October 17, 2013 05:32 PM UTC

Virginia Legislature Vows to Begin Paying its Public Pension Bills. Colorado Legislature Prefers Breach of Pension Contracts.

• 3 Comments
• by: PolDancer

The Colorado Legislature has not paid its full public pension bill for a decade.  By failing to pay its pension bills, the Colorado Legislature has effectively borrowed from the trust funds of the Colorado PERA pension system to finance state and local government operations.

In 2010, rather than paying back the money "borrowed" from the Colorado PERA pension system, rather than meeting contractual obligations and paying accrued debts, a majority of Colorado state legislators decided to attempt to break the state's pension contracts.  Few Colorado residents know about this ongoing contract breach by the State of Colorado, since most of Colorado's media tacitly support the Colorado attempt to further cut taxes in our state through breach of contract.

Like the Colorado Legislature, the Virginia Legislature has also failed, historically, to pay its public pension bills (called the pension ARC), but rather than enacting legislation to attempt a pension contract breach, Virginia state legislators now propose to actually pay their debts.  What a concept!

From the Times Dispatch:

"Currently, the state is paying about 70 percent of the pension contributions required by the VRS, but Gov. Bob McDonnell and the General Assembly agreed last year to require the state to gradually increase its contributions to 100 percent of the requirement in six years."

As we have seen, the Colorado General Assembly has not paid its full Colorado PERA public pension bill (ARC) for a decade.

2012 PERA CAFR, page 35 – "ARC Deficiency."

"In 2012, the actual (PERA) contributions, as set in statute, were $143.4 million less than the ARC as calculated by the actuaries."

"During the past 10 years, this shortfall in funding . . . has been $3.4 billion."

https://www.copera.org/pdf/5/5-20-12.pdf

It is exceedingly ironic that the amount of money by which the Colorado Legislature underfunded its contractual PERA pension system obligations (in just 2012) is almost exactly the amount of money that the Colorado Legislature appropriated in 2013 to pay for public pensions that ARE NOT the contractual obligation of the State of Colorado.

It is simply incredible, but the Colorado Legislature, while failing to keep up with its own contractual pension obligations has transferred a total of $700 million of state funds to pay for local government pensions (Old Hire Fire and Police legacy pension debt) that is not the legal responsibility of the State of Colorado.  That's sort of like skipping your own mortgage payment to pay your neighbor's mortgage.  Your neighbor is happy, but your own mortgage company?  Not so much.

When a group of lobbyists is able to persuade elected officials to skip paying their own contractual obligations, in order to meet the contractual obligations of other organizations, rest assured that either these lobbyists are very talented, or the elected officials involved have so little knowledge of their pension obligations that they are easily manipulated.  In 2010, 27 Colorado statehouse lobbyists were registered as supporting the bill that seized Colorado PERA retiree assets, SB10-001.  Colorado legislators have relatively little knowledge of public pension administration and contractual obligations due to the fact that Colorado PERA pension administrators, lobbyists, and many Colorado public sector union officials find financial benefit in this ignorance.  These self-interested parties cut a pension COLA contract breach deal with the Leadership of the Colorado Legislature in 2009, thus an interim study committee (that would have educated Colorado legislators in the area of public pension contractual obligations) was never appointed by Legislative Leadership.

From the Richmond (Virginia) Times-Dispatch:

"'We were well aware it was going to be a significant number when we agreed to the reforms,' said Del. S. Chris Jones, R-Suffolk, chairman of the House Appropriations subcommittee on compensation and retirement. 'We’re not surprised at all.'”

"Sen. John Watkins, R-Powhatan, was the main sponsor of the reforms, including the escalating requirement on state pension funding."

"'That was the deal we made,' Watkins said Wednesday.  'Nobody is going to be happy with it, but that was the deal.'”

"The state has underfunded VRS so much that they had to pass a law so they could partially fund it,' said Henrico County Manager John A. Vithoulkas, who expects a significant increase in the county’s share of teacher pensions."

"The state still is not paying its full share of required pension contributions, which then increase unfunded liabilities."

“'Every time the full contribution is not paid, that adds a little bit to the unfunded liability,' Fernandez (Jose I. Fernandez, principal actuary for the VRS and its consulting firm, Cavanaugh Macdonald) said."

(From a publicsectorinc.ord article:

"If people are willing to look the other way at corruption in investments, they’re willing to look the other way at deliberate [public pension] underfunding, which I consider corruption as well."

"So the state is only putting in 50% of what they’re supposed to, and negative cash flows have actually hurt and dampened the investment return.  When you continue to underfund the ARC, it messes up all the usual [pension] mathematics."

