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Phoenix Considers Capping Pension Benefits, Other Changes; Measure Could Be on August Ballot

The Phoenix City Council is debating whether to put a major pension measure on the August ballot, according to a report from the Arizona Republic.

The measure, designed to reduce the city’s future pension costs, would aim to eliminate pension “spiking” by putting a cap on the salary used to determine pension benefits.

But the measure would also reduce employees’ pension contribution rate.

The changes would only affect new hires, and wouldn’t apply to public safety workers.

More on the specifics of the changes, from the Arizona Republic:

Proposed changes aim to cap the size of future high earners’ retirements and combat the practice of pension spiking, or the artificial inflation of an employee’s income toward the end of a career to boost retirement benefits.

The proposed ballot initiative would cap the portion of future employees’ compensation used to determine pensions at $125,000, and require the city to contribute to a 401(k)-style retirement plan for any portion of salary above that amount. That move and changes to the retirement formula would reduce costs to the system, officials said.

[…]

Although the city estimates the new initiative cuts costs overall, it includes some changes that critics fear could increase pension expenses.

The committee’s recommended plan would reduce and cap the amount of money that new employees must contribute to their pensions at 11 percent of pay. City workers will soon pay more than 15.5 percent of their paychecks into the pension system, on top of the 6.2 percent they must put into Social Security — and their pension payment could climb to 17 percent in the next several years.

If the measure is implemented, the city expects savings of almost $39 million over 20 years.

The City Council will decide on Wednesday whether or not to put the measure on the August ballot.

If it makes the ballot, the fate of the measure will be in voters’ hands.

Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Entering_Arizona_on_I-10_Westbound.jpg#mediaviewer/File:Entering_Arizona_on_I-10_Westbound.jpg

Video: Top New Jersey Lawmaker Weighs in on Pension Payment Ruling; Talks Taxing Millionaires to Fund Pensions

New Jersey Senate President Steve Sweeney sat down for an extended interview this week, and it didn’t take long for the conversation to swing to pensions.

In the clip above, Sweeney shares his reaction to the court ruling that will force the state to pay its full pension contribution in 2015, pending appeal.

Below, Sweeney talks about the idea of levying a tax on millionaires and using the revenue to pay down pension debt.

Photo credit: “New Jersey State House” by Marion Touvel – http://en.wikipedia.org/wiki/Image:New_Jersey_State_House.jpg. Licensed under Public domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:New_Jersey_State_House.jpg#mediaviewer/File:New_Jersey_State_House.jpg

Report: Hedge Fund Assets Will Continue Growing in 2015, But Executives Recognize Underperformance

A new survey, released Tuesday by Deutsche Bank, reveals that hedge fund executives expect hedge fund assets to grow by 7 percent and exceed $3 trillion in 2015, including $60 billion of net inflows.

But the majority of executives and investors surveyed – 66 percent – also recognized that hedge funds underperformed in 2014.

From the Wall Street Journal:

Investors included in the survey had on average expected returns of 8.1%, but said they only got returns of 5.3%.

[…]

However, some investors are planning to invest more in hedge funds, despite last year’s lackluster returns.

The survey said 39% of investors plan to increase allocations to hedge funds this year, including 22% who expect to increase the size of their allocations by $100 million or more.

Other key findings from the survey, from a Deutsche Bank press release:

Investors are looking for steady and predictable risk-adjusted returns – Investors risk/return expectations for traditional hedge fund products continues to come down in favor of steady and predictable performance: only 14% of respondents still target returns of more than 10% for the hedge fund portfolio, compared to 37% last year.

With this in mind, however, 40% of respondents now co-invest with hedge fund managers as a way to increase exposure to a manager’s best ideas and enhance returns. 72% of these investors plan to increase their allocation in 2015.

Investors see increasing opportunity in Asia – 30% of hedge fund respondents by AUM plan to increase investment in Asian managers over the next 12 months, up from 19% last year. Even more noteworthy is the growing percentage of investors who see opportunity in China, up to 25% from 11% by AUM, year-on-year. India is expected to be a key beneficiary of flows, with 26% of investors by AUM planning to increase exposure to the region, whereas only 4% said the same last year.

Photo jjMustang_79 via Flickr CC License

Chart: How Institutional Investors Are Changing Their Allocations to Alternatives in 2015

Here’s a graphic that shows the percentage of institutional investors that are planning to change their target allocations to various alternative asset classes in 2015.

When it comes to increasing target allocations, 39 percent of institutional investors say they are going to increase their private equity investments in 2015.

