sections 447.501(1)(a) and (c), Florida Statutes, and Article 1, section 6 of the Florida Constitution. A hearing officer concluding that the Governor's proposed substitute impermissibly deprived the association of any right to future bargaining over the terms of employee pensions. In essence, the Governor had allowed the Legislature to change the pension plan without any bargaining with the union, thus, committing an unfair labor practice. As a remedy, the hearing officer recommended that the state should compensate the union for its necessary attorney's fees and litigation costs for that portion of the original charge on which it prevailed. The Commission issued a final order rejecting the hearing officer's ultimate conclusion that the state had violated the law, as well as his recommendation that the state be ordered to pay the union's attorney’s fees. It ruled, instead, that the substituted pension language could not be construed as a waiver of the right to bargain, nor could it operate as such. The Commission found that a plain reading of the language did not provide a basis for the state to refuse to bargain, either now or in the future, over the subject of pensions. The right to collective bargaining is a fundamental right guaranteed by the Florida Constitution. The Constitution right as implemented in Chapter 447, Florida Statutes. It is axiomatic that a public employer may not violate a union's right to bargain collectively on behalf of the employees by unilaterally imposing terms and conditions of employment. Here, the Governor proposed to replace the rights established in the contract with an open-ended provision that would enable the state to administer the retirement system in accordance with any statutory provision that might be enacted into law. True, the proposal did not itself change the existing provision; however, it did effectively open the subject of retirement benefits to a potential change by a third party, in this case, the Florida Legislature. The practical effect of the Governor's action in delegating the issue of pension benefits to the Legislature was to make it impossible for the union to negotiate the issue at all. Hence, the action is one that amounts to a denial of the union's right to collective bargaining. The Governor's proposal appears to be passive, in the sense that it left the issue of pension benefits up to the Legislature. However, the budget the Governor submitted to the Legislature included a provision that would require all state employees to contribute a portion of their pay to the retirement fund. Thus, while it is correct to say that the Governor did not directly remove the existing provision regarding pension benefits in his dealings with the union, that was precisely the result he was advocating in the Legislature. The net effect of the proposal was to shift the issue of pension benefits from the process of negotiating a contract to the process of enacting legislation. Although the union sought several remedies in its unfair labor charge, in the present posture of the case, the only one that can be enforced is an award of costs and attorney’s fees. Florida State Fire Service Association, Iaff, Local S-20 v. State of Florida, 38 Fla. L. Weekly D2346 (Fla. 1st DCA November 12, 2013.)
2. FUNDED STATUS OF U.S. CORPORATE PENSIONS RISES TO 91.8%: Strong equity and fixed income returns in October, 2013 contributed to rising assets for corporate defined benefit plans, public defined benefit plans and endowments/foundations in the United States, according to the BNY Mellon Investment Strategy & Solutions Group. The funded status of the typical U.S. corporate plan rose 0.8% points, to 91.8% in October. Corporate plans led the three groups as public equities outperformed alternatives. However, public pension plans and endowments/foundations also exceeded their targets during the month. Corporate plans continue to benefit from rising equity markets, although high rated corporate bond yields fell for the first time since July, leading to higher liabilities. Nevertheless, assets for corporate plans rose 2.6%, outpacing the 1.7% increase in liabilities. With the funded status of these plans continuing to move higher, look for growing interest from plan sponsors in strategies that can lower exposure to market volatility. On the public side, the typical defined benefit plan in October posted a 1.8% excess return over its annualized 7.5% return target. Public plan assets need to earn at least 0.6% each month to keep pace with the 7.5% annual target.
