AC Alert for October 12, 2011 State Pension Colas: Are They Losing Their Fizz?

Oct 13, 2011 12:45 PM ET

AC Alert for October 12, 2011 State Pension Colas: Are They Losing Their Fizz?

New York and New Jersey are about as close geographically as they can be, separated only by the Hudson River. However when it comes to state pension plans, they're a world apart.

In his letter of September 2011, New York State Comptroller Thomas P. DiNapoli advised eligible New York State Pension recipients that their annual COLA (Cost of Living Adjustment) would be included in September checks. "The COLA is a permanent automatic increase in your pension each September. Your annual COLA is guaranteed by legislation enacted in 2000. Prior to the enactment of the law, pensioners did not receive automatic, annual pension benefit increases. Instead, legislation providing a one-time supplemental pension payment was periodically enacted. Unlike COLA. These supplemental payments were irregular and infrequent. Although the COLA increase is modest, I hope it is reassuring to know that you can count on receiving an increase in your pension benefit each September." (Source: Office of the New York State Comptroller)

When it comes to public employee pension fund COLA's, things are quite different next door in New Jersey:

"On June 28, 2011 Governor Christie signed the Pension and Health Benefit Reform Law. Under a provision in this law, future COLA adjustments are suspended for retirees and benefit recipients of all retirement systems." (Source: New Jersey Division of Pensions and Benefits).  The states are located side-by-side and seem to be a world apart when it comes to public employee pensions.

What we are witnessing here is more fallout from the economic recession. State pension funds were especially hard hit over the past several years and some states have implemented remedial steps which would have been heretofore politically impossible. 

When one considers the many millions of families impacted by the pension payments made by state and other municipal pension systems throughout the country, this is big news. Your AC editors have been monitoring the status of the state pensions even before the onset of the recession.

Our early hunch was that there would be historic measures taken, so we created a Hot Topic section: "Pensions, The Next Fiscal Crisis?"

Millions of Americans now employed in the public sector and many more millions of retirees who once worked in these sectors are covered by pension systems to provide for payments in post-retirement.  In most cases, the systems took the form of defined benefit plans, whereby a retiree receives a specified monthly benefit, predetermined by a formula based on his or her earnings history, tenure of service and age.

Often, salaries in the private sector outpaced the salaries of government workers, so the “difference” for an employee entering the workforce was the promise of payments and benefits in retirement.  Over the years public employee labor unions also negotiated for more generous plans at contract time. 

Today, some government salaries have caught up to or surpassed many similar positions in the private sector -- yet retirement promises were not usually cut back. In addition, investment earnings for pension systems in recent years have tanked, placing considerable pressure on government leaders to reduce benefits.

The financial condition of each system or state dictates, to an extent, what steps need to be taken. AC editors keep watch on public sector pension systems, monitoring media reports while cutting through the red tape and legalese contained in their lengthy annual reports to give our readers fresh, accurate information.  Here are some recent excerpts from our Pension Hot Topic Section:

3 Fortune 500 firms to disclose political spending
(Source: Long Island Business News) A trio of Fortune 500 companies -- Marriott International, Yum Brands (parent of Pizza Hut and Taco Bell) and Limited Brands -- whose stock is held by the New York State Common Retirement Fund have agreed to disclose their political campaign contributions and procedures, after requests from New York State Comptroller Thomas P. DiNapoli.

CalPERS officials are fined for not properly reporting gifts
(Source: Los Angeles Times) Board members and officers of CalPERS, the nation's largest pension fund, have been fined for not properly reporting gifts from investment firms. The 16 fines, levied by the state's Fair Political Practices Commission, underscore that CalPERS remains embroiled in an influence-peddling and public-corruption scandal that began two years ago.

Kansas Pension Gap May More Than Double
(Source: Gardener Fixing Kansas' underfunded state pension system will take more money than previously thought. Members of a panel formed to recommend changes believe tougher accounting rules will force the Kansas Public Employees Retirement System (KPERS) to raise its current US$8.3 billion projected shortfall in meeting long-term pension obligations over the next 30 years.

PEAC 2011: New York to build up in PE as pension funds juggle size
(Source: PE News) New York City's pension funds are set to become one of the biggest pension fund backers of private equity. However, they continue to grapple with the problem of how to deploy large amounts of capital while also benefitting from the success of newer firms.

US pension plan deficit at end-September reaches a post- World War II high, according to Mercer analysis
(Source: Mercer) The aggregate deficit in pension plans sponsored by S&P 1500 companies increased by US$134 billion during September. This deficit corresponds to an aggregate funded ratio of 72% as of September 30, compared to 79% in August and 81% in December.  Mercer believes that the end-of-month pension funding levels for the S&P 1500 are at a post-World War II low.

European plans embrace SRI
(Source: Global Pensions) More than half (56%) of European corporate pension funds now have an SRI policy in place and 25 % of those without SRI policies intend to implement one within the next 12 months.

This is just a sampling of the information in our Alert. Go here for the full text of this alert, and more information on Sustainability, and other Accountability related topics.