"I’m more of a proponent for government in general, and I think that holding them to the ERISA standards [federal standards for private sector pensions] would get rid of a big portion of the corruption that’s out there.  A corporate pension plan could not pay half the payments for ten years like the states like Kentucky and Illinois have done.  Those guys would be in jail.  I think that public pension plans should be held to the same standard as corporate defined benefit plans. There may need to be some type of federal bailout.  If there is, we want some accountability."

Link:

http://www.publicsectorinc.org/podcasts/070613tobe.php#.UgQ3zr7nbX5)

Richmond Times-Dispatch:

"The estimate, first given to lawmakers in July by VRS Director Robert P. Schultze, has been proved accurate by an actuarial study that recommends an increase of about 3.5 percent of pay for state employee pensions and nearly 3 percent for teacher retirement just to cover 80 percent of the system’s long-term liabilities."

"The plans remain underfunded, based on the assets available to pay long-term unfunded liabilities."

"The state employee plan, with about $7.4 billion in unfunded liabilities, has a funded status of 65.1 percent.  The teacher plan, with $15 billion in unfunded liabilities, has a funded status of 62.1 percent."

"Ideally, the plans should be at least 80 percent funded, but the retirement system is still recovering from the stock market crash and recession, which slashed the value of its investments nearly 22 percent in 2009."

(My comment: Of course, equity markets have more than doubled in recent years, and in any event, public pensioners in DEFINED benefit plans bear no market risk under their statutory contracts.  Colorado PERA pension administrators seem to have forgotten this fact.

Note that the 2010 bill taking contracted PERA retiree COLA benefits, SB10-001, proposes to continue the theft of contracted PERA pension benefits until the Colorado PERA pension system achieves a 100 percent funded ratio.  That is, the Colorado legislators who voted for SB10-001 in 2010 propose to continue taking PERA retiree assets to cover state and local debt until the pension system is funded at a level 20 percent higher than the level considered to be "well-funded" for public pensions.  The pension administrators and lobbyists who developed the scheme to take property from Colorado's pensioners in 2009 decided to "Go Big."

Virginia Attorney General Kenneth T. Cuccinelli in the Harvard Journal of Law and Public Policy – "Judicial Compulsion and the Public Fisc – A Historical Overview," September 13, 2011.

Cuccinelli:

“It is widely thought that a funded ratio of about 80 percent or better [is] sound for state and local  government pensions."

“One factor militating in favor of challengers [to public pension contract breach] is that the state is entitled to less deference in the question of reasonableness and necessity, the third prong, when it exercises its sovereign power in a manner that benefits itself.”

“Attempts to change the [public pension] benefits of the retired, those qualified to retire, and voluntary participants in contributory programs probably would not be worth the effort."

"The legislatures in all states have great discretion in altering benefits prospectively for those to be newly hired.”

http://www.harvard-jlpp.com/wp-content/uploads/2013/10/35_2_525_Cuccinelli_Getchell_Russell.pdf)

Richmond Times-Dispatch:

"Pressure on contribution rates also is expected to ease as new employees enter the public workforce with reduced pension benefits under reforms enacted in 2010 and again last year.  But the new hybrid retirement program adopted last year for state and local employees will not begin applying to new hires until Jan. 1."

"The law that imposed the hybrid — a combination of limited pension benefits and a 401(k) style contribution plan — also requires the state to fully fund its share of pension plans by the fiscal year that begins in mid-2018."

(My comment: Note that the Virginia Legislature has adopted PROSPECTIVE legislation to reform Virginia public pensions, whereas the Colorado Legislature has enacted blatantly RETROSPECTIVE legislation [SB10-001] addressing the Colorado PERA pension system.  Oddly, after having adopted such retrospective legislation, taking accrued benefits from retirees in the Colorado PERA pension system in 2010, two years later the Colorado Legislature adopted SB12-149 honoring the accrued pension benefits of retirees in Colorado county government pension systems.  So, if you happen to be a retiree in certain county government pensions in Colorado, your pension contract is honored.  On the other hand, if you are a Colorado PERA retiree, your pension contract has been abrogated.  A constitutional double standard on public pension contracts is now enshrined in Colorado law.)

http://www.timesdispatch.com/news/state-regional/pension-figures-prove-accurate/article_57b47a06-2a5b-5024-ab0a-ddaec7d83459.html

Colorado PERA active and retired members, clearly, the power that lobbyists have to manipulate members of the Colorado Legislature, and in particular the power of lobbyists for Colorado PERA-affiliated employers, deserves extensive scrutiny.  In SB10-001, the Colorado Legislature gave these lobbyists access to the Colorado PERA pension trust funds, through the front door.

Support public pension contractual rights and the rule of law in Colorado.  Contribute at saveperacola.com.  Friend Save Pera Cola on Facebook!