Incumbents, pension amendments mostly receive voters' OK
Incumbent candidates and parties largely won re-election in state and local races Nov. 6, thwarting proposals by several losing candidates to place new public employees into defined contribution plans.
Meanwhile, most of the constitutional amendments on state ballots that concerned pensions and benefits were passed, although they aren't expected to provide much relief for pension debt problems.
Democratic incumbents in Oregon, state Treasurer Ted Wheeler and Secretary of State Kate Brown, each earned another term while North Carolina Treasurer Janet Cowell defeated Republican challenger Steve Royal.
The victories in Oregon could equal good news for participants in the $57.9 billion Oregon Public Employees Retirement Fund, Salem. Challengers Tom Cox for treasurer and Knute Buehler for secretary of state both called for large-scale pension reviews and reform. Mr. Cox proposed a four-step reform that included placing all new state employees in a DC plan and eventually moving existing employees into the plan by freezing benefit accruals to their defined benefit plan.
Mr. Wheeler is on the Oregon Investment Council, which oversees more than $70 billion in assets, including the public employees' system. He wants the system's board to evaluate lowering its assumed rate of return of 8%.
In North Carolina, another term for Ms. Cowell allows her to continue pursuing lead-plaintiff status in a federal lawsuit against the underwriters of Facebook Inc.'s May initial public offering on behalf of the $74.5 billion North Carolina Retirement Systems, Raleigh, which she serves as sole fiduciary. In an earlier interview, Ms. Cowell said it has been a goal of hers to lend a “strong voice” against poor corporate governance practices at technology companies.
Indiana and Montana selected new governors, although each comes from the same party as their predecessors — Republican Mike Pence in Indiana and Democrat Steven Bullock in Montana. Mr. Bullock is projected to beat Republican Rick Hill - he leads 48.76% to 47.42% with 94% of precincts reporting.
Mr. Pence, who will replace Mitch Daniels, will appoint a state budget director, who also serves as ex-officio board member of the $25.7 billion Indiana Public Retirement System, Indianapolis.
Indiana Treasurer Richard Mourdock will complete the last two years of his term after he was defeated in his bid for U.S. senate by Democrat Joseph Donnelly. Mr. Mourdock, a Republican, oversees the $388 million Indiana State Police Pension Trust, Indianapolis, and selects a member of the INPRS board.
In Montana, Mr. Bullock supports current Gov. Brian Schweitzer's proposals to increase employer and employee contributions to shore up the state's $8.1 billion pension system. Mr. Hill proposed new employees be placed in a DC plan.
"Show-me state' winner
In Missouri, incumbent Democratic Treasurer Clint Zweifel earned another term, defeating Republican challenger Cole McNary 50.3% to 45.5%. Mr. McNary wanted to address the financial health of the state pension systems as a top priority and eliminate the treasurer's seat on the state retirement system board, calling it a conflict of interest. Mr. Zweifel in the past has pushed for a lower assumed rate of return for the $7.7 billion Missouri State Employees' Retirement System, Jefferson City. The current rate is 8%.
In a county race in California, Neil Derry, incumbent Third District supervisor in San Bernardino County, was defeated by James C. Ramos, 59.2% to 40.8%. Mr. Derry unsuccessfully proposed a pension-reform measure for the ballot that would have raised the retirement age to 62 from 55 for new non-safety employees and reduced the amount they earn annually toward their pension benefits. He was expected to continue pushing pension reform if elected to another term. Mr. Ramos has been silent on the pension reform issue.
Also in California, Democrat Bob Filner won election as mayor of San Diego, defeating Republican Carl DeMaio, 51.5% to 48.5%, to become the first Democrat elected to the office since 1996. Mr. Filner opposed a voter-approved proposition to place all new hires, except police, in a defined contribution plan but has said he will implement the new DC plan because of voters' overwhelming support. Mr. DeMaio was an ardent supporter of the measure as a councilman and has worked to reduce city worker pay and pension benefits.
James F. Clayborne Jr., trustee of the $11.4 billion Illinois State Board of Investment, Chicago, handily won re-election as state senator. He also serves as chairman of the Illinois General Assembly Retirement System, which is part of ISBI. The Illinois State General Assembly recently discussed abolishing benefits for future members, but did not pass the measure.
Illinois was one of two states along with Michigan where a constitutional amendment relating to pensions and benefits was rejected. Illinois, which the Pew Center on the States has said has the worst public pension funding of all states, saw a measure fail that would have required a three-fifths supermajority vote by the General Assembly, city councils and school districts to enhance any public employee pension benefits.
“I think some voters were just simply confused and didn't know what the amendment was doing, and frankly, who could blame them,” said Diane Cohen, general counsel of the Liberty Justice Center, a public interest litigation center started by the Illinois Policy Institute, Chicago. “It wasn't very informative, and it was simply fake reform.”
Although the simple majority to increase benefits will now remain in the state, which has a funded status of 45%, the Illinois Commission on Government Forecasting and Accountability a non-partisan legislative service agency, reports that benefit increases in 2011 accounted for only 1% of the increase in pension debt among Illinois' five public pension systems, while 51.2% of debt was attributed to insufficient employer contributions.
“We don't need the constitution to amend pension reform,” Ms. Cohen said. “We can move to defined contribution plans for public employees, stop the cost-of-living increases for retirees and raise the retirement age. There's a lot that can be done short of an amendment.”
Manager law repealed
In Michigan, voters repealed the state's emergency manager law, which allows the governor to appoint a manager to be in charge of all operational aspects of municipalities and school districts that are deemed financially troubled, including pensions and investments. (The Legislature had discussed passing replacement legislation in the upcoming lame-duck session if the emergency manager law were repealed.)
Voters in New Jersey overwhelmingly passed a constitutional amendment that will allow increases in mandatory contributions for pension and health benefits from all judges' salaries. In June 2011, the Legislature passed a pension reform measure that raised employee contributions for pension and health benefits, but it was later ruled unconstitutional for judges because the New Jersey Constitution mandates that their salaries cannot be reduced during their tenure.
The state will now be able to raise judges' contributions, although the increases won't contribute significantly to funding levels overall; the New Jersey Judicial Retirement System, Trenton, has just $264.7 million in net assets.
“It's more of a philosophic victory or clarification, but it will not have any significant effect” on funding levels, said John Weingart, associate director of Eagleton Institute of Politics at Rutgers University, New Brunswick, N.J.
“I think the state is still where it was,” he said.
In Louisiana, more than 70% of voters agreed to a measure that will deny pension benefits to any employee or official convicted of a felony related to their public job, but only applies to those hired or elected after Jan. 1, 2013, and wouldn't apply to any cases that go to federal court. Despite being ranked by the Pew Center on the States as having the fifth-worst funded state pension plans with a ratio of 56%, the Louisiana amendment does more to limit corruption than it does pension underfunding.
Arkansas voters also agreed to amend the state constitution to allow cities and counties to create districts where they could levy a sales tax to back bonds for infrastructure improvements, but the tax revenue could be used to retire unfunded liabilities of closed local police and fire pension plans.
This article originally appeared in the November 12, 2012 print issue as, "Challengers' defeats stymie public DC plan shifts".