Pension360 | The Complete View of Public Pensions

Ohio Pension Looking to Lead Suit Against Brazilian Oil Company

The Ohio Public Employee Retirement System has asked to be a lead plaintiff in a class-action lawsuit against Brazilian oil company Petroleo Brasileiro SA.

The pension fund is a shareholder of the company, and says it lost money – $50 million – when Petroleo stock declined after fraud allegations came to light.

Illinois Gov. Rauner’s Municipal Bankruptcy Plan Faces Obstacles

Last week, Illinois Gov. Bruce Rauner suggested giving municipalities the power to file for bankruptcy as a way to tame pension debt.

The idea is that even if towns and cities don’t follow through, the threat of bankruptcy could give them leverage in pension negotiations with workers.

But the proposal, if it ever comes to fruition, will face legal and political obstacles, according to an analysis by Bond Buyer:

Illinois statutes don’t grant any general legal authority allowing for a Chapter 9 filing, said municipal bankruptcy expert James Spiotto, a managing director at Chapman Strategic Advisors LLC. The one exemption is for the Illinois Power Agency.

The state offers assistance for stressed communities with a population under 25,000 through its Fiscally Distressed City Act. The local government must ask the General Assembly for the appointment of a special commission to consider whether the municipality meets the act’s criteria. If approved, the municipality can qualify for state financing assistance.

Spiotto said the establishment of a Chapter 9 provision could offer some benefits, but he cautioned it should be used as a last resort when all alternatives are exhausted. Any statute best serves a state and its local governments when it includes additional layers of review and is written with market access in mind.

[…]

Municipal Market Analytics partner Matt Fabian said given unions’ historically strong influence on the Democratic majority in the state, he thinks a Chapter 9 law faces a dim chances.

“In Illinois, it’s unlikely that a bankruptcy law would be passed, and even more unlikely that what might be passed would protect bondholders over employees,” Fabian said. “The cost of capital would very likely rise.” Illinois’ local governments already pay interest rate penalties for the financial distressed of the state government.

Read the full Bond Buyer piece here.

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Pension Executive Pay Draws Criticism From Some Corners

On Sunday, the Financial Times released a list of the highest-paid pension fund CEOs. [The list can be found here.]

The compensation numbers drew criticism from some corners, who said CEOs were getting paid too much at a time when workers are being told to “tighten their belts”. Observers told the Financial Times:

Chris Roberts, director of social and economic policy at the Canadian Labour Congress, described the figures as “alarming”. “These are plans in which trustees have a fiduciary obligation to the plan members. They should be in a similar [financial] relationship to plan members,” he said.

Mr Roberts added that he was particularly concerned with respect to public sector funds. “I am not convinced that these salary levels are warranted when public sector budgets are being squeezed and public sector workers are being told to tighten their belts,” he said.

[…]

Deborah Hargreaves, founding director of the High Pay Centre, a think-tank, said: “These figures highlight why we cannot rely on pension funds to hold companies to account on pay. These pension chief executives are benefiting from the high-pay culture themselves and often see nothing wrong with multimillion-dollar awards for top bosses. Scheme members often have a different outlook, but do not have a chance to have their say.”

[…]

Ms Egan [national pension official at the University and College Union for academics and researchers] said: “[USS members] are aware that [pension executives] get high bonuses because they meet their benchmarks, and yet the funds are doing poorly and members’ benefits are being cut.

“It is problematic and our members find it very difficult. There is a mismatch between the financial world and members who work in the academic world.”

The argument for high pay has always been that it’s necessary to recruit and retain top-flight talent.

Ron Mock of the Ontario Teachers’ Pension Plan justified high executive pay in an interview with the Financial Times last year:

“[To get] upper-quartile performance, you need upper-quartile people,” said Mock.

Photo by c_ambler via Flickr CC License

U.S. Pension Funds Return 6.7 Percent; Sixth Straight Year of Gains

U.S. public pension funds saw median returns of 6.76 percent in 2014, according to Wilshire Associates. It marks the sixth consecutive year of positive investment performance for public funds in the U.S.

The country’s corporate pension plans returned 6.92 percent.

More from Bloomberg, via the Salt Lake Tribune:

U.S. public pensions reported median returns of 6.8 percent last year, the sixth year in a row of gains after the financial crisis, according to Wilshire Associates.

The gains, though, are less than the annual investment returns of 7.5 percent to 8 percent that many state and local governments count on to pay benefits for teachers, police and other employees. In the 10 years through Dec. 31, public pensions had a median return of 6.6 percent.

