October 7, 2014 9:41 AM
“Heads I win; tails you lose.” That essentially sums up the relationship the California Public Employee Retirement System (CalPERS) has long enjoyed vis-à-vis the Golden State’s elected officials. Now it is finally facing a serious challenge.
Last week, a federal bankruptcy judge ruled that cities must treat bondholders and pensions in like fashion. Judge Christopher Klein of the Eastern District of California said he would decide by the end of October how to apply the ruling to the bankruptcy of the City of Stockton, but it seems unlikely that pensions will escape cuts altogether, while bondholders are forced to take haircuts.
As The New York Times reported on the case:
Calpers is a powerful arm of the state, with statutory powers that include liens allowing it to foreclose on the assets of a city that fails to pay its pension bills.
Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.
“Why should I take that lien seriously?” he asked a lawyer for Calpers, Michael Gearin. “I may avoid it as a black-letter matter of bankruptcy law,” he said, referring to well-established legal principles.
He did not dispute that Stockton would be billed $1.6 billion to leave Calpers and said such a termination fee “can be seen as a golden handcuff.” But in bankruptcy, he said, Stockton could legally refuse to pay the bill because it arose from the city’s contract with Calpers, and contracts are broken routinely in bankruptcy.
“The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim,” Judge Klein said.
Judge Klein also said that Stockton had many options other than Calpers for retirement benefits: a private provider, like an insurance company; a multiemployer pension plan affiliated with a union; one of California’s county-run pension plans; or it could even offer no pensions at all.
Moody’s $2 Trillion Public Pension Shortfall Estimate Highlights Need for Better Pension Accounting PracticesOctober 1, 2014 11:12 AM
In a new report, Moody’s estimates the nation’s largest pension funds face a $2 trillion taken together. That’s a lot of money. But as significant as the size of the deficit is Moody’s criticism of how many pension funds have been managed, and pension fund’s reporting of their own liabilities. Bloomberg reports:
“Despite the robust investment returns since 2004, annual growth in unfunded pension liabilities has outstripped these returns,” Moody’s said. “This growth is due to inadequate pension contributions, stemming from a variety of actuarial and funding practices, as well as the sheer growth of pension liabilities as benefit accruals accelerate with the passage of time, salary increases and additional years of service.”
In other words, for years, many public pension plans have determined their contribution levels using discount rates based on overly optimistic projection on investment returns. That in turn, has led to pension plans using riskier investment strategies in search of higher yields—a strategy the California Public Employee Retirement System recently abandoned in the case of hedge funds.
September 22, 2014 2:12 PM
CalPERS knows when to fold ‘em. The California Public Employee Retirement System, the nation’s largest public pension fund (and one of the world’s largest), announced last week that it would no longer invest in hedge funds, where it had sought larger returns in the hopes of gaining greater investment returns. It’s the right move. But it’s really only correcting a mistake, for CalPERS should have never held ‘em in the first place.
September 15, 2014 10:56 AM
That was the question at the center of a September 9 House Health, Employment, Labor, and Pensions Subcommittee hearing, which was held in response to the National Labor Relations Board’s (NLRB) July 29 decision declaring McDonald’s to be a “joint employer” with all of its local franchisees across the country.
Subcommittee Chairman Rep. Phil Roe (R-Md.) warned that the decision would diminish business opportunities for Americans by destroying the franchisee model that allows entrepreneurial people to use an established brand name to start a business instead of starting on their own from scratch.
The first witness, Catherine Monson, CEO of a franchise who has been in the business for 30 years, warned that the NLRB decision would impact many lines of business in addition to hotels and restaurants, including accounting and home improvement services. Monson said that, “I have seen franchising allow people to achieve the American dream of business ownership.” She expressed strong disagreement with the ruling, because franchisees pay their own taxes and hire, fire, manage, schedule, and train their own employees. The franchisor sets overarching standards to protect the brand name but has no input on franchisees’ labor relations.
