Pension360 | The Complete View of Public Pensions

Audit: Massachusetts Gov. Didn’t Violate Pay-to-Play Rules With Donation That Preceded Pension Investment

In 2011, Massachusetts Gov. Charlie Baker donated $10,000 to the New Jersey Republican State Committee.

Less than a year later, New Jersey committed $25 million in pension money to General Catalyst Partners for management – the firm where Baker was an executive.

The transaction raised the red flags of a pay-to-play violation.

But an audit released yesterday cleared Baker of any wrongdoing.

From the Associated Press:

A New Jersey treasury audit has found Massachusetts Gov. Charlie Baker did not break pay-to-play rules when he donated to Republicans here in 2011.

[…]

New Jerseys regulations bar the state from investing with a firm whose managers made political contributions within a two-year window. The audit says while Baker was an investment professional, he did not provide the kinds of services the policy prohibits.

[…]

The audit also suggests Baker and General Catalyst forcefully resisted the possibility of any wrongdoing. For example the firm wrote to the auditor in May 2014 that “Mr. Baker has never been an executive officer, owner or other control person of GC and has never solicited investors when GC raised funds.”

Baker himself hired the law firm Covington & Burling, which expressed a similar view, the audit said.

While the report recommends the state should consider strengthening its due-diligence procedures, the audit said the State Investment Council, the body that sets investment policy, reported it met those standards.

The audit was released and presented at the Thursday meeting of the State Investment Council.

Photo by Truthout.org via Flickr CC License

Study: Despite Improvements, Pension Fund Governance Cause for “Concern”

A new paper by Keith Ambachtsheer and John McLaughlin dives into pension fund governance and concludes that, although governance has improved, there are still causes for “concern”.

From ai-cio.com:

Pension funds and other major investors are failing to act sufficiently to promote good governance and long-term investing, according to a new study.

[…]

They found there had been some improvement in governance of pension funds and other major investment institutions, but many “major concerns” still remain.

Ambachtsheer and McLaughlin updated previous governance surveys to add force to the initiative, quizzing 81 major pension funds with total assets in excess of $5 trillion.

“Despite evidence that board effectiveness is marginally improving, our survey-based study conducted in 2014 finds that much work still needs to be done,” the authors wrote.

Among their governance concerns, Ambachtsheer and McLaughlin listed “flawed” board selection processes, unclear board oversight functions, and uncompetitive pay packages hampering recruitment and retention of talent.

“It will require a concerted, ongoing joint effort by pension plan stakeholders, pension organization boards, regulators, and legislators to change the current situation,” the pair said.

The paper, which also covers long-term investing efforts, can be read here.

Geithner Tells NJ Pension Panel He’s Bullish on Economy

Former U.S. Treasury secretary Timothy Geithner made an appearance at Thursday’s meeting of New Jersey’s State Investment Council, the entity that oversees the state’s pension investments.

Geithner was at the meeting because he is president of a private equity firm, Warburg Pincus, that handles a portion of the state’s pension money.

During his appearance, he talked about his optimism on the state of the U.S. economy. Reported by NJ.com:

Timothy Geithner, the former U.S. Treasury secretary and an architect of the Wall Street bailout, today told New Jersey’s pension investment council that despite the challenges of a “complicated, messy world,” he’s optimistic about the nation’s economy.

“The economy today looks much more resilient than it’s been in some time,” Geithner said, noting the expansion after the Great Recession has been moderate, steady and matched with restructuring of important financial underpinnings.

[…]

Taking questions from the council, he counseled them on global dynamics, including Russia, China and the emerging markets.

The U.S. is well-positioned to benefit from growth in those markets, that while “volatile and uncertain,” will grow faster in the long-term, he said.

“I think there is a reasonable basis for believing that we’re still at the early state of what’s likely to be a long period where average growth in these emerging economies is still two or three times the growth of major economies,” he said.

The meeting was also notable because it saw the release of an audit into a potential pay-to-play rule violation by Charlie Baker. The audit cleared Baker of any wrongdoing.

Ontario Health Pension Buys Two Malls From Quebec Pension

The Healthcare of Ontario Pension Plan has bought large stakes in two shopping malls from fellow Canadian pension fund Caisse de depot et placement du Quebec.

