Investment and benefits issues are spotlighted in referenda before voters in at least 11 states.
And, the use of derivatives by a state pension fund has become an issue in Delaware's gubernatorial election.
Jennifer Davis Harris, director of the pension and benefits project for the Government Finance Officers Association, Washington, said she's not surprised by the volume of pension issues going before the voters.
"State pension funds have become more sophisticated...and they're realizing they need to make changes that will make them more viable in the future," she said.
Among the referenda:
Indiana and South Carolina both are seeking to end bans on equity investments for the state retirement systems.
New Mexico voters are being asked to allow the state's $7 billion permanent fund to increase its stock exposure.
Montana is asking to allow state compensation insurance fund money to be invested in stock.
California's Proposition 211 would increase protections against securities fraud.
Virginia and Nevada voters will be asked to block the state from dipping into public pension fund assets.
Louisiana voters will decide whether newly elected and appointed officials can be excluded from public retirement systems.
Oregon wants to reduce benefits for state employees while increasing the retirement age.
Detroit is considering a change in the payout of investment returns beyond the $2.3 billion Detroit General Retirement System's chosen actuarial rate.
Voters in Indiana and South Carolina will be asked in November to overturn constitutional amendments banning state pension funds from investing in equities.
"The referendum is a huge issue in Indiana," said William Sheldrake, president of the Indiana Fiscal Policy Institute, Indianapolis.
Institute researchers estimate the two major Indiana funds - the Indiana Public Employees' Retirement Fund and Indiana State Teachers' Retirement Fund - lose an average of 239 basis points a year because they can't invest in equities (assuming the two funds had the median equity commitment and the median equity return of public pension funds in other states).
Although similar referenda failed in 1986 and 1990, a July poll showed voters this time are evenly split, Mr. Sheldrake said.
South Carolina Treasurer Richard Eckstrom hopes voters will overturn an 1895 constitutional amendment banning state retirement funds from investing in corporations. He has been speaking to three groups per week and has had positive responses, he said.
The pension question is nestled among several other referenda that voters are expected to approve, he said, enhancing the chance it will pass.
Expanding investment choices
New Mexico voters will decide whether to loosen restrictions that require the $7 billion New Mexico State Permanent Fund to hold a maximum of 50% of total assets in corporate securities; stocks must have a 10-year dividend payment record and be traded on a major U.S. market exchange. The fund now has about 60% in fixed-income assets, said Bob Gish, investment officer for the fund.
The measure would allow the fund to increase stock holdings to 65% of total assets and remove the dividend payout requirement, which prevents the fund from investing in many smaller companies.
In Montana, approval of a constitutional amendment would allow the $550 million state compensation insurance fund to invest in stocks, a practice now reserved only for the state pension fund. Both are overseen by the Montana State Board of Investment.
Protections for state funds
Trustees of the $98.4 billion California Public Employees' Retirement System, Sacramento, are expected to vote Sept. 16 on what stand, if any, to take on Proposition 211.
Kayla Gillan, the fund's general counsel, believes trustees should oppose the measure. The proposition contends, among other things, that California securities laws do not adequately prevent securities fraud, putting state pension assets at risk.
The proposition would add four statutes. It is - at least in part - a response to the federal Private Securities Litigation Reform Act of 1995, which made it more difficult for shareholders to bring lawsuits against corporations for securities fraud.
The new federal law gives substantial investors like the California fund a lead plaintiff role in lawsuits; Ms. Gillan opposes the proposition because it doesn't have this important component. The provision can be "of significant value to CalPERS" by expanding the leadership role of large investors in monitoring the activities of corporations in which they invest, she said.
Virginia and Nevada voters will decide whether their respective states need legal remedies to prevent officials from raiding state pension funds.
In Virginia, the measure - which is expected to pass - would make the $22 billion Virginia Retirement System an independent public trust. And, it would limit the use of retirement funds to the payments of benefits, refunds and administrative expenses. Investments would be allowed "solely in the interests of the members and beneficiaries of the system."
This would complete a move toward independence started last year, when legislation making the fund an independent state agency was approved.
