Corporate pensions are again an issue in bankruptcy court after a slew of filings riddled with underfunded programs and vociferous constituencies, e.g., Tops Holdings, Cenveo Inc., Appvion Inc. Outside of bankruptcy, underfunded public pensions are also getting increased attention. In Kentucky, state Senator Joe Bowen filed a new pension plan“designed to save the Bluegrass State’s public pension system” and address the state’s $60b unfunded liability. And its a whopper. The plan (i) requires a subset of teachers and government workers to put in an additional 3% toward health benefits (PETITION NOTE: there goes those tax reform benefits), (ii) eliminates cost of living adjustments for new teachers and cuts current teachers in half, (iii) unused sick days will no longer be eligible as an early retirement credit, and (iv) benefit calculations (read: how much you get paid upon retirement) will be rejiggered to require more service time to get paid a pension based on the “highest three years” of salary.
Elsewhere, in California, the California Public Employees Retirement System made a change to its amortization policy requiring the recoupment of future investment losses in 20 rather than 30 years. What does this mean? It means the state government and thousands of local government agencies and school districts will have to accelerate their mandatory contributions to the trust fund. Critics are b*tching that this accelerated schedule will push cities into Chapter 9. Assuming the pension’s 7% investment earnings target is realistic, the system is STILL underfunded by 33%. Choice quote,
“So on one hand, CalPERS is doing what it has to do to remain financially solvent, but on the other hand its self-protective steps threaten local government solvency. That’s the crisis in a nutshell.”