Hedge funds may take the biggest hit; 34 percent of investors say they are decreasing their allocations to hedge funds in the coming year.

Chart credit: Coller Capital‘s Global Private Equity Barometer Winter 2014-2015

13 Unions to Sue New Jersey Over Reduced Pension Payments

A judge ruled late last month that New Jersey Gov. Chris Christie acted outside the law when he cut state pension contributions by around $2 billion through FY 2015.

But the state will appeal the decision, and the full payments weren’t included in Christie’s recent budget proposal.

As a result, more than a dozen unions said this week that they will sue the state to force it to make its full contributions to the pension system.

From NJ.com:

More than a dozen unions today announced they plan to sue Gov. Chris Christie to force him to increase next year’s payment into the public worker pension system.

[…]

This lawsuit could be expected to mirror a suit filed last summer and decided just last week that argued those payments were contractually protected and Christie broke the law he signed when he slashed them.

“This governor’s continuing disregard for his own pension funding law leaves us no choice but to go back to court to resume this fight in court on behalf of hundreds of thousands of public-sector workers who make their full pension contributions and depend on the modest income they earn in retirement,” New Jersey State AFL-CIO President Charles Wowkanech said in a statement.

Christie would have to find an additional $1.7 billion in his $33.8 billion proposed budget to make the full $3 billion pension payment unions are demanding.

The lawsuit will specifically call for the state to make the full pension payment in 2015.

The state cut its 2014 payment as well, but successfully argued that the cut was the result of a fiscal emergency, and was therefore legal.

Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Pension Transparency Bill Moves Forward in Kentucky House

A bill is moving forward in the Kentucky House that would increase the transparency around investments made by the state’s retirement systems.

The Senate unanimously passed the measure last month.

The bill would require the state’s pension funds to disclose the use of placement agents, any fees paid to those agents, and more. An official summary of the bill from Legiscan:

[The bill] require[s] the Judicial Retirement Plan, the Legislators’ Retirement Plan, the Kentucky Retirement Systems, and the Kentucky Teachers’ Retirement System to establish by reference in administrative regulation a placement agent disclosure policy; require the policy to disclose, at a minimum, to the boards of trustees of the plans and systems the name of the placement agent, dollar value of investment, and the fees or payments made to placement agent for each investment in which a placement agent was utilized; define placement agent; require the plans and systems to submit a quarterly update of the information disclosed to the respective boards of trustees to the Government Contract Review Committee; provide that the disclosure shall apply to contracts established or renewed on or after July 1, 2015.

The Senator sponsoring the bill, Chris McDaniel [R], told the State-Journal:

“The fact of the matter is there is nothing that forces them to disclose this to the General Assembly right now and by extension the public,” McDaniel said. “It’s important people know where money is and isn’t placed, the kinds of returns we are getting and to really force that.

“This will require that they do these things. It’s a bill that public employees want to see pass. It’s a bill transparency advocates want to see pass be it conservative, liberal or otherwise. People want to know how their tax dollars are being spent. I’m optimistic the House will pick it up.”

The bill is called Senate Bill 22.

Photo credit: “Ky With HP Background” by Original uploader was HiB2Bornot2B at en.wikipedia – Transferred from en.wikipedia; transfer was stated to be made by User:Vini 175.. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Ky_With_HP_Background.png#mediaviewer/File:Ky_With_HP_Background.png

Institutional Investors Cite Regulatory Risk, Transparency as Obstacles to Infrastructure Investment

The Organization for Economic Cooperation and Development (OECD) recently surveyed 71 pension funds on their interest in alternative investments.

[The full survey can be found here.]

The findings when it came to infrastructure investing were among the most interesting.

The survey found that the funds had increased their alternative investments across all categories between 2010 and 2013.

But when it comes to allocation, infrastructure still occupies the lowest rung on the totem poll.

The OECD sat down with institutional investors recently to ask why they might be hesitant to invest in infrastructure. From Investments and Pensions Europe:

At the recent OECD roundtable on long-term investment policy, institutional investors in attendance cited two main obstacles to infrastructure investment. First was the lack of a transparent and stable policy framework and regulatory risk was a top concern. Second was a lack of bankable investment opportunities.

Other important issues raised included clear and predictable accounting standards, long-term metrics for performance valuations and compensations, standardisation in project documentation, and transferability of loans and portability of guarantees. The expansion of financial instruments available for long-term investment (eg, bonds, equity, basic securitisation of loans), and the need for a clear risk allocation matrix to assign to the potential risk owner (government, investor or both) were also raised.