From Reuters:

Ivanhoé Cambridge, the real estate arm of Canada’s second-largest pension fund, said on Friday it had sold its 50 percent interest in two Ontario shopping centers to a rival pension plan manager in Canada for C$240 million ($190 million) as part of a move to reposition its retail portfolio.

Ivanhoé, a subsidiary of the Caisse de depot et placement du Quebec, said the properties sold to HOOPP, or the Healthcare of Ontario Pension Plan, were the Quinte Mall in Belleville and the Devonshire Mall in Windsor.

“This transaction completes the repositioning of our retail portfolio in Canada,” Arthur Lloyd, Ivanhoe’s head of global Investments, said in a statement. “We are now focused on expanding our Canadian retail platform through organic growth in key properties across the country.”

The Healthcare of Ontario Pension Plan manages $51.6 billion in assets.

Caisse de depot et placement du Quebec manages $214 billion in assets.

Photo by Trey Ratcliff via FLickr CC License

Cincinnati Mayor: Pension Deal Removes “Dark Cloud” From Over City

Cincinnati Mayor John Cranley took to the newspapers on Thursday to comment on the city’s recently passed pension reform measure.

In a column in the Cincinnati Enquirer, Cranley talks about the effects of the reforms on the city’s pension funding and the compromises made on both sides.

Cranley writes:

The historic agreement reached Dec. 30 among the retirees, unions, active employees and the city – after 10 months of negotiations and a nine-hour marathon session on the final day – will ensure a good pension remains in place for current and future retirees.

Through painful but necessary benefit cuts and increased city contributions, the pension system is now on solid financial footing.

As a result of these actions, by 2016 the pension fund will be 85 percent solvent and rise to 100 percent over the next two decades, which reverses a decadelong trend of worsening solvency. What was an $862 million liability will be reduced to zero; an independent actuary has certified that the math we are using is not fuzzy, but dependable.

This resolution will restore the city’s credit and reputation, and it will allow us to use the restored credit to address other city problems that have been ignored, such as deteriorating roads.

[…]

All parties – the city included – conceded more than they intended to, but it was a rare and wonderful case of shared sacrifice and heeding the “better angels of our nature.”

The Cincinnati Enquirer provides a refresher as to the effects of the reform measure:

Under the pension agreement, the city will:

*Contribute $38 million to the pension system in 2015. The city will pay that over the next seven years by borrowing against future revenue.

*Contribute $200 million in 2016 from the financially stable retiree heath care trust fund to the pension system.

*Make a larger contribution to the pension starting in July 2016 – 16.25 percent of the annual operating budget compared with 14 percent – and continuing for 30 years.

Employees will:

*Take a three-year cost of living adjustment holiday.

*After three years, both current retirees and active employees will receive an annual cost of living adjustment of 3 percent simple interest. Most current retirees receive an increase that is “compounded,” meaning the previous year’s increase is included in the following year’s calculation. Current employees already have a 3 percent simple COLA in place when they retire.

Photo credit: “Downtown cincinnati 2010 kdh” by kdh – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Downtown_cincinnati_2010_kdh.jpg#mediaviewer/File:Downtown_cincinnati_2010_kdh.jpg

Milwaukee County Decides Against Reducing Future Pension Payments

Last week, Pension360 covered the story of Milwaukee County pensioners who were facing benefit reductions because they had previously taken government advice that led to pension overpayments.

The County was considering docking over $10 million in future benefits from 217 public workers and retirees.

But the County Board’s finance committee on Thursday decided to scrap the plan, because they feared the lawsuits it might bring.

Board members were also sympathetic to pensioners who accepted overpayments only because they took the advice of county retirement planners.

More from the Milwaukee Journal-Sentinel:

The Milwaukee County Board’s finance committee on Thursday decided against reducing future pension overpayments amounting to an estimated $10.3 million to 217 current and future retirees.

The committee instead unanimously recommended approval of a Pension Board proposal to retroactively change county ordinances that would result in keeping the improperly high payments flowing to the group. The vote was 8-0 to adopt the Pension Board’s proposal.

An explanation of how the pensioners ended up receiving overpayments in the first place:

The group of 217 had been allowed to make purchases of extra pension credits — known as “buybacks” or “buy-ins” — under a benefit enhancement strategy.

By converting time they had worked as seasonal county lifeguards, parks workers and other part-time employees, the workers boosted their pensions under a program that skirted county laws and federal tax rules, the Milwaukee Journal Sentinel reported in 2007.

