Meeting later in the year than previously, NCTR and NASRA were able to successfully hold their Joint Legislative Workshop on Monday, March 7th, in Washington, DC, without freezing weather or the threat of a blizzard. Speakers included key Congressional pension staff, Treasury Department and SEC officials, and a Special Assistant to President Obama. A former Member of Congress also provided attendees with a candid assessment of the political environment facing them on Capitol Hill and some suggestions as to how best to deal with it. The workshop concluded promptly at 3:00 PM, giving some attendees time to visit their Congressional delegations. The annual event received good marks from attendees, so please be sure to plan on attending next year’s workshop if you weren’t able to make this year’s meeting.
The annual NCTR/NASRA Joint Legislative Workshop came at a particularly critical moment for public pensions in Washington, DC. From Capitol Hill to the Federal departments and regulatory agencies, the level of interest in governmental plans and concern for their continued sustainability has never been greater.
As in the past, Jeannine Markoe Raymond, NASRA’s Director of Federal Relations, joined Leigh Snell, her counterpart at NCTR, to begin the workshop on Monday morning with a brief overview of NCTR and NASRA Federal legislative and regulatory issues for 2011. The top priority was the so-called “Public Employee Pension Transparency Act” (PEPTA), introduced by Congressman Devin Nunes (R-CA) in the House of Representatives (H.R. 567) and Senator Richard Burr (R-NC) in the Senate (S. 347). However, there were also other issues of serious concern that were addressed, including:
- IRS Normal Retirement Age regulations, currently set to apply to public plans in the first plan year beginning on or after January 1, 2013;
- possible re-interpretation of Revenue Ruling 2006-43 dealing with employer pick-ups and the application of the ruling to employee elections, whether they be to join a new tier (the so-called “Orange County” issue) or to purchase service credits; and
- the Securities and Exchange Commission (SEC) rulemaking involving the possible treatment of appointed members of pension boards as municipal advisers.
SEC, Senate Finance Committee and Treasury Presentations
Jeannine and Leigh were followed by a discussion of the SEC and its relationship to the public pension community, presented by Rich Ferlauto, currently the Deputy Director of Policy in the SEC’s Office of Investor Education and Advocacy. Many NCTR members know Rich from his previous role as director of Corporate Governance and Pension Investment for the American Federation of State, County and Municipal Employees (AFSCME).
All too often, the SEC seems to relate to public pension plans primarily as institutional investors interested in corporate governance issues. Now that he is “on the inside,” Rich was able to provide a candid view of the way in which the SEC understands (1) public pensions in their role as providers of retirement security; (2) the relationship of plans to plan sponsors in the public sector; and(3) how fiduciary duty as applied to public pension trustees operates on more than simply disclosure.
Rich also described the role of his Office and what it can offer public plans, particularly as it relates to trustee education opportunities. He also stressed that when it comes to regulatory proceedings pursuant to the new Dodd-Frank financial markets reform law, plans and other interested parties should feel free to ask for meetings as well as provide written comments on proposals, even if the formal comment period for such has expired.
Rich was followed by a panel discussion featuring Tom Reeder, Senior Benefits Counsel for the Senate Finance Committee and its Chairman, Senator Max Baucus (D-MT). Tom was also the Benefits Tax Counsel for the Treasury Department under the previous Administration. Tom was joined by Michael Kreps, Pensions Counsel for the Senate Committee on Health, Education, Labor, and Pensions (HELP) and its Chairman, Senator Tom Harkin (D-IA). Michael was instrumental in arranging for the very well-received January briefing of key Senate staff (on a bipartisan basis) by State and local government officials concerning the state of public pensions that NASRA and NCTR helped orchestrate.
Tom and Michael offered their insights regarding what to expect in 2011 from their two Committees, particularly as it relates to pensions, retirement security, and related issues. While Tom said that the legislation introduced by Senator Burr and referred to the Finance Committee was not currently “on the front burner” for Committee consideration, it was nevertheless still on the stove top. As for the possibility of tax reform, he said that there was much interest in the so-called “tax expenditures” in the Internal Revenue Code, such as the home mortgage interest deduction as well as deferrals associated with retirement savings. Everything will be on the table if tax reform is pursued, he stressed.
Michael said that there was much concern among Senate staff with the press reports of imminent plan failures, and cautioned that all it would take would be a major plan failure to trigger interest by some Senators and their staff in increased Federal regulation of public plans, perhaps along the lines of a Public Employee Retirement Income Security Act (PERISA).
The final presentation of the morning was provided by George Bostick, the Treasury Department’s Benefits Tax Counsel within the Office of the Assistant Secretary for Tax Policy. As such, Mr. Bostick is responsible for developing and reviewing policy, legislation, regulations, and revenue rulings dealing with all aspects of employee benefits taxation and related matters, including qualified retirement plans such as public pensions.
