CONGRESSIONAL ATTACKS ON STATE AND LOCAL PENSIONS

CONGRESSIONAL ATTACKS ON STATE AND LOCAL PENSIONS

CONGRESSIONAL ATTACKS “Never let a good crisis go to waste” -Winston Churchill

CONGRESSIONAL ATTACKS • Attacks Disguised as Aid: • Transparency • Guaranteed Benefit

CONGRESSIONAL ATTACKS The Public Employee Pension Transparency Act H.R.1628 / S.779

Public Employee Pension Transparency Act • What the Act Requires: • Pensions Must Report their Funded Status Based on the “Risk-Free” Rate of Return. • Currently Treasuries Offer less than 3% return: Less Than Half of What Most Public Pensions Assume.

Public Employee Pension Transparency Act • What the Act Requires: • Failure to Report Revised Funded Status Will Lead to Loss of Tax Exemption for State or Municipal Bonds. • No Federal Bailouts of Public Pensions.

Public Employee Pension Transparency Act Plans would be Required to Issue Deceptive Reports that Show Huge Unfunded Liabilities. Why? • Undermines Public Support for DB Plans. • Increases Pressure on States and Localities to Replace DB Plans with DC Plans.

Public Employee Pension Transparency Act Taken Seriously Because: • Mistaken belief there is a need for transparency • Belief that we need to “do something”

CONGRESSIONAL ATTACKS Secure Annuities For Employee (SAFE) Retirement Act S.1270

SAFE Retirement Act Goal: Replace Defined Benefit Pension Plans with an Alternative that Provides a “Guaranteed” Benefit Without Burdening Taxpayers

SAFE Retirement Act • Allows Public Employers to Purchase Annuity Contracts from Insurance Companies for Employees • Annuity Contracts Purchased Each Year for up to 30% of Salary for Public Safety Occupations • Benefits Begin at Age 57 • Insurance Companies Assume the Risk

SAFE Retirement Act Some Allies Find this Approach Promising: • Its Optional • Taxpayers Won’t Get Hit with Bill for Underfunded Pension Plans • Appears to Provide an Adequate, Guaranteed Benefit • More Secure than DC Plans

SAFE Retirement Act The Reality is Much Different • There is NO Guaranteed Benefit. Employer Chooses Each Year How Much to Contribute—or whether to contribute. • Benefit Comparable to DB Plans ONLY if Employer Contributes Full 30% for 30 Years • No Death and Disability Protection • No Early Retirement

SAFE Retirement Act Biggest Challenge: “It’s Just an Option” Will State and Local Politicians See it That Way????

Other Threats to Pensions Mandatory Social Security Coverage Taxation of Pension Contributions Normal Retirement Age IRS Rule on Employer Pick-Up New Rules for DROP Plans

Attacks on Federal Employees Increased Employee Contributions is the ONLY Revenue Raiser that Republicans Support Twice, We Beat Back Attacks on Current Employees, But Forced to Accept Higher Contributions for New Hires Both Times Trend Can't Continue

The Future Growing Recognition of a Coming Crisis in Retirement Security DB-DC Conversion in the Private Sector has Failed to Deliver on its Promises What Will it Mean for Public Sector Workers?

Questions or Comments? Barry Kasinitz Director of Governmental Affairs bkasinitz@iaff.org 202-824-1581

CONGRESSIONAL ATTACKS ON STATE AND LOCAL PENSIONS