3. FORMER ALLY BUCKS N.Y. GOVERNOR’S PENSION PLAN:When New York Governor Andrew Cuomo unveiled his pension reform proposal in January, few would have predicted that Stephanie Miner would become the plan’s chief critic. After all, says governing.com, Cuomo and Miner, the mayor of Syracuse, are both Democrats. In fact, Miner is the state Democratic Party co-chair, an assignment given to her last year by Cuomo. However, nothing stopped Miner from writing an op-ed in The New York Times, calling the governor’s solution to rising pension costs an accounting gimmick. In essence, the new law allows cities to contribute to their public employee pension funds at lower rates, so long as they agree to pay the outstanding amounts plus interest over 12 years. Instead, Miner argued, cities need their governor to assume a leadership role and convene state and local government leaders to address systemic problems plaguing municipal budgets. Miner thinks her city and others would ultimately be hurt by taking part in Cuomo’s pension plan, which she said is a path to insolvency. In fact, she likened it to the financial recklessness that plunged New York City into a fiscal crisis in the mid-1970s. (Separately, Moody’s said that the positive short term budgetary relief will not outweigh the cost of increasing unfunded liabilities for most local governments.)
4. CORE ELEMENTS OF A PENSION FUNDING POLICY:Government Finance Officers Association has previously recommended that every state and local government that offers defined benefit pensions formally adopt a funding policy that provides a reasonable assurance that cost of those benefits will be funded in an equitable and sustainable manner. Now, in a Best Practices, GFOA says to provide the desired degree of assurance, a pension funding policy would need to incorporate the following principles and objectives:
- Every government employer that offers DB pensions should obtain no less than biennially an actuarially determined contribution to serve as the basis for its contributions;
- The ADC should be calculated in a manner that fully funds the long term costs of promised benefits, while balancing the goals of (a) keeping contributions relatively stable and (b) equitably allocating costs over the employees’ period of active service;
- Every government employer that offers defined benefit pensions should make a commitment to fund the full amount of the ADC each period.
- Every government employer that offers DB pensions should demonstrate accountability and transparency by communicating all of the information necessary for assessing the government’s progress toward meeting its pension funding objectives.
These principles and objectives necessarily will affect decisions related to the treatment of three core elements of a comprehensive pension funding policy: actuarial cost method, asset smoothing method and amortization policy. To ensure consistency with the principles and objectives described above, GFOA recommends that a pension funding policy treat each of its core elements as follows:
- Actuarial cost method. The actuarial cost method selected for funding purposes should conform to actuarial standards of practice, and allocate normal costs over a period beginning no earlier than date of employment, and should not exceed the last assumed retirement age.
- Asset smoothing. The method used for asset smoothing should be unbiased relative to market. The same smoothing period should be used for both gains and losses, and market corridors should be symmetrical. Smoothing should occur over fixed periods, ideally of five years or less, but never longer than ten years.
- Amortization. Amortization of the unfunded actuarial accrued liability should use fixed periods that are selected so as to balance the twin goals of demographic matching and volatility management, it should never exceed 25 years, but ideally fall in the 15-20 year range. Amortization should use a layered approach for the various components to be amortized, and emerge as a level percentage of member compensation or as a level dollar amount.
5. ACTUARIAL STANDARDS BOARD REVISES ASOP NO. 27: We learned from Gabriel Roeder Smith & Company that in September 2013, Actuarial Standards Board approved a revised version ofActuarial Standards of Practice No. 27, Selection of Economic Assumptions for Measuring Pension Obligations. ASB provides standards and guidance for a broad range of actuarial practices through a series of ASOPs, including those related to pension and retiree group benefit obligations. ASOP No. 27 is intended to accommodate the concepts of financial economics, as well as traditional actuarial practice. The new standards will be effective for any actuarial work with a measurement date on or after September 30, 2014. ASOP No. 27 provides guidance related to selecting economic assumptions for measuring pension obligations. The economic assumptions include investment return, discount rate, inflation, postemployment benefit increases, compensation increases and other related assumptions. In developing specific assumptions, ASOP No. 27 requires the actuary to follow a general process of: (a) identifying the components of the assumption; (b) evaluating relevant data; (c) considering specific and general factors related to the measurement; and (d) selecting a reasonable assumption. In evaluating relevant data, the actuary should include appropriate recent and long term historical data, but not give undue weight to recent experience. Actuaries are also allowed to adjust economic assumptions to take into account possibility of adverse deviations or plan provisions that are difficult to measure.
