On Capitol Hill
Staff Provides Updates From Recent Industry Meetings
Last month, STRS Ohio’s Governmental Relations staff attended meetings and conferences that addressed numerous topics that are of interest to public pension systems. Staff shared the following highlights from those meetings.
NASRA/NCTR Winter Meeting
The National Association of State Retirement Administrators (NASRA) and the National Council on Teacher Retirement (NCTR) held their joint 2019 Winter Meeting late last month in Washington, D.C. Conference sessions included:
- NASRA Systems’ Roundtable — NASRA Research Director Keith Brainard and Research Manager Alex Brown reviewed their recent research regarding postretirement employment, noting that they found considerable variation among states and even among systems within a state. A possible explanation for this is that return-to-work policies evolve over time in response to changing workforce conditions and stakeholder considerations. The two also presented an update on recent developments in stress testing. They noted that Actuarial Standard of Practice 51, which requires risk assessment, became effective for actuarial valuations conducted with a measurement date on or after Nov. 1, 2018. Additionally, the PEW Research Center published its stress testing recommendations in November. PEW’s recommendation measures the effect on the plan’s condition and cost of a sustained low investment return, a sharp decline in asset value followed by a sustained low return and a constrained increase in contributions.
- Overview of Arnold Ventures — Robb Gray, the new vice president of policy and advocacy for Arnold Ventures, provided an update of this new enterprise. Arnold Ventures is the umbrella organization recently created to oversee the Laura and John Arnold Foundation. Gray acknowledged there might be skepticism regarding the Arnold’s new venture given their past anti-defined benefit studies. He told the group that the Arnold Foundation had learned from its past decisions and wanted to provide fact-based research for national discussions of retirement security. He said the new venture is going to be transparent in the way it awards grants and about who receives grant money.
- Current Political Landscape — Ron Elving, senior editor and correspondent, Washington Desk for National Public Radio News, provided his insight into the current political landscape. Elving noted the major policy changes under President Trump — specifically, tax, regulatory, immigration and criminal justice reforms — and what this means for retirement. Elving noted that Speaker Paul Ryan’s exit signaled a pause in the GOP’s commitment to Social Security reform, but there is continuing insecurity for pensions, retirement plans and rules in both the private and public sector.
- Federal Multiemployer Pension Legislation — The Hon. Joshua Gotbaum, guest scholar at the Brookings Economic Studies Program and Retirement Security Project, discussed the implications of federal multiemployer pension legislation on state plans. (See separate story on Page 4.) Gotbaum estimated that of the 10 million people in private multiemployer plans, approximately 3.5 million are in plans that are severely underfunded and 1.5 million people are in plans that will fail. Currently, the Pension Benefit Guaranty Corporation (PBGC) covers underfunding of pension plans, but that government agency is itself severely underfunded and in need of assistance. He noted that Congress has given federal funds to industries such as the coal miners, airlines and banks and has never allowed a federal agency to fail — so he is hopeful Congress will not allow the PBGC to be the first. Gotbaum said that any fix for the private multiemployer plans has the potential to cause confusion among the public and could cause speculation that public pensions will want a bail out and result in calls for federal regulation of public plans.
- Panel Discussion on Retirement Policy at the Congressional Level — Diane Oakley, executive director, National Institute on Retirement Security; Aliya Robinson, senior vice president, retirement and compensation policy, The ERISA Industry Committee; and Michele Varnhagen, senior legislative representative, government affairs for AARP, participated in a discussion regarding congressional interest and action on retirement policy. Issues included the new House rules that require budget increases to be paid for with additional revenue. Robinson stated her concern that retirement could be considered as a “pay for” for other issues. Varnhagen opined that the idea of requiring all types of deferred compensation to be paid using after tax dollars (i.e., Rothification) is still being discussed, while Oakley suggested the Democrats could undo a number of provisions in last session’s tax reform legislation to raise revenue.
- Panel Discussion on Emerging Federal Tax Compliance Issues — Robert Gauss, partner, Ice Miller LLP; Adam Levinson, partner, Klausner, Kauffman, Jenson & Levinson; Louis Mazawey, principal, Groom Law Group; and James W. Van Horn, Jr., partner, Hirschler Fleischer, discussed emerging federal tax compliance issues affecting public plans. Panel members discussed a range of topics that included pickup arrangements with cash or deferred arrangements, Office of Management and Budget/Department of Health and Human Services audits of pension cost of federally funded state/local employees, Federal Insurance Contributions Act (FICA) replacement regulations for non-Social Security covered employees, return to work, and Securities and Exchange Commission fiduciary rules for broker-dealers.