Ultimately, the primary concern for investors is investment performance in the context of specific objectives, such as paying pensions and annuities. Infrastructure can become an alternative asset class for private investors provided investors can access bankable projects and an acceptable risk/return profile is offered.

The study and roundtable were conducted as part of the OECD Long-term Investment Project.

Union Leaders React to Christie Reform Proposals

Last week, New Jersey Gov. Chris Christie unveiled a series of pension proposals that include freezing the current pension system for active employees and shifting them into a hybrid cash balance plan.

Throughout the week, union leaders publicly expressed their thoughts on the proposals.

Public safety unions weighed in, from NJ.com:

Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association, noted that as his union is funded by municipalities, it is in far better financial shape than those funds that have been shorted by the state through the years and his members should not face higher costs and lower benefits.

“To propose solutions to further reduce employee benefits essentially ignores the math of (Police and Firemen’s Retirement System),” Colligan said, adding that the plan “punishes nearly 40,000 law enforcement officers and firefighters who have no part to play in the state’s underfunded pension plans.

His derision was echoed by Edward Donnelly, president of the New Jersey Firefighters Mutual Benevolent Association.

“We have seen the results of Christie’s previous ‘reforms’, increased obligations to our members, while New Jersey taxpayer’s burden continues to be even greater,” said Donnelly. “Instead of more deceptive back-room deals, now is the time for us to stand together to bring about meaningful changes that save our pension system without further burdening taxpayers.”

Other unions officials spoke out, as well:

NJEA president Wendell Steinhauer claimed the teacher’s union was “deeply disappointed” that Christie “overstated the nature of the understanding” reached with the governor’s commission after months of talks.

“The pension plan’s long-term problem has always been the state refusing to put the money in,” said Hetty Rosenstein, New Jersey state director of the Communication Workers of America, “Now, here we go again.” The New Jersey chapter of the CWA represents some 40,000 state workers, as well as 15,000 county and municipal workers.

Read more about Christie’s pension proposals here.

Maryland Officials Warn Against Plan to Cut State Pension Payments

Maryland lawmakers are considering cutting the state’s payments into its pension system, citing strong investment performance.

The cuts would total $2 billion over the next 10 years, according to the Maryland Reporter.

But several key government officials are wary of the plan, including the state’s Budget Secretary and Comptroller.

From the Maryland Reporter:

Comptroller Peter Franchot and Gov. Larry Hogan’s budget secretary are both raising objections to a proposal reducing state pension payments, saving money that may be used to increase education aid and state employee salaries.

“It is a bait and switch on rank-and-file teachers and state employees,” said Franchot, as well as “bait-and-switch” on the state’s rating agencies and taxpayers.

“It is gaming the system to constantly switch from one system to another,” Franchot said, with the state constantly seeking ways to set aside less money for the retirement system.

“If we perform exceptionally well [on investments], this will be a good decision,” Budget Secretary David Brinkley told the House Appropriations Committee Friday. “If we don’t perform as we have been or hope to … it will be a disastrous decision.”

Both men sit on the Board of Trustees of the State Retirement and Pension System.

The system is currently 68 percent funded.

If the state doesn’t cut pension payments, the system is on track for 80 percent funding by 2021.

Photo by TaxRebate.org.uk via Flickr CC License

Fossil Fuel Divestment Put to Vote At Dutch Pension Funds

The members of six Dutch pension funds will vote on whether $35 billion in fund assets should be divested from coal, oil and gas investments.

Divestment advocates filed a resolution Monday asking the six funds to sell off their fossil fuel investments by 2018, and to use shareholder power to encourage energy companies to use more sustainable practices.

The majority of the funds’ members will need to vote in favor of the resolution for it to pass.

From the Guardian:

The six funds being targeted provide pensions for academics (MP Pension), engineers (DIP and ISP), lawyers and economists (JØP), architects (AP) and veterinarians (PJD), over 200,000 people in total.

The resolution filed to each fund will ask the board to “exclude investments in the 100 largest coal companies as soon as possible, but at the latest before the end of 2018, and to engage in, and annually document, a dialogue with owned oil and gas companies to exclude their investments in high-risk extraction projects, eg tar sands, deepwater drilling and drilling in Arctic.” The votes will take place in April.

In 2014, resolutions urging divestment from the top 100 coal and top 100 oil and gas companies by 2020 were filed at three of the funds received and received significant support: MP pension (49% in favour), DIP (46%) and JØP (38%).

“I think that probably for these three pension funds, we will have a majority this year,” said Meinert Larsen. “We have the impression the pension boards are moving.”

The pension funds in question manage $35 billion in assets and cover about 5 percent of the Danish workforce.

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