6. LIST OF 20 PENSION ADVISERS TO RECEIVE NEW YORK SUBPOENAS MAY GROW: Forbes.com reports that New York state financial regulators have subpoenaed 20 companies that advise public pension trustees around the country on how to invest the trillions in assets under management in government plans. The investigation is ongoing, initially targeting firms that have advised New York funds, or pitched services to them. The investigation may broaden to include other pension advisory firms nationally. The firms subpoenaed are in the business of providing advice regarding allocation of pension assets and selection of managers, as opposed actually to managing money. The advice they are paid by pensions to provide is supposed to be objective -- uncorrupted by any payments to the gatekeeper/evaluator from the money managers under review. In recent years, however, the Department of Labor, the Securities and Exchange Commission and the General Accountability Office have each publicly stated that conflicts of interest of related pension advisers are widespread, and that these conflicts have resulted in reduced returns and higher fees for retirement investors. We are happy to say (at least for the moment) that we do not regularly see in Florida any of those listed.
7. URBAN INSTITUTE UPDATES SOCIAL SECURITY/MEDICARE TAXES AND BENEFITS OVER A LIFETIME: Urban Institute presents tables updated from previous estimates of lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels based on new estimates of the Social Security Actuary. The "lifetime value of taxes" is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2% real rate of return (that is, 2% plus inflation). The "lifetime value of benefits" represents the amount needed in an account (also earning a 2% real interest rate) to pay for those benefits. All amounts are presented in constant 2013 dollars. Readers can access the entire interesting report at http://www.urban.org/UploadedPDF/412945-Social-Security-and-Medicare-Taxes-and-Benefits-over-a-Lifetime.pdf.
8. RETIREMENT PLAN PARTICIPATION STABLE: The number of workers participating in an employment-based retirement plan has increased slightly, although the level of participation is down slightly, according to a new analysis by Employee Benefit Research Institute. Using the latest data from the U.S. Census Bureau, EBRI found that the number of workers participating in an employment-based retirement plan ticked up from 61.0 million in 2011 to 61.6 million in 2012. However, the percentage who participated dropped slightly, to 39.4% in 2012, from 39.7% a year earlier. The report notes that retirement plan participation by workers is strongly tied to macroeconomic factors such as stock market returns and the labor market. The stronger macroeconomic conditions of the late 1990s produced higher levels of participation, while less-positive macroeconomic conditions of the 2000s led to lower levels of participation. Some other findings are
- Several criteria were associated with lower levels of retirement plan participation, including being nonwhite, younger, female, never married; having lower educational attainment, lower earnings, poorer health status, no health insurance through one’s own employer; not working full time, full year, and working in service occupations or farming, fisheries, and forestry occupations were all associated with lower levels of participation in a retirement plan.
- Those working for smaller firms, private-sector firms, or firms in the non-professional services industry were also less likely to participate in a plan than their comparison groups.
- Geographic location also affects the likelihood of participating in a retirement plan. Workers in the South and West were less likely to participate in a plan than those in other regions of the country.
- The overall percentage of females participating in a plan was lower than that of males. Yet when controlling for work status or earnings, the female participation level actually surpassed that of males.
- Non-native-born Hispanics had substantially lower participation levels than native-born Hispanics, even when controlling for age and earnings. Black and native-born Hispanic workers had participation levels much closer to those of white workers within each age group.
9. TOP TEN OF EVERYTHING: Deepest Oceans and Seas:
average depth in meters:
Pacific Ocean 3,939
Indian Ocean 3,840
Atlantic Ocean 3,575
Caribbean Sea 2,575
Sea of Japan 1,666
Gulf of Mexico 1,614
Mediterranean Sea 1,501
Bering Sea 1,491
South China Sea 1,463
Black Sea 1,190
10. JEWISH WISDOMS: A committee is a group that keeps minutes and loses hours. Milton Berle
11. DID I READ THAT SIGN CORRECTLY? In a Laundromat: AUTOMATIC WASHING MACHINES: PLEASE REMOVE ALL YOUR CLOTHES WHEN THE LIGHT GOES OUT.
12. TODAY IN HISTORY: In 1986, SEC imposes a record $100 million penalty against Ivan Boesky (by today’s standards, $100 mil is a bag of shells.)
13. KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources.
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