The referendum also is part of a move to exclude the fund from political influence. A law passed in 1994 split the responsibility of appointing board members between the governor and the General Assembly. Previously, the governor appointed board members.
The Nevada measure would restrict officials from tapping state fund money for the state budget or any purpose not pension-related. The state has never raided the pension fund, but the measure would prevent it from occurring.
In Louisiana, voters will decide whether to exclude newly elected and appointed officials from opting into any public retirement system.
Legislators, city council members and appointed members of various local and state boards and commissions are considered part-time employees. Supporters of the amendment say public pension fund benefits should be reserved for full-time workers.
Current elected officials would not be affected by the measure.
In Oregon, Measure 45 seeks to diminish benefits for public employees. The measure would raise the minimum full retirement age to 65 from 58 and reduce benefits for employees who accept early retirement. The measure also would ban the Oregon Public Employes' Retirement System from guaranteeing retirees an 8% minimum rate of return, and would cap benefits for an individual at 75% of final salary.
Legal experts suggest Measure 45 probably would be deemed unconstitutional if approved by voters.
Changing pension rules
A Detroit referendum would change an idiosyncrasy in pension rules for the $2.3 billion Detroit General Retirement System that results in the payout of any investment returns beyond the funds' selected actuarial rate.
Returns greater than the fund's assumed actuarial rate are paid to the city and current and former participants, as decided by Detroit's board. Over a 10-year period through 1994, participants received about 65% of the "excess" returns paid out, while providing only 22% of the contributions, according to the Citizens Research Council of Michigan.
The council estimates the city's contributions to the fund were an average of $18 million a year higher under existing rules, for the same 10 years. If the referendum passes, the excess returns will continue to be paid out of the fund, but in proportion to the source of the contributions, not at the behest of the board.
In Delaware, candidates in the race for governor are strongly disagreeing over the state pension fund's derivative investments.
Delaware state Treasurer Janet Rzewnicki, the Republican candidate, has charged her opponent, Democratic incumbent Thomas Carper, with encouraging derivative investments by the $3 billion state pension board.
The state's pension fund is a separate trust, and Ms. Rzewnicki is not a board member. But Ms. Rzewnicki, if elected governor, would appoint board members who would remove derivative investments and would be more conservative with the fund's investments, said campaign manager Jeffrey Busch.
More than 25% of total assets of the Delaware State Employees' Retirement Fund are in derivatives, Mr. Busch said, not mentioning the type of derivative investments. A. Dale Stratton, chairwoman of the Dover-based fund, said less than 10% of the fund's assets are in derivatives as she defines them. She said none of the fund's derivative investments could be considered risky.
"Practically all the derivatives we use are for reducing risk, facilitating trading or reducing commission costs; none of this exposure is risky," Ms. Stratton said.
John Carney, campaign manager for Mr. Carper, said that after Ms. Rzewnicki inquired about the pension fund's derivative investments, "the board defended its investment policy and its high rate of return, and the governor expressed his confidence in the board's ability to do its job.
"We don't believe the (fund) is overly risky with its investments."
Alabama's supernumerary system
Alabama residents will vote on a constitutional amendment to eliminate the state's supernumerary system, a separate pay-as-you-go retirement system for elected officials. The amendment would eliminate the system for future elected officials and allow them to join the state retirement system. The amendment stands a good chance of approval, sources said.
Former elected officials become supernumeraries at retirement age. In theory they can still be called on to work, but in practice that never happens. Supernumeraries, who contribute about 6% of salary, are paid out of county general funds; they receive 50% to 75% of the current elected official's salary.
A sheriff who serves an average of 16 years (four terms) earns back every penny he put into the unfunded supernumerary system within eight months of retirement.
Sonny Brasfield, assistant executive director of the Association of County Commissioners of Alabama, estimates the change would add about 600 employees to the $16 billion Retirement Systems of Alabama. The supernumerary system costs counties $3.5 million a year in aggregate and the state, $1 million. Switching to the funded retirement system would be cheaper, Mr. Brasfield said.
The proposal failed in two previous tries.
This story was written by Patricia B. Limbacher with reports from Paul G. Barr, Barry B. Burr, Susan Naese, Margaret Price, Marlene Givant Star, Fred Williams and Christine Williamson.