- Panel Discussion on Public Pension Infrastructure Investments — John Godfrey, senior government relations director, American Public Power Association; Ray Kljajic, managing director, American Public Infrastructure, LLC; and Thomas Lee, executive director and chief investment officer, New York State Teachers Retirement System, participated in a panel that discussed proposals to promote public pension investment in infrastructure. Lee pointed out that any federal legislation that would require a decades-long note would be a challenge for most pension funds because of the impact on liquidity needs. Godfrey argued that there is no need for federal bonds because municipal bonds are available, while Kljajic stated the federal government should be funding infrastructure rather than merely financing it.
- Legislative Wrap Up — Leigh Snell of NCTR and Jeanine Markoe Raymond of NASRA provided a federal legislative and regulatory update. They directed attendees’ attention to the recently introduced Social Security 2100 Act sponsored by Rep. John Larson (D-CT), which would expand Social Security benefits and taxes and bring the program into long-term solvency. They also noted that there appears to be an increased interest in FICA replacement plan regulations and safety net for employees not covered by Social Security.
Coalition to Preserve Retirement Security Annual Meeting
The Coalition to Preserve Retirement Security (CPRS) annual meeting featured both the Democratic and Republican staff directors of the Subcommittee on Social Security, House Committee on Ways and Means — Kathryn Olson and Amy Shuart, respectively. Both Olson and Shuart agreed that Social Security reform is a bipartisan issue but noted there is currently no agreement between the parties as to what the reform should look like.
National Institute on Retirement Security Annual Meeting
The National Institute on Retirement Security (NIRS) annual meeting began with keynote speakers Jim Keohane, president and chief executive officer, Healthcare of Ontario Pension Plan, and Dr. James Poterba, Mitsui professor of Economics at MIT and the president of the National Bureau of Economic Research. Their talks focused on the value of a good retirement plan and how an unstable retirement environment affects an aging society. Keohane discussed how large defined benefit plans like Canada’s model provide the most secure retirement for participants, which is particularly important with increasing life expectancies. Poterba pointed out that life expectancy increases have been concentrated in high earners.
- Panel Discussion on Workforce Implications of Retirement Benefits — Scott Brabrand, superintendent, Fairfax County Public Schools; Leon Joyner, senior vice president, Segal Consulting; and Ron Saathof, director, International Association of Fire Fighters, discussed how retirement benefits can impact the workforce. All panelists agreed that defined benefit plans can make a difference in retaining employees and whether an employee can afford to retire. Joyner reminded the group that if benefits are reduced too much, it can be difficult finding people to fill jobs and difficult for employees to be able to retire.
- Employee Benefits Security Administration Update — The Hon. Preston Rutledge, assistant secretary, U.S. Department of Labor, Employee Benefits Security Administration (EBSA), shared what EBSA is doing for retirement in the private sector. Prior to this position, Rutledge worked for Sen. Orrin Hatch (R-UT) and was a driving force behind the Secure Annuities for Employee Retirement Act of 2013, which would have created a new annuity accumulation retirement plan that could be used to provide retirement income for state and local government employees. Rutledge’s focus is now on private sector retirement issues such as trying to cut down on the administrative burden and cost for smaller plan sponsors and looking at employer record keeping to ensure participants are getting the benefits they earned.
- Panel Discussion on Improving Employees’ Retirement Prospects — Nancy Altman, president, Social Security Works; Robert Friedman, founder and chair emeritus, Prosperity Now; Stephanie Roman, senior policy analyst, UnidosUS; and Katie Selenski, executive director of CalSavers, participated in a panel conversation regarding changes that can be made today that will improve employees’ retirement prospects. Friedman noted that low income earners will become wealth creators if given the opportunity, but there needs to be a shift in how the federal budget is used to allow this to happen.
- Discussion on the Value of Long-Term Pension Investing — Allison Loat, managing director, FCLTGlobal and David Wilson, managing director, Nuveen Global Fixed Income, discussed the value of long-term pension investing. Loat told the group that long-term investors can gain between 1–1.5% extra returns simply because they are long term. Wilson said closing corporate defined benefit plans is short-term thinking, but defined benefit plans need to do a better job of aligning investment risks with obligations.
