Public employee pension reforms – a manufactured ‘crisis’

Posted by AzBlueMeanie:

"You never want a serious crisis to go to waste, and what I mean by that is an opportunity to do things that you think you could not do." — Rahm Emanuel

The Arizona Republic took this advice to heart last fall when it ran a multi-part series on the "crisis" in public employee pension funds in Arizona. See earlier, The GOP war on public employees; Professional Fire Fighters of Arizona blast The Arizona Republic for manufactured state pension 'crisis' .

For the record, all pension funds, both public and private, 401(k) funds, and all other retirement investments suffered massive losses as a result of the Bush Great Recession, the most severe economic downturn since the Great Depression.

The Arizona Republic relied heavily on research from conservative think tanks and liberally quoted from Byron Schlomach of the Goldwater Institute in its reporting. As David Safier and I have demonstrated over the years, research from the Goldwater Institute is always suspect: they start with their desired conclusion and work backwards to create a plausible construct for their conclusion. It does not meet the standards of scientific research. The Goldwater Institute is no more credible than the "junk reports" produced by its sister organization, the Heritage Foundation. See Political Animal – Heritage plays a foolish game.

The Tea-Publican Arizona Legislature then cited The Arizona Republic series as a reason for taking up public employee pension fund reforms during the past session. Regular readers know that this was part of a national legislative effort through the American Legislative Exchange Council (ALEC) and its affiliated members like the Goldwater Institute. Two reports on the tentacles of the Kochtopus and ALEC. The only question is whether The Arizona Republic was a complicit participant in this effort. We report, you decide.

So is there a "crisis" in Arizona's public employee pension funds? Certainly during the height of the Bush Great Recession, but that was temporary. How about since the stock market has fully recovered? Ironically, The Arizona Republic reports today Pension system reports big gain:

The strong stock-market rally of the past year helped Arizona's largest pension fund generate its biggest investment gain in a quarter-century.

The Arizona State Retirement System saw its portfolio rise roughly 24 percent over the fiscal year that ended June 30, minus fees, said Paul Matson, director of the $28 billion fund.

Final results won't be available until next month, but Matson expressed confidence the gains would be the best since a 31.5 percent surge in the fiscal year ending in mid-1986.

The good results could minimize the contribution increases required of public-sector workers who belong to the pension fund and for the cities, counties, school districts, state agencies and other employers who pay into it on behalf of workers. The fund counts 530,000 members, of whom 110,000 are retired.

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The latest results were well above the Arizona fund's target investment return of 8 percent yearly.

Currently, the pension program is only 75 percent funded, but scheduled contribution hikes and further positive investment results gradually will push it toward a fully funded level, Matson said.

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Three smaller Arizona public-pension funds haven't yet released investment results for fiscal 2011, but Jim Hacking, the funds' administrator, predicted their returns would be in the range of 17.5 percent. These funds are invested more conservatively than the Arizona State Retirement System, with a lower allocation to stocks.

The three funds total nearly $7 billion in assets and consist of the Public Safety Personnel Retirement System, the Corrections Officer Retirement Plan and the Elected Officials' Retirement Plan.

As with the Arizona State Retirement System, Hacking indicated that the solid investment results for these plans would help their funding status improve, thereby easing contribution pressures for employers who pay into them (worker-contribution rates are set by state law).

The contribution responsibilities for the Arizona State Retirement System, which had been split 50-50 between employees and employers, changed Wednesday to a slightly different mix that will see workers paying 53 percent of total contributions and employers, 47 percent.

Under the prior formula, workers paid 10.2 percent of their gross incomes into the system to cover pension benefits, and employers matched that on behalf of workers. Including contributions for retiree health-insurance supplements, employers and employees each paid amounts equal to 10.5 percent of worker gross income.

The contribution rate for pensions was scheduled to climb gradually to 11.3 percent by 2018 (or to 12 percent including health insurance) before eventually falling again in later years.

About those scheduled contribution hikes: the legislature's contribution formula is unconstitutional and is being litigated in court. Lawsuit filed to challenge unconstitutional public pension reform law.

More lawsuits are pending. On Friday, two Arizona Court of Appeals judges filed a notice of claim over last session’s public pension reform bill and said they intend to challenge two provisions in the new law regarding the Elected Officials Retirement Program. Appellate judges threaten suit over pension reforms – Arizona Capitol Times (subscription required):

In the claim, the judges argue that the new law violates Article VI, Section 33 of the Arizona Constitution, which states that the “salary of any justice or judge shall not be reduced during the term of office for which he has been elected or appointed.” By increasing the judges’ contributions to their pensions, the claim argues, the bill reduces the judges’ salaries.

The claim also argues that the law violates other constitutional provisions by violating the judges’ contracts and diminishing their benefits. [Article 29, Section 1, Arizona Constitution].

The public employee pension fund reforms were a manufactured "crisis," an opportunity not to be wasted by ALEC and its affiliated entities and Tea-Publican politicians, and their allies in the conservative media, who blamed public employee pension funds for state budget woes rather than the reckless banksters of Wall Street and their casino capitalism that nearly destroyed our financial system and wrecked our economy, the consequences of which we continue to suffer to this day.

The legal drama over the legislature's unconstitutional public pension reform law is going to play out in the courts for several years to come.