%1

Workers who sued Eastman Kodak Co. in a 2012 class action after seeing their retirement savings dwindle as the value of their Kodak stock evaporated, have agreed to a $9.7 million settlement, the Rochester (N.Y.) Business Journal reported today. U.S. District Judge David Larimer yesterday handed down a ruling giving the settlement pact his preliminary stamp of approval. The pact’s terms call for what remains of the $9.7 million payout after administrative expenses are paid to be proportionately split among some 21,000 former participants in Kodak pension and employee stock-ownership plans. Kodak workers filed the class action in January 2012, roughly a week after Kodak filed a chapter 11 bankruptcy that would ultimately see the Kodak stock in their 401(k) accounts and employee stock-ownership portfolios become worthless. Kodak officials had been aware of the former camera giant’s mounting woes for at least the previous two years and should have protected workers against the likely devaluing of Kodak shares, the workers claimed.

New accounting rules that took full hold last year prevent governments from counting on investment returns after they’re broke, a technique that masked the scale of the debts they face as workers retire, according to a Bloomberg News analysis today. But outside of their certified books, they’re free to sideline it. “There is great confusion about the numbers and what they mean,” said Robert North Jr., former chief actuary for New York City’s pension funds. “Whatever numbers are used are dependent on how they are created, what they represent and their purpose.” The strains of America’s public pension funds have taken on renewed importance since the credit crisis, which saddled them with investment losses from which they haven’t fully recovered. By the end of 2015, state and local government retirement systems had $1.7 trillion less than they will eventually need, up from a $293 billion shortfall eight years earlier, according to Federal Reserve Board figures. Because governments typically count on investment returns of more than 7 percent a year, when they fall short of that they need to pump additional money into the funds to catch up. Such financial pressure led Moody’s Investors Service to cut Chicago’s bond rating to junk last year and threatens to exaggerate the fiscal crisis in Puerto Rico. It can also pose risks to municipal-debt investors if a government goes broke: In the major bankruptcies that followed the recession, bondholders bore deeper losses than retirees. The changes from the Governmental Accounting Standards Board were aimed at addressing concerns that states and cities were using investment-earnings forecasts to minimize the size of their unfunded debt to retirees. As a result, when putting a current value on pension obligations due far in the future, they now have to use less aggressive assumptions for the years after they run out of cash. Read more. 

Tune in tomorrow as a special “Eye on Bankruptcy” program filmed live at ABI’s Annual Spring Meeting tackles issues surrounding the looming crisis in public and private pensions. Click here to register for free. 

More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money, the Washington Post reported today. Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the country’s largest multi-employer pension plans. The potential cuts are possible under legislation passed by Congress in 2014 that for the first time allowed financially distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund. The law weakened federal protections that for more than 40 years shielded one of the last remaining pillars that workers could rely on for financial security in retirement. For many workers, the promise of a guaranteed income stream for life — a benefit now nearly extinct for younger generations — was at times strong enough to convince them to sacrifice pay raises or other job opportunities. But after decades of challenges that left many pension funds in tough financial straits, some people are learning in retirement that the promises made to them may have to be broken. The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, was the first plan to apply for reductions under the new law. Consumer advocates watching the case say that the move could encourage dozens of other pension plans across the country that are facing financial struggles to make similar cuts. Read more. 

The crisis facing public and private pensions is the focus of the April “Eye on Bankruptcy” online program that was recorded live at ABI’s Annual Spring Meeting. Click here to register to watch! 

Nearly 400,000 retirees who worked in the trucking, parcel delivery and grocery supply industries face drastic pension cuts on July 1 as a result of a little-noticed measure attached to a huge end-of-year spending bill passed in December 2014, the New York Times reported today. Many members of Congress say they were not given the time to read the provisions or did not grasp the ramifications at the time, and they now say they would not have voted for the legislation. The bill allowed trustees of multi-employer retirement plans to slash benefits if a pension fund’s failure was likely to overwhelm the underfunded Pension Benefit Guaranty Corp., the federal government’s main insurance program for pension plans. The retirees, all beneficiaries of the Central States Pension Fund, which is projected to be insolvent within a decade, were informed of the reductions through letters that began arriving in the mail last October. By law, the cuts must be approved or rejected by the Treasury Department, which in the face of outcry has now turned for help to Kenneth R. Feinberg, the lawyer who administered compensation related to the Sept. 11 attacks and the BP oil spill in the Gulf of Mexico. Read more. 

The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on Saturday at ABI's Annual Spring Meeting in Washington, D.C.! 

New York City’s biggest public employee pension fund is poised to vote Thursday to begin pulling its investments from hedge funds, the latest move by a large pension plan to scrap an investment path that once promised big returns, the Wall Street Journal reported today. The move by the New York City Employees’ Retirement System, which says it is the nation’s largest pension fund for municipal employees, is expected to be approved in a majority vote by its trustees. “Hedge funds are charging exorbitant fees for high-risk and opaque investments,” said Letitia James, the city’s public advocate, and one of the trustees of the pension fund. “As financial stewards of public employees’ money, we must invest in responsible and secure assets,” she said in a statement. The vote comes after other large public pension funds in California and Illinois have taken similar steps. A large pension fund in Ohio recently took testimony on the topic. Read more. (Subscription required.) 

The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on Saturday at ABI's Annual Spring Meeting in Washington, D.C.! 

The U.S. public pension system has developed a $3.4 trillion funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies, the Financial Times reported yesterday. According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger. Large pension shortfalls have already played a role in driving several U.S. cities, including Detroit and San Bernardino, Calif., to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits. Joshua Rauh, a senior fellow at the Hoover Institution, a think-tank, and professor of finance at the Stanford Graduate School of Business, who carried out the study, said: “It is quite likely that over a five to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role.” Read more.

The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on Saturday at ABI's Annual Spring Meeting in Washington, D.C. Register here. 

Chicago had its credit rating cut to the lowest investment grade by Fitch Ratings after the Illinois Supreme Court tossed out Mayor Rahm Emanuel’s plan for dealing with the mounting debt to its workers’ pension plans, Bloomberg News reported yesterday. The two-step downgrade on Monday to BBB-, one rank above junk, affected $9.8 billion of general-obligation bonds and $486 million of debt backed by sales taxes. The company said that the outlook is negative, indicating that the rating could be lowered further. The step follows the March 24 decision by the state’s top court to strike down Emanuel’s plan, which required the city and employees to boost contributions to the municipal and laborers retirement funds and cut future cost-of-living increases. The court ruled that it violated safeguards to public pensions enshrined in Illinois’s constitution, illustrating the difficulty Chicago faces in reducing a $20 billion shortfall in its retirement funds. Read more.

Can a financially distressed government unit restructure its pension obligations over retiree objections? Prof. Amy Monahan of the University of Minnesota Law School joins ABI Resident Scholar Melissa Jacoby to explore this difficult topic on an ABI Podcast. Listen here. 

The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on April 16 at ABI's Annual Spring Meeting in Washington, D.C. Register here.