Staff Connecting With New and Veteran Legislative Offices
While in Washington, D.C., to attend the annual NASRA/NCTR Winter Legislative Conference, STRS Ohio Governmental Relations staff took the opportunity to meet with staff from the Ohio congressional delegation offices. NASRA and NCTR lobbyists noted that a key issue as it moves through Congress is any attempt to deal with the solvency of the multiemployer pension (MEPs) plans. The reason to watch any MEP-related legislation is that it would be a prime vehicle to attach legislation such as the Public Employee Pension Transparency Act (PEPTA). The PEPTA legislation has been around for close to a decade and contains provisions STRS Ohio has argued against. Generally speaking, PEPTA, which has not been introduced to date in the current Congress, would impose a federal reporting scheme on retirement systems that would require the use of a discount rate based on U.S. Treasuries. Using a lower discount rate would inflate pension funds’ liabilities. Additionally, PEPTA would prohibit any federal bailout of public pensions. It’s worth noting no state has asked for a retirement system bailout.
Closer to home, the Governmental Relations staff has also been meeting with new members of the Ohio General Assembly. During these meetings, staff reviews STRS Ohio members’ plan options, benefits available to active members, the ability by retirees to access the health care plan and the economic footprint of STRS Ohio in the state — including legislative district-specific information regarding benefit payments in aggregate. Of the 132 members of the Ohio General Assembly, 30 have never served previously, and there are several STRS Ohio members among them.
Sens. Brown, Portman Introduce Pension Accountability Act to Protect Ohio Pensions
U.S. Senators Sherrod Brown (D-OH) and Rob Portman (R-OH) introduced the Pension Accountability Act, which they called a “targeted, technical fix to amend the voting procedures under the Multiemployer Pension Reform Act (MPRA) to help Ohio workers who are being shut out of the reform process.” The bill intends to give workers and retirees a say when multiemployer pension bankruptcy calls for major pension cuts. Current law allows underfunded multiemployer plans within 20 years of insolvency to apply to cut benefits if the MPRA cuts would have more than a 50 percent chance of preventing plan insolvency. Earlier this year, both the Southwest Ohio Regional Council of Carpenters Pension Plan and the Toledo Roofers Local No. 134 Pension Plan were deemed to satisfy the requirements of MPRA. More than 5,000 Ohio carpenters are in the Southwest Carpenters Plan, and retirees could experience pension cuts as much as 70 percent by April 1. The Pension Accountability Act will give workers and retirees a seat at the table to influence the proposed solvency reforms.
Brown and Portman served on the Joint Select Committee on Solvency of Multiemployer Pension Plans last year. Following the expiration of the Joint Select Committee, both senators have continued working together to find a solution to the pension issues threatening an estimated 1.3 million Americans, including 60,000 Ohioans.
At the Statehouse
Ohio Retirement Study Council Members Appointed; First Meeting Held
The Ohio Retirement Study Council held its first meeting of 2019 on March 14. It was also the first meeting since the start of the current General Assembly and featured new members appointed by Senate President Larry Obhof (R-Montville Township) and House Speaker Larry Householder (R-Glenford). The legislative members of the Council from the Senate are Kirk Schuring (R-Canton), Jay Hottinger (R-Newark) and Hearcel Craig (D-Columbus). Members from the House are Rick Carfagna (R-Genoa Township), Derrick Merrin (R-Monclova Township) and Jack Cera (D-Bellaire).
This being the first meeting in several months, a number of reports were on the agenda, as well as a few housekeeping matters such as swearing in the members and electing officers. The reports on the agenda included: the actuarial valuations of STRS Ohio, the Ohio Police & Fire Pension Fund (OP&F) and the Ohio School Employees Retirement System (Ohio SERS); health care reports from STRS Ohio and Ohio SERS; Iran/Sudan divestment reports from all five systems; and disability reports from the Ohio Public Employees Retirement System, OP&F and the Ohio Highway Patrol Retirement System. Council staff presented a summary of activities from 2018 and those planned for 2019. The Council also approved a topic for the next issue brief to be prepared by staff. The topic will be Unfunded Liabilities and 30-year Amortization. The next meeting of the Council is scheduled for April 11.
View a report from the National Association of State Retirement Administrators (NASRA) on reforms to public pension plans in progress around the country. We will include this report monthly as part of the Legislative News.