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June 21, 2012 09:19 PM UTC

WHY DID AFSCME SUPPORT A BILL THAT RETIREES CLAIM IS A PENSION CONTRACT BREACH?

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  • by: PolDancer

AFSCME Colorado supported the enactment of SB 10-001.  Provisions of SB 10-001, relating to the taking of Colorado PERA retiree contracted COLA benefits are currently the subject of litigation.

As we read on the Colorado PERA website:

“In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

http://www.copera.org/pera/abo…

AFSCME (or AFSCME Colorado) has published materials claiming that Colorado PERA did not face a “financial crisis” in 2009.  If this is true, then why was it necessary for the General Assembly to attempt a breach of PERA retiree pension contracts?

Here is a link to an AFSCME Fact Sheet addressing Colorado PERA’s finances:

http://www.afscme.org/issues/p…

Here are a few excerpts from this AFSCME Fact Sheet:

“PERA is Financially Sound.”

“There have been some recent claims that retirement systems covering public employees are facing a financial crisis. These claims are rarely true, and they are not true of PERA. As of December 31, 2009, the combined pension plans held assets with an actuarial value of $52.8 billion and had accrued liabilities of $75.3 billion. In other words, the fund had 70.1 percent of the money it will need to pay accrued benefits in upcoming years. (Recent surveys show that the average funding level for large public sector plans is in the range of 70 to 75 percent).”

“This ratio of assets to liabilities is simply a snapshot that captures a plan sponsor’s ongoing effort at one point in time to fund its pension obligation; any unfunded liabilities can be made up over many years. If the plan sponsor is consistently making its annual required contribution, its pension plan can have a funded ratio below 100 percent yet still be on track toward full actuarial funding.”

“A recent National Association of State Retirement Administrators report points out that Colorado governments spent just 2.16 percent of their budgets on pension contributions in FY 2008, while the national average was 2.96 percent. (Issue Brief: State and Local Government Spending on Public Employee Retirement Systems, National Association of State Retirement Administrators, January 2011).”

(My comment: According to this AFSCME Fact Sheet, it appears to me that AFSCME or AFSCME Colorado believes that since Colorado PERA had “70.1 percent of the money it will need to pay accrued benefits,” at the time of the taking of the contracted retiree COLA benefit, Colorado PERA did not face a “financial crisis” at that time.

According to this Fact Sheet, it appears to be the opinion of AFSCME [or AFSCME Colorado] that a pension plan may have “a funded ratio below 100 percent yet still be on track toward full actuarial funding.”  If this is the position of AFSCME, then why did AFSCME support a bill that attempts a clear overreach . . . a taking of PERA retiree contracted COLA benefits until the PERA actuarial funded ratio achieves a 100 percent funded level?  This PERA actuarial funded ratio has occurred only twice in Colorado PERA’s 81-year history.)

Another AFSCME Fact Sheet addressing public pensions, “The Truth About Public Service Workers’ Pensions” is available at the following link:

http://www.afscme.org/issues/p…

Here are a few excerpts from this Fact Sheet that I find relevant to the taking of the Colorado PERA retiree contracted COLA benefit:

“Employee contributions and investment returns fund the overwhelming majority of the cost of pensions. Taxpayers shouldered only 14.3 percent of all pension funding in the 11-year period ending in 2007.”

“Public service workers often are not covered by Social Security, so their employer (state or local government) does not pay into Social Security as other employers do. Since the worker does not qualify for Social Security benefits, his/her pension is the only source of retirement security.”

“While politicians who run state and local governments have often failed to faithfully contribute to their employees’ plans, public workers have contributed year in and year out.”

“The deep financial downturn of 2008 and 2009, spurred by recklessness on Wall Street, caused significant problems in many pension funds. Until the recent market crash, public pensions were well funded and not a problem – they had on average 86 percent of the assets they needed to pay for accrued benefits (anything over 80 percent is considered healthy).”

(My comment:  If AFSCME believes that a pension actuarial funded ratio exceeding 80 percent is “considered healthy,” again, why did AFSCME Colorado support a bill that proposes to confiscate the contracted PERA retiree COLA benefit until the Colorado PERA pension’s actuarial funded ratio reaches a 100 percent level?)

