New Orleans Looks for Ways to Cut Pension Costs

cutting one dollar bill in half

The board of the New Orleans Municipal Employees Retirement System (NOMERS) – the city’s largest public pension fund – is considering a series of cost cutting measures, some that involve trimming benefits.

Under consideration: increasing employee contributions and raising the retirement age, according to NOLA.com. The changes are currently being examined the system’s actuary.

More from NOLA.com:

New Orleans Municipal Employees Retirement System board at a January meeting released a list of the potential alterations, which included raising the retirement age and increasing the amount of money employees are required to contribute. The board forwarded the possible changes to its actuary to evaluate how they would impact the health of the pension fund, benefits for employees and the city’s budget.

[…]

Nearly all the proposals it released at the January meeting would affect only future employees. That means the city wouldn’t see much relief for many years.

Raising the employee-contribution rate from the current 6 percent of salary to 7 or 8 percent is among the only proposals by the board that would affect current workers and immediately impact the unfunded liability.

The board is examining these changes under request from City Council President Stacy Head, according to NOLA.com, who asked the board last year to come up with a list of possible benefit changes.

Pension costs are eating up increasingly large chunks of the city budget, and it’s likely the Council is looking for ways to cut those costs in the future.

Louisiana considers pension benefits as a contract between employee and employer. It’s likely, then, that legal action would accompany any benefit changes.

 

Photo by TaxRebate.org.uk via Flickr CC License

Strategic Use of ETFs By Pension Funds Will Grow, Says Research

graphs and numbers

New research by BlackRock claims that pension funds will increase their strategic use of ETFs, and that the instruments will become a bigger part of pensions’ investment portfolios.

From Investments and Pensions Europe:

For “certain investors and certain portfolio usages”, ETFs might represent a cheaper route to access equity indices, suggest the authors. Pension funds are among the clients that iShares says are buying into the trend of moving away from futures as the traditional instrument of choice for institutional investors looking for beta and towards ETFs.

“Pension funds are very big passive investors and a number have concluded that ETFs are a better way to access beta than the increasingly expensive futures route,” says Ursula Marchioni, head of equity strategy and ETP research at iShares EMEA.

[…]

Pension funds have, of course, been known to use ETFs tactically, to ensure continued exposure while in the throes of transition management, for instance, but Marchioni predicts that strategic use will also increase.

“Approximately 65% of US pension funds already declare they use ETFs for strategic investment, buying and holding for two years or more,” she says, citing Greenwich Associates research (figure 1).

Read the research here.

Video: Chicago Mayoral Candidates Talk Pensions

Chicago’s five mayoral candidates sat down with the Chicago Sun-Times editorial board on Friday to discuss their positions on a variety of issues.

But the first issue discussed – and one identified by the Sun-Times as most pressing to the city – was Chicago’s pension debt and how the candidates plan on handling it.

Listen to their answers in the video above.

 

Photo by Pete Souza via Flickr CC License

Supreme Court: Omaha Pension Can Hire Actuary on City Dime, But Not Attorney

Omaha

In 2011 and 2012, the board of Omaha’s Police and Fire pension fund considered hiring an outside attorney, as well as a consultant.

But the City told them it wouldn’t pay for those hires.

Now, the Nebraska Supreme Court has weighed in, and ruled that the pension board can indeed hire an actuary on the city’s dime – but not a lawyer.

From the World-Herald:

Friday, the Supreme Court [ruled that] the board can hire an actuary but doesn’t have the authority to hire an attorney whenever it deems necessary.

The court ruled that the hiring of an actuary to study disability payments from the pension funds was allowable and could be charged to the city’s general funds.

The actuarial study was projected to cost about $10,000.

Outside legal firms represented both the pension board and the city in the lawsuit. Now comes the part of paying those firms.

The city’s legal bill for the case will come to about $95,000.

Since the Supreme Court said the pension board doesn’t have authority to hire its own attorney, the question is not how much the board will pay, but rather if it will be able to pay.

A District court previously ruled that the pension board could hire both lawyers and consultants on the city dime. But Omaha appealed that decision up to the Supreme Court.

New Jersey Pension Investment Return Falls Short of Assumed Rate in 2014

New Jersey State House

New Jersey’s pension system earned a 7.27 percent return on its investments in 2014 – down from a 16.9 percent return in fiscal year 2013-14.

The growth fell short of the system’s assumed rate of return.

From NJ.com:

New Jersey’s pension fund earned 7.3 percent on its investments last year, which state officials said beat market expectations.

But those gains didn’t live up to the 7.9 percent annual rate experts say is needed to keep troubled pension fund from adding to its liabilities.

The investments returned 7.27 percent, but were hurt largely because of market volatility in the second half of the calendar year, said Tom Byrne, acting chairman of the State Investment Council.

“For that period of time we were ahead of our benchmark by just a tiny bit but behind the 7.9 percent bogey,” Byrne said. “One period of time only tells you so much.”

[…]

Byrne noted that the investment council’s role is only half the battle. While it manages the state’s investments, it doesn’t have any say in setting or making pension contributions.

“The pension is still underfunded, and we can only do what we can do,” Byrne said.

Governors from both parties have underfunded the pension system since 1996, shortchanging the annual payments or skipping them altogether.

Pension officials defended the system’s recent dive into alternative assets; officials said those investments have earned the system an additional $2.8 billion in returns since 2010.

 

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

More European Pensions To Move Into Real Assets, Says Study

binoculars

The coming years will find European institutional investors increasingly turning to real assets, according to new research from alternative asset manager Aquila Capital.

The new paper, titled Real Assets – The New Mainstream, predicts that investors will turn to real assets and equities and bonds will become less attractive.