“A lot of the plans can’t be satisfied with a return of less than 7 percent,” said Bob Waid, a managing director at Santa Monica, California-based Wilshire, adding that a portfolio containing 60 percent U.S. stocks and 40 percent U.S. bonds returned 10 percent. “I’m a huge advocate of diversification, but you have to wonder sometimes when you see that the guy who did 60/40 beat you.”

While the Standard & Poor’s 500 Index of U.S. stocks returned 13.7 percent, public pensions were dragged down by international investments. Stagnation in Europe and a strong dollar led to losses of almost 4 percent on foreign stocks, according to Wilshire.

As Pension360 covered this week, the assets of U.S. public plans also rose to all-time highs.

Photo by Andreas Poike via Flickr CC License

Chicago Municipal Pension Looks for CIO

The Chicago Municipal Employees’ Employees’ Annuity & Benefit Fund is looking for a new chief investment officer to replace Michael Walsh, who left the fund in October for a high-level position at another pension fund.

The desired experience and education requirements for the position, according to the job posting:

*Advanced degree in a business, related major or the CFA designation or commitment to completing the designation are preferred

*Leadership experience in a similar institution, organization or government agency;

experience in a public pension system is desirable

*Good understanding of institutional investment management

*Management of staff experience

*Ability to analyze and evaluate investment managers; solid understanding of and experience with the due diligence process

*Experience working with a Retirement Board, investment consultants, auditors, and actuaries

*Basic technology skills and knowledge

*Experience in management of institutional assets is preferred

*Fundamental accounting skills

*Knowledge of the Illinois Pension Code

The full job posting can be found here.

Application are due on Feb. 25 by 4:30 p.m. central time.

Photo by bitsorf via Flickr CC License

Pennsylvania Republicans: State Pension Reform Is “No. 1 Issue” in 2015

Pennsylvania Gov. Tom Wolf, in stark contrast to his predecessor Tom Corbett, has been adamant that he is not on board with any sweeping changes to the state’s pension system – particularly the switch to a 401(k)-style system favored by many of the state’s Republican lawmakers.

But House Republicans re-iterated last week that pension reform remains their “No. 1 issue” going forward.

Video: Understanding the Illinois Pension Problem [Part 2]

Here’s attorney Matthew Benson, with his second video exploring how Illinois’ pension system got to where it is today, the severity of its underfunding, and whether workers could be affected by reforms.

View Part One here.

Photo credit: “Gfp-illinois-springfield-capitol-and-sky” by Yinan Chen – www.goodfreephotos.com (gallery, image). Via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Gfp-illinois-springfield-capitol-and-sky.jpg#mediaviewer/File:Gfp-illinois-springfield-capitol-and-sky.jpg

Texas Teachers Pension Commits $465 Million to Three Real Estate Funds

The Teacher Retirement System of Texas has committed $465 million to three real estate funds, which will invest in a gamut of sectors including residential, industrial, hotel, retail and offices.

Minnesota Legislation Would Exempt Military Pensions From Taxes

Minnesota is one of six states in the country that fully taxes military benefits.

But that could change soon, as two pieces of legislation in the state House seek to exempt some or all of military pensions from taxation.

The first, introduced by Rep. Bob Dettmer, would exempt from taxation the first $30,000 of military retirement benefits earned, regardless of the retiree’s rank.

Rep. Josh Heintzeman has introduced a similar bill. But Heintzeman’s version would exempt all military retirement income from taxation.

San Francisco Pension Investment Staff Recommends Foray Into Hedge Funds

The investment staff of the San Francisco Employees’ Retirement System (SFERS) has recommended to the board that the system allocate up to 10 percent of its assets in hedge funds.

SFERS has been waffling for a year over whether or not to put money into hedge funds, and what the allocation should be.

From Bloomberg, via FinAlternatives:

The San Francisco Employees’ Retirement System staff is recommending its board consider investing 10 percent of assets in hedge funds.

[…]

The staff said it also could support a 5 percent hedge-fund allocation for the $20 billion city pension, according to a memo sent to the board from William Coaker, the chief investment officer. The board is scheduled to consider the recommendation at a Feb. 11 meeting in San Francisco.

“Many of the objections we have heard about hedge funds are at best an incomplete picture,” Coaker’s memo said. “Hedge funds have less than half the volatility of the equity market. Transparency is improving in the hedge-fund industry as a whole.”

The San Francisco pension board in December postponed a decision on adding hedge funds to its investment mix and asked staff for a more detailed analysis ahead of this month’s meeting. The fund isn’t currently invested in hedge funds, which are loosely regulated investment pools that are generally open only to high-net-worth and institutional investors.

The San Francisco Employees’ Retirement System manages $20 billion in assets.

Photo by ilirjan rrumbullaku via Flickr CC License

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