Thursday, April 13, 2017

SB 2190 Could Be Bad News for Public Education: This Would KILL our already injured, hobbling profession...

Re-posting this, my friends. This bill made its way to the governor's desk. The latest info I have on this is that this bill primarily involves Houston which wants to draw from firefighters to make up for mismanaged pension dollars. However, it sets a very bad precedent. What Houston needs to do instead is raise bond money to cover existing losses.

Still, this is dead serious and Gov. Abbott needs to hear from all of us on this right away. Our only remaining, last-ditch effort is to bombard Governor Abbott with phone calls, urging him to veto this legislation. The office is closed for Memorial Day so first thing Tuesday, consider calling into his Information and Referral Hotline (800) 843-5789.

A longer-term agenda for our community and organizations is to upgrade our civic capacity in this arcane policy realm of pension plans. I know less than a handful of people and organizations that advocate in this area. Civil rights groups and the nonprofit sector, educational advocacy organizations, etc. need to step up to the plate. Thankfully, one such organization is Texas Association of Public Employee Retirement Systems (TEXPERS):

Not sure who in academia is keeping track of these things either. Of all the volumes of education research and policy analysis that I read and come across, I simply do not see much at all on pension plans. Perhaps folks in public management are on top of this....

In any case, we all need to up our game on this. Myself, included. I'll of course continue sharing what I learn.

Angela Valenzuela

P.S. UPDATE: The bill was ultimately signed by Gov. Abbott on May 31, 2017.

Warning, my friends.  I was just informed that there is a deeply concerning bill in the Texas State Legislature, SB 2190,   a "sleeper" bill winding its way through that recently came out of the State Affairs Committee with a near unanimous vote that reads:  "Relating to the public retirement systems of certain municipalities."   
It is my understanding that Enron trader and billionaire, John D. Arnold, out of Dallas, Texas, wants anyone employed by a governmental or municipality employees (read: teachers, college professors, state  employees, police, firefighters, etc.) to accept under this new pension plan arrangement a Contribution Benefit Plan alternative.  This is consistent with the 2015 article appearing below.
This would be a dramatic, if not draconian, shift away from Defined Benefit Plans that teachers and other governmental and municipal employees currently hold for life.  

This shift would relegate their/our futures to the vicissitudes of the stock market—and we know just how dangerous that can be.  The stock market crashes and your retirement investment vanishes in an instant.  Then they get government bailouts with taxpayers having to foot the bill. We've seen this play out already...
This 2015 piece in the Los Angeles Times below by Michael Hiltzik is a very important read as it dissects such initiatives in other states where Arnold and his cronies have meted out this policy agenda.  In a nutshell, here is what was found as a result of a study by the National Institute on Retirement Security: The experience of states that did exactly that shows that taking these steps sharply increases pension costs to taxpayers while providing employees with markedly poorer retirement benefits.
Who is going to want to be a public school teacher in Texas where they get paid poorly, frequently experience poor working conditions, and now no Defined Benefit Plan?!  This will KILL our already injured, hobbling profession where retaining teachers is hard even for districts that fare well in this very area.  Oh, but then surely, that's the idea...and to make a profit in the process as Hiltzik maintains:
Wall Street collects billions in fees from big public pension funds, but its take from millions of individual retirement accounts is potentially much higher.  
Do one good very thing for the future of Texas today and reach out to those in the legislature that represent you and tell them NO to SB 2190.  If you do not know who represents you, click here to find out. 

Angela Valenzuela

Public pension shocker: Shutting a pension plan actually costs taxpayers money

What does he get out of this? Billionaire former Enron trader John D. Arnold, a backer of the campaign against public employee pensions, testifies in Washington in 2009.

 August 21, 2015

Michael HiltzikAmid the nationwide panic over the rising costs of public employee pensions, one proposed solution is nearly universal: States and municipalities should shutter their traditional defined benefit plans and place all new employees in a 401(k)-style defined contribution plan instead.
That's the idea in a proposed California ballot initiative we reported on last week. The measure, which would end defined benefit plans for new employees as of Jan. 1, 2019, was praised by the Wall Street Journal as one that would "end defined-benefit pensions and save taxpayers billions of dollars."