Details from a press release:

The research predicts that the Dow Jones Index will deliver average total returns of 4% per annum over the next 10 years, while real returns on German 10-year government bonds are set to be negative, even if interest rates were to reach 4% by 2024.

Alongside these estimates, 60% of institutional investors in Europe expect institutional allocations to real assets to increase over the next three years.

Oldrik Verloop, co-head of hydropower at Aquila Capital, says: “This unique investment landscape, for which there is no precedent in history, is giving rise to considerable challenges for pension fund managers struggling to fund deficits.

“Among these challenges is the need to assess the impact of today’s loose monetary policies on global interest rates and inflation tomorrow.”

He says that institutional investors seeking to future-proof their portfolios will be searching for new investment solutions, leading them to shift allocations towards real assets.

“Real assets are uniquely positioned to provide value and enhance overall risk-adjusted returns in a broad range of market environments. The powerful combination of market-independent stability and growth make them an attractive core holding for institutional investors,” he adds.

As part of the research, 50 institutional investors across Europe were surveyed.

 

Photo by Santiago Medem via Flickr CC

CPPIB Can Invest Like “An 18-Year-Old”, Says CEO As Fund Looks to Cut Bond Allocation

canada

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman told Bloomberg this week that his fund can invest like “an 18-year old” as he looks to cut the fund’s bond allocation and move more money into riskier assets.

CPPIB allocates 28 percent of assets to fixed income. That’s down from 95 percent 15 years ago.

More from the Bloomberg interview:

With years of income and investing ahead, the Canada Pension Plan Investment Board can afford to own more risky assets such as real estate and stocks, according to Chief Executive Officer Mark Wiseman. Pension contributions will continue to grow through 2022, allowing the fund to reduce its 28 percent holdings in fixed income, he said.

“We’re an 18-year-old investor,” Wiseman, who’s 44, said during an interview Tuesday at Bloomberg’s Toronto office. “The portfolio can afford to have less bonds than it has today.”

With yields on fixed-income securities at or close to record lows, Wiseman is joining Canada’s second largest pension plan, the Caisse de Depot et Placement du Quebec, in saying he’s looking to reduce the amount of money invested in debt to seek higher returns elsewhere.

“The low interest environment is a big challenge for institutional investors,” Wiseman said. “We can get higher risk-adjusted returns than we can in the bond market.”

The yield on Canada’s benchmark 10-year bond fell to a record 1.294 percent Friday after government data showed gross domestic product contracted in November. The central bank unexpectedly cut its key interest rate Jan. 21.

CPPIB manages $183 billion in assets.

 

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Canada_blank_map.svg#mediaviewer/File:Canada_blank_map.svg

Ontario Municipal Pension Buys $227 Million Paris Office Building

Paris

Oxford Properties Group, the real estate arm of the Ontario Municipal Employees Retirement System (OMERS), has completed the $227 million purchase of Paris office building, according to the Wall Street Journal.

The pension fund is make nearly $800 million worth of investments in Paris over the next three years.

More from the Wall Street Journal:

Oxford, the real-estate arm of Canadian pension fund OMERS Worldwide Group of Companies, told The Wall Street Journal it purchased 92 Avenue de France from a joint venture between German companies GLL Real Estate and Union Investment Real Estate GmbH.

Oxford made its first Paris acquisition in September. With its second deal the group is almost halfway to its €1 billion, three-year target for the city.

[…]

Over the last year, “London has become more expensive than Paris,” said Michel Vauclair, an executive at Oxford. He also noted that rates for long-term debt in euros are more favorable than in sterling.

[…]

With London’s property market booming, it has been challenging to acquire high-quality assets preferred by pension funds, Mr. Brundage said. “Not impossible, but challenging,” he said, noting as demand pushes up prices, “it’s harder to meet total return expectations” in the U.K. capital.

[…]

92 Avenue de France is a 235,000 square foot office located just over a mile from the Gare de Lyon train station. It is entirely leased to Réseau Ferré de France, the state-controlled manager of France’s railways.

OMERS managed $65.1 billion in assets as of December 31, 2013.

 

Photo by  Taylor Miles via Flickr CC License

University of California Snags CIO from Sacramento Pension

California

The University of California has hired former Sacramento County pension chief Scott Chan, according to Chief Investment Officer.

Chan, who will reportedly start on February 17, will be the University’s managing director of public equity.

More from Chief Investment Officer:

Chan has been named senior managing director of public equity, responsible for upwards of $35 billion in endowment, retirement, and operational assets.

The former hedge fund manager took over the Sacramento County Employees’ Retirement System in 2010. Under Chan’s leadership, the $7 billion portfolio climbed from five-year returns in the bottom quartile of public plans to the 53rd percentile as of September 30, 2014.

He spearheaded several opportunistic plays, including a separate account for purchasing discounted infrastructure secondaries. Last month, Chan and the fund took home the CIO Industry Innovation Award for public plans under $15 billion.

[…]

[Jagdeep] Bachher, who took over as CIO in April 2014, has executed a nearly wholesale overhaul of the division’s staff, organizational structure, and compensation scheme.

Identifying and promoting internal talent was his first step in the reorganization, the Canadian sovereign wealth fund alum told CIO in November.

“Second,” he said, “you need to bring in external people. Target those with experience who’ve had leadership roles. Hence, CIOs at other institutions who want to go back to investing have been very attractive.”

In the last few months, the University of California investment officer has made over a dozen new hires and promotions. Read more about the personnel changes here.

Video: How Might Bruce Rauner Tackle Illinois Pensions?

How might Bruce Rauner attack the state’s pension debt? Pension360 has covered his changing views on reforms.

In this video, Illinois Policy Institute CEO John Tillman talks about the state’s pension debt and how Rauner might handle it.

 

Video credit: The Wall Street Journal

 

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


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