“Pension funds are not at imminent risk of default, and they have years to recover investment loses. The history of public pension fund management demonstrates that pensions have not been a long-term burden to governments.”

“Where the problems with pension funds are substantial, the cause is the failure of employers to consistently fund pension plans and recent investment losses. In the past, too many politicians ignored pension contributions in favor of wasteful programs or special-interest tax breaks.”

(My comment: The Colorado General Assembly has skipped its annual required contributions to the PERA pension plan [as identified by Colorado PERA’s actuaries] for the last decade.  The Colorado General Assembly has “ignored pension contributions” as recently as a few months ago, when it opted to grant discretionary property tax relief in Colorado, in lieu of directing resources to meet its contractual PERA pension obligations.  The Colorado General Assembly’s policy decisions relating to the management of the PERA defined benefit plan, and meeting contractual PERA pension obligations, simply boggle the mind.)

“In any case, unfunded liabilities do not disappear if pension benefits are cut or the pension fund is closed. The pension liability debt remains.”

“In 2008, state and local government pension expenses amounted to just 3.8 percent of all (non-capital) spending.”

“The unfunded pension liabilities may be paid during a period of 30 years under generally accepted accounting. During this 30-year period, state and local government revenues will be approximately $40 to $50 trillion, so the unfunded liabilities are approximately 2 percent of governmental revenues during the payback period.”

(My comment: This statistic, provided by AFSCME, does an excellent job of placing public defined benefit pension plan obligations in their proper perspective.)

“Because of the recession, a substantial majority of state and local governments have lost between 10 percent and 20 percent of their revenues during the past two to three years. As revenues recover, governments will be able to set aside appropriate money to cover their pension obligations.”

(My comment: Instead of waiting for a turn in the volatile Colorado economic cycle, the sponsors of SB 10-001 considered the recent downturn a “window of opportunity” during which they could attempt a breach of PERA retiree COLA contractual obligations.)

“The reason costs are increasing for public pension plans is because employers are now paying for past service that the employer did not properly fund.”

(My comment: This AFSCME perspective describes the accumulation of Colorado PERA unfunded pension obligations perfectly.)

Also worth considering in view of the taking of the Colorado PERA contracted COLA benefit is a letter that AFSCME sent to the Governmental Accounting Standards Board (GASB) on September 17, 2010.  The letter addresses proposed changes to state and local public pension accounting and financial reporting.

The AFSCME comment letter that was sent to GASB is available here:

http://www.gasb.org/cs/Content…

Here are a few excerpts from the letter that I find particularly pertinent to the Colorado General Assembly’s attempted taking of the contracted PERA retiree “automatic” COLA benefit:

“AFSCME agrees with the GASB view expressed in Chapter 2: ‘that for accounting and financial reporting purposes, an employer has an obligation to its employees for pension benefits by virtue of the employment exchange, and this obligation is not satisfied until the defined pension benefits have been paid to the employees or their beneficiaries when due.'”

“Our disagreement arises where GASB intends to project the cost of ad hoc COLAs.  The reason pension plans utilize ad hoc COLAs, as opposed to automatic COLAs, is so that they can make a decision about whether or not the COLA can be funded on a regular basis.”  

(My comment: Here AFSCME recognizes the distinction that is made in public defined benefit pension administration between “ad hoc,” i.e., “discretionary” COLA benefits and “automatic” pension COLAs, i.e., COLA benefits that are a contractual obligation of public pension plans and their employer-affiliates.)

“We also have concerns with the added subjectivity that arises when determining whether facts and circumstances exist to conclude that ad hoc COLAs are not substantively different from automatic COLAs.  Actuaries and accountants should not be required to guess at future employer decisions.”

(My comment: If one skims through all of the comment letters that have been sent to GASB on this subject of state and local public pension accounting and financial reporting it is interesting to note that there is no debate at all regarding the contractual obligations of public pension plans and their employer-affiliates to pay “automatic” pension COLA benefits.  The debate in these GASB comment letters surrounds the degree to which public pension plans are contractually obligated to meet long-standing “ad hoc” pension COLA promises and expectations.)

This GASB comment letter was submitted by:

“Steven Kreisberg, Director of Collective Bargaining and Health Care Policy, AFSCME.”

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