But if franchisors were required to have direct input over labor relations, they would be liable for any charges of unfair labor practices. The potential for significant legal costs would force franchisors to enhance their oversight of the franchisee. Monson said this enhanced oversight would reduce franchisees’ autonomy, thus effectively ending the franchisee system. When asked about the costs to franchisees from this decision, Monson said there would have to be “cuts.”
Jagruti Panwala, a first generation immigrant from India and a franchisee, said that she would not have started her own business without the franchise system. Panwala said that franchising helped her business grow by attracting new customers and that, “Ultimately, franchising appealed to us because we still controlled our own business and simply paid fees for the use of a brand name.” Panwala, who employs roughly 200 people at a hotel, said that the impact of a decision forcing her franchisor to be involved in labor relations would hurt morale of her employees, some of whom have worked for her for over a decade. She described the potential restructuring of the franchise system as “devastating” to her business and said that it would make her an employee of the parent company instead of a business owner.
September 4, 2014 3:13 PM
Government contractors could face a financial death sentence over labor law, civil-rights law, or wage-and-hour law violations under a recent Obama executive order I discussed earlier, EO #13673. By contrast, Federal agencies like the Consumer Financial Protection Bureau often face little penalty for violating the law.
Minority employees at the CFPB allege pervasive discrimination there, reports the Washington Times. The discrimination itself is unproven, but it seems clear that minority employees have been subjected to retaliation for speaking out about what they perceive as discrimination. Such retaliation is typically illegal even when the employee’s complaint of discrimination turns out to be mistaken.
The CFPB responded to allegations of discrimination in pay by essentially raising employee salaries in general, at taxpayer expense (the agency funds itself out of money it takes from the Federal Reserve): minority “employees say the pay increases are just restitution, but because almost everyone got bonuses and promotions, it just raised the playing field instead of equalizing it.” The net result was to reward the agency for its own wrongdoing.
Federal agencies explicitly receive preferential treatment compared to private companies in federal labor and employment laws. Federal agencies are completely exempt from punitive damages under federal employment and civil-rights laws. And a deadline for suing that is 300 days against a private employer may be only 30 days against a federal agency.
August 28, 2014 11:00 AM
A federal judge in Pittsburgh has reprimanded the National Labor Relations Board for its heavy-handed and questionable treatment of University of Pittsburgh Medical Center (UPMC) in a labor dispute between the healthcare giant and the SEIU.
A UPMC hospital is undergoing a two-part trial over SEIU’s allegations that the company committed unfair labor practices. The first case involves the charge that UPMC management conducted interrogations and surveillance of organizing activity and made implied threats of discipline and arrest. NLRB judges have not yet issued a ruling for that case. The second case involves SEIU’s claim that UPMC is one entity, and therefore vulnerable to unionization, which the UPMC denies because it claims that each hospital is its own entity.
U.S. District Judge Arthur J. Schwab weighed in and said,
The Court does not see how these requests have any legitimate relationship or relevance to the underlying alleged unfair labor practices; instead, the requests seek highly confidential and proprietary information (except for a few public documents); the requests have no proportionality to the underlying charges; and, the requests seek information that a union would not be entitled to receive as part of a normal organization effort.
Judge Schwab also said,
Indeed, the scope and nature of the requests, coupled with the NLRB’s efforts to obtain said documents for, and on behalf of the SEIU, arguably moves the NLRB from its investigatory function and enforcer of federal labor law, to serving as the litigation arm of the union, and a co-participant in the ongoing organization effort of the union…
In the end Judge Schwab unfortunately decided to let the NLRB get away with the excessive barrage of subpoenas.
If the NLRB is indeed stepping out of its investigatory function and acting as air support for the SEIU’s organizing effort of UPMC, it would not be the first time the federal bureaucracy has played favorites under President Obama’s watch.