As it turns out, the Journal -- and the drafters of the initiative -- have the math exactly wrong. The experience of states that did exactly that shows that taking these steps sharply increases pension costs to taxpayers while providing employees with markedly poorer retirement benefits.
The evidence comes from a study by the National Institute on Retirement Security, whose board and advisors comprise officials of public pension agencies and leading academic experts on pension economics. The study examined the experience of West Virginia, Michigan and Alaska, each of which responded to rapidly rising unfunded liabilities in their defined benefit public pension funds by closing those plans and placing new employees in defined contribution plans.

The study found that in most cases the unfunded liabilities in the old plans rose sharply, the employees in the new plans failed to build sufficient nest eggs for comfortable retirement and the cost of pensions went up. West Virginia eventually reopened its defined benefit plan to those new employees, and they piled back in. Alaska has considered doing so, but hasn't passed the required legislation.

A misperception persists ... that defined contribution plans 'save money' when compared with traditional pensions. — National Institute on Retirement Security

The main problem with closing defined benefit plans is that the demographics within the closed plans change quickly. Without new members coming in, the number of active workers making contributions shrinks. The loss of young members making contributions for years before retirement is especially damaging. California's giant pension fund, CalPERS, made this point in a 2011 white paper; its findings are confirmed by the experiences of the three states.

"A misperception persists ... that defined contribution plans 'save money' when compared with traditional pensions," the National Institute study says. But the three states in its survey "experienced a much different reality over time."

West Virginia, which closed its defined benefit plan for teachers to new workers in 1991, was paying benefits to 27,000 retirees by 2005, while fewer than 18,000 active teachers were still making contributions (6% of their paycheck, with the rest of the fund cost coming from the state). 

Meanwhile, teachers in the new plan were struggling, especially after the stock market crash of 2000-02. By 2005, the average account balance was only $41,478, and of 1,767 teachers over age 60, only 105 had balances higher than $100,000. West Virginia found that the cost of its contributions to the defined-contribution plan was roughly twice that of the traditional plan, for crummier benefits.

Michigan made a similar discovery. The state closed its traditional plan to new hires in 1997, substituting a contribution to a 401(k)-type plan of at least 4% and up to 7% of employee pay per year (depending on the worker's own contribution). This looked like a bargain, since the state was then contributing 9.1% of pay to the defined benefit plan.

Then demographics and two market crashes took over. The aging workforce in the old plan accrued ever-rising average liabilities while the return on the plan assets fell. The plan, which had been overfunded by $734 million in 1997, showed an unfunded liability of $6.2 billion by 2012. in 1997, the state's required annual contribution per active member was $4,140; by 2013, it was $37,100.

All three cases shared one fundamental reason for the traditional plans' fiscal problems: The government failed to keep up with its own contribution obligations. This is endemic across the nation. It's also the core reason for the unfunded liability in public pension plans in California, where public employers were given contribution "holidays" in the 1990s, when a bloated stock market made the public pension funds look permanently flush. When the stock market tide ran out, the wreckage emerged--and public employees, not the public officials who shortchanged the pension funds, were blamed.

The National Institute's report is a reminder that it's wise to ask who benefits in a shift in public employee pensions from defined-benefit to defined-contribution plans. Not the taxpayers, and not the employees. That leaves the major promoters of public-pension panic: Wall Street investment operators, such as billionaire John Arnold. Wall Street collects billions in fees from big public pension funds, but its take from millions of individual retirement accounts is potentially much higher. The lesson for taxpayers and public employees alike is clear: when you hear "experts" talking about how ending defined benefit plans will save everybody money, keep your hands on your wallets.

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  1. Houston Firefighters have been demonized and driven broke fighting against this bill during this session.
    We have been warning our public pension friends for over a year now, yet nothing. No phone, calls, emails or support opposing this from other Fire Departments, Pilice or Teachers until it is too late now.
    We we left alone to our fate by those who are finally wakibg up to the realization that it will be their fate as well.

  2. Yes, I'm totally amazed at how little attention this has received. Should this bill become law, it'll be a game changer, let alone create chaos in the transition as the experience from other states has shown. And Wall St. will get theirs regardless. That's what this is all about.