Gubernatorial candidates in three states who proposed a move to defined contribution plans for new employees in their respective state pension systems were defeated in last week’s midterm elections.
Republican candidates in Oregon, Colorado and New Mexico who each ran on a platform that included the switch to DC plans lost decisively. Each Republican candidate had an uphill climb in states that ultimately voted mostly Democratic on the state and federal levels on Nov. 6.
Bridget Early, executive director of the National Public Pension Coalition in Washington, said voters in the three states took retirement security into account when casting their ballots. “Even when there were attempts to vilify public employees and defined benefit plans and (suggestions that) everyone should have 401(k)s, I think folks are starting to understand that (retirement security) is very important to the economy,” she said.
In Oregon, incumbent Democrat Kate Brown defeated Republican state Rep. Knute Buehler by 6.1 percentage points after the two sparred over the future of the $76.2 billion Oregon Public Employees Retirement Fund.
Ms. Brown set up a task force in 2017 to bring down PERF’s unfunded actuarial liability, which was $22.3 billion as of Dec. 31, and has said she will work with the group to continue that mission. The Oregon Legislature passed a bill championed by Ms. Brown in March that, among other directives, set up two new funds — a side account for school districts, to be invested alongside pension assets to reduce school district pension contributions, and an incentive fund to match certain lump-sum employer contributions to the pension plan.
Mr. Buehler campaigned on enrolling new employees and moving current employees to a 401(k)-type plan with an unspecified “reasonable match,” capping the salary amount used to calculate benefits at $100,000 a year, and requiring all state and local government employees to contribute toward their own retirement benefits.
Republican Treasurer Walker Stapleton was defeated in his bid for governor after proposing big changes to the $49 billion Colorado Public Employees’ Retirement Association, Denver. Mr. Stapleton was a proponent of allowing all employees to choose a 401(k)-style plan instead of the current plan, raising the retirement age and reducing the fund’s assumed rate of return to a range of 5% to 5.5% from 7.25%, which he said is more realistic.
Democratic U.S. Rep. Jared Polis, the new governor-elect who with 95% of the vote counted won by 8.3 percentage points, has come out against a pension reform measure that current Democratic governor John W. Hickenlooper signed into law earlier this year. The measure will increase the contribution rate for most PERA participants by an additional 2% of pay phased in beginning July 1, 2019, totaling 10% for most participants by July 1, 2021; require a three-year delay before receiving a cost-of-living adjustment; and set the COLA cap at 1.5% (the current annual COLA for participants who started receiving benefits prior to Jan. 1, 2007, is 2%), among other measures.
On his campaign website, Mr. Polis had said the state must preserve PERA as a defined benefit system, and added that “any changes made to PERA need to be as fair as possible to all involved — retirees, current employees, and employers.”
New Mexico voters elected U.S. Rep. Michelle Lujan Grisham, a Democrat, over U.S. Rep. Steve Pearce, a Republican, for governor by a 14.2-percentage-point margin. In a statement to P&I before the election, Mr. Pearce, referencing the state’s two major pension funds — the $15.4 billion New Mexico Public Employees Retirement Association and $13 billionNew Mexico Educational Retirement Board — said that “government pensions have stayed generous and lagged many changes. At a minimum, new employees coming into the government workforce are going to have a very different system. Employees many years away from retirement are going to have to see significant changes.”
In a debate prior to the election, Ms. Lujan Grisham said she would create a pension task force to come up with “shared sacrifices between both the employees and the employer(s) so that over time we get our pension system corrected.”
Massachusetts, Rhode Island, Illinois
Incumbent Republican Gov. Charles D. Baker cruised to a 33.8-percentage-point victory in Massachusetts. He beat Democratic challenger Jay Gonzalez, who proposed a 1.6% tax on the endowments of private, non-profit colleges and universities with endowment assets exceeding $1 billion.
In Rhode Island, incumbent Democratic Gov. Gina Raimondo received 52.7% of the vote, fending off challenges from Allan Fung, the Republican mayor of Cranston, R.I., and Joseph Trillo, a former Republican state legislator who ran as an independent.
Mr. Trillo, who garnered 4.4% of the vote, campaigned on threatening to appoint a special counsel to investigate what he called “high-risk” alternative investments made by the $8.3 billion Rhode Island Employees’ Retirement System during Ms. Raimondo’s tenure as treasurer.
In Illinois, Democrat J.B. Pritzker unseated Illinois incumbent Republican Gov. Bruce Rauner by 15 percentage points. Mr. Pritzker has yet to release a detailed plan to tackle the state’s pension issue, but it is a responsibility he soon will confront. The state’s pension funds faced $134.4 billion in combined unfunded liabilities as of June 30, 2017, according to a recent S&P Global report. Illinois’ pension funding ratio was 35.6% in 2016, the third lowest in the U.S.
In other statewide elections, Democratic treasurer candidates in Connecticut, California and Colorado each won on Nov. 6.
In Connecticut, Shawn Wooden, a partner at the law firm of Day Pitney LLP who leads the firm’s public pension plan investment practice, defeated Republican Thad Gray and will serve as the principal fiduciary of the $34.2 billion Connecticut Retirement Plans & Trust Fund. On his campaign website, Mr. Wooden said the treasurer has a duty to invest state pension funds “to maximize returns and minimize risk.”
In California, Democrat Fiona Ma beat Republican Greg Conlon for state treasurer. Ms. Ma will replace John Chiang, who was defeated in the Democratic primary for governor, and will serve on both of the state pension plan boards — the $347.1 billion California Public Employees’ Retirement System and the $229.2 billion California State Teachers’ Retirement System.
And in Colorado, Democrat Dave Young defeated Republican Brian Watson, who was in favor of raising the retirement age to at least 67 — to match Social Security — as well as reducing or freezing cost-of-living adjustments and dropping Colorado PERA’s assumed rate of return from 7.25% to something more “realistic,” according to his campaign website.
Mr. Young will have a seat on the PERA board. On his campaign website, he said he’s committed to protecting PERA’s defined benefit plan.
New York comptroller
Incumbent state Comptroller Thomas P.DiNapoli cruised to victory against a crowded field. Mr. DiNapoli is the sole trustee of the $209.1 billion New York State Common Retirement Fund, Albany, and a proponent of publicly traded companies disclosing environmental, social and governance information.
Arizona voters approved Proposition 125, which will allow the Legislature to make adjustments to the Arizona Corrections Officer Retirement Plan and the Arizona Elected Officials’ Retirement Plan. The proposition, which garnered 51.7% of the vote, calls for cost-of-living adjustments to be capped at 2% for CORP participants and for employees hired on or after July 1, 2018, to be required to enroll in a DC plan. EORP participants will also see COLAs capped at 2%, down from the current 4%.
Brian Croce covers legal and regulatory issues relating to defined contribution plans and other topics from P&I’s Washington office.