August 25, 2014 11:01 AM
Earlier, we discussed President Obama’s recent Executive Order 13,673, which “will allow trial lawyers to extort larger settlements from companies, and enable bureaucratic agencies to extract costly settlements over conduct that may have been perfectly legal.”
But it turns out that President Obama’s executive order (which allows the Labor Department to cut off firms’ government contracts over state or federal employment law verdicts or fines against them) has another, more ironic effect: It penalizes companies based in states like California that vigorously enforce labor and civil-rights laws, leading to employers in those states racking up more fines and verdicts against than similarly-behaving employers in other states. That’s the conclusion of Warren Meyer, the head of a campground-operation company based in Arizona, who recently closed his operations in neighboring California to avoid lawsuits.
He says that “government contractors would be insane to operate in California,” given its “regulatory and judicial culture that assumes businesses are guilty until proven innocent. If state labor violations or suits lead to loss of business at the national level, why the hell would a contractor ever want to have employees in California?”
Whether a large company is sued for discrimination or labor law violations often has more to do with its location than whether it violated the law. A recent study shows that “California has the most frequent incidences of [employment-practices] charges in the country, with a 42 percent higher chance of being sued by an employee for establishments . . . over the national average. Other states and jurisdictions where employers are at a high risk of employee suits include the District of Columbia (32% above the national average) [and] Illinois (26%).” It’s because of their location, not because California employers are more racist or anti-union than employers in other states (indeed, California employers spend more time and money on compliance mechanisms than employers elsewhere).
The president probably thought his order would incentivize compliance with federal labor norms (it allows contracts to be cut off for violations of federal labor laws and roughly “equivalent” state laws). But in effect it punishes employers in states that vigorously enforce civil-rights and labor norms through state laws that ban the same thing as federal law, but through much harsher penalties. (For example, federal law bans sex discrimination in hiring, but caps emotional distress and punitive damages for even the largest employers at $300,000 under Title VII of the Civil Rights Act. But California’s Fair Employment and Housing Act allows unlimited compensatory and punitive damages for the same exact discrimination, leading to multi-million dollar damage awards in some seemingly ordinary discrimination cases.)
The variation between California and other states in how often workers sue reflects the fact that some parts of the country are much more generous to workers who sue their employer than other parts of the country. How many lawsuits an employer faces is a function of how much workers and their lawyers expect to recover if they win a lawsuit.
August 20, 2014 4:42 PM
Does it make sense to require a park campground operator that has a few hundred employees at 120 different locations to come up with 120 separate affirmative-action plans, one for each site? Just because it also receives a measly $52,000 federal contract to clean bathrooms used by tourists (which it does very cheaply, at cost, in order to make its nearby concessions more attractive)?
To any economist, the answer would be “no.” But to the Obama administration, the answer is “yes.” If a federal contractor gets $50,000 annually from the federal government, or “serves as a depository of Government funds in any amount” or has “government bills of lading” worth $50,000, it generally has to have a separate affirmative action plan for “each of its establishments,” under a regulation issued by the Department of Labor in March 2014.
July 30, 2014 4:12 PM
A new CEI study by economist Lowell Galloway and public policy expert Jonathan Robe demonstrates the harmful economic effects of unionization on a state-by-state basis.
Among the states most adversely affected by unionization, Michigan has suffered the most with a 23.1 percent loss in real per capita income because of unionization since 1964. Michigan is the latest state to abandon forced unionism by passing a right to work law, and Michigan workers are probably kicking themselves for not passing one sooner.
July 28, 2014 9:55 AM
Coauthored with Alex Bolt.
President Barack Obama spuriously claimed, "These so-called right-to-work [RTW] laws, they don't have anything to do with economics," when he futilely attempted to thwart Michigan’s enactment of a right-to-work law.
A new study by the Competitive Enterprise Institute demolishes Obama’s spurious claim by showing how RTW laws, which free workers from a mandate to join a union in order to be employed, benefit states. RTW laws produce better income, population, and job growth than in forced-unionism states.