George and his colleague, Mark Iwry, the senior adviser to the Secretary of the Treasury and Deputy Assistant Treasury Secretary for Retirement and Health Policy, have been very supportive of public pensions, and have devoted literally tens of hours in meetings over the last year with NCTR, NASRA and other public sector representatives on a number of issues, including the Normal Retirement Age regulations, and most recently, the question of the application of the employer pick-up rules generated by a request from Orange County, California, for a private letter ruling to permit current employees to individually elect into a new, reduced tier of benefits.
George has been very willing to listen to public plan concerns with the possible implications of action in the pick-ups area, depending on its nature, with respect to other employee elections, such as the purchase of service credits, and the broader implications that any decisions might have with regard to future plan design decisions. While he was unable to present what the final resolution of this matter might look like, he did indicate the sensitivity of the discussions and the need for action in the near future.
George also touched on a number of other issues, including the IRS governmental compliance initiative, the pending revision of the definition of a governmental plan – it is still “imminent” -- and the status of any final decisions dealing with the normal retirement age issue, including a discussion of the perceived problems in this area pursuant to the pre-ERISA vesting rules, and the likelihood of any possible “grandfathering.”
A Word from the White House
The luncheon speaker was Brian Deese, Deputy Director of the National Economic Council and Special Assistant to the President for Economic Policy. Mr. Deese helps to coordinate policy development on a number of the Administration’s economic priorities including tax policy, retirement security, clean energy and manufacturing, and the auto industry. He was asked to discuss the growing interest in Washington with the operations and funding of public pensions, and the degree to which they are perceived as fitting in with the overall budget picture at the State and local level.
Mr. Deese proved to be very knowledgeable with regard to public pension issues. He assured attendees that the Administration was aware of the concerns with funding, but felt that the issues were long-term in nature and that States were taking appropriate steps to address sustainability. He was asked if he thought that public pensions were sufficiently transparent at the present, and replied that he thought that while the goal should always be to improve transparency, regardless of subject matter, he believed that the current GASB review of public pension accounting and disclosure was the appropriate place for this issue to be decided. He also distinguished between transparency and clarity, observing that the former, which should be the goal, was not always necessarily synonymous with the latter.
A View from the House of Representatives – Past and Present
Following lunch, the next presentation was made by Aharon Friedman, Pensions Tax Counsel to the House Committee on Ways and Means and its Chairman, Dave Camp (R-MI). Mr. Friedman was joined by Michele Varnhagen, Director of Labor Policy for Democrats on the House Committee on Education and the Workforce and a long-time pension adviser to Congressman George Miller (D-CA), the Committee’s Ranking Member.
This panel provided a view of retirement security in general and the PEPTA legislation in particular from the perspective of the House of Representatives and its new GOP majority. Mr. Friedman is very interested in the discount rate used by public pensions, and conversant with arguments on both sides of the issue. However, he said that at the present, Chairman Camp had not yet taken a position on PEPTA, and that there were no current plans to hold hearings on the legislation in the Ways and Means Committee.
Michele touched on what she sees as the future of retirement security from a Federal policy perspective, and raised the on-going concerns of her boss with the adequacy of 401(k) plans as a primary retirement vehicle. She also expressed concerns with the amount of misinformation in the media on public plans, and encouraged NCTR and NASRA members to be sure to educate their Congressional delegations as to the true condition of public pension funding.
The conference wrapped up on a high note with a rousing presentation by Earl Pomeroy, one of the best friends that the public pension community has ever had on Capitol Hill. Mr. Pomeroy lost his campaign to be re-elected last November to his seat in Congress representing North Dakota, and is currently with the law firm of Alston and Bird. He discussed the misinformation campaign surrounding the PEPTA legislation and the problems with what he referred to as “zero-risk” pension funding being advocated by Congressman Nunes and others. He also provided attendees with some inside tips and pointers on how best to get their messages across in Hill meetings. As someone who has heard the arguments and concerns of his former colleagues with the perceived weaknesses of public pension plans, his was a very special and valuable presentation.
The Conference ended at 3:00 PM, and many attendees then went to Capitol Hill to meet with their Congressional delegations. NCTR and NASRA provided new “Getting the Facts” presentation folders that included a fact sheet on public pensions, as well as a recent issue brief discussing the level of state and local contributions to pensions measured as a percentage of state budgets, with a chart showing employer (taxpayer) contributions to pensions as a percentage of all state and local government spending, by state, based on 2008 US Census Bureau statistics. Attendees were encouraged to add information specific to their own plan as part of the package.
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