The strategy made some workers eligible for earlier retirement, free retiree health care and even a 25% pension bonus and lump sum payment.

In 2007, retirement system administrators and the Pension Board determined certain purchases of pension credits had been done in error. Board rules no longer permit purchases of pension credits.

Why Canada Pension CEO Is Bullish on Energy Assets

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman spoke to a crowd at the World Economic Forum last week about why he is bullish on energy even as oil prices have plunged.

His remarks, according to Bloomberg:

“Part one, the world is consuming about 90 million barrels a day,” said Wiseman, chief executive officer of the Canada Pension Plan Investment Board. “Part two, God isn’t making any more.”

Wiseman said that simple supply and demand perspective all but guarantees oil prices will be higher 10 years down the road, offering investment opportunities now for the C$234 billion ($188 billion) fund.

“I’ll take that bet” on oil’s rebound, he said in an interview Tuesday at Bloomberg’s Toronto office.

Oil slid almost 50 percent last year as U.S. shale production surged while the Organization of Petroleum Exporting Countries resisted calls to cut supply. That’s had a dramatic impact on the value of oil companies around the world as prices fell to a five-year low at about $45 a barrel.

This has Toronto-based Canada Pension looking at a range of investments — from buying equity and partnering on acquisitions to outright takeovers, Wiseman said.

“We see a lot of value in the Western Canadian basin,” he said, noting that oil sands projects are on his radar.

The CPPIB manages $188 billion in assets.

Photo by ezioman via Flickr CC License

Illinois Supreme Court Pension Ruling May Not Affect Chicago Reforms, Say Lawyers

The City of Chicago filed a brief with the state Supreme Court last week in support of the state’s pension reform law, in part because the city has its own set of pension reforms that could be impacted by the ruling.

But even a ruling overturning the state’s pension law might not affect Chicago’s own reforms, a lawyer for the city said Wednesday.

From Reuters:

Richard Prendergast, an attorney representing Chicago, told Cook County Circuit Court Associate Judge Rita Novak that the 2014 law for Chicago’s municipal and laborers’ retirement systems would not automatically be voided if the state’s high court later this year determines a 2013 law enacted for Illinois’ sagging pension system is unconstitutional.

He said the state is basing its defense on the need to invoke its police powers to ensure it can fund essential state services. The city has an additional argument that its law does not unconstitutionally diminish pension benefits because without its cost-saving elements and higher contributions the two pension funds would become insolvent within a matter of years, he explained.

“The one thing that is not contested here is these two pension funds are in the toilet,” Prendergast said at a court hearing on the unions’ request for a preliminary injunction to stop the Chicago pension law.

Chicago’s reforms mandate higher pension contributions from workers and the city, as well as reduced COLAs.

Two lawsuits have been filed challenging the constitutionality of those reforms.

Photo by bitsorf via Flickr CC License

Study: Pension Funds Can Work Harder To Be Long-Term Investors

A new paper by Keith Ambachtsheer and John McLaughlin dives into the question: Do pension funds invest for the long term?

Nearly all pension funds would identify themselves long-term investors if asked. But the paper reveals that there is a gap between that sentiment and the funds’ actual investment strategies.

From ai-cio.com:

The authors […] reported a significant gap between the long-term investment aspirations of asset owners and the reality of their strategies’ implementation.

[…]

On long-term investment, the authors said there was “broad consensus” among respondents to the survey that a longer investment timescale was “a valuable activity for both society, and for their own fund.”

“However, there is a significant gap between aspiration and reality to be bridged,” Ambachtsheer and McLaughlin added.

“Here too a concerted effort—both inside pension organizations and among them—will be required to break down these barriers.”

The authors listed the barriers to long-termism: some areas of regulation, a “short-term, peer-sensitive environment”, a lack of clear investment processes and performance metrics, and difficulties in aligning interests with outsourcing providers.

The paper, which also covers governance issues, can be read here.

Photo by Santiago Medem via Flickr CC

Nebraska Retirees Ask Lawmakers for Social Security Tax Break

Retirees are telling Nebraska lawmakers that the state’s tax burden is too high, and additional tax cuts may be necessary to keep seniors from fleeing the state during retirement.

One option retirees are pushing: exempting Social Security benefits from the income tax.

A tax package passed last year attempted to shore up some of these issues. From the Grand Island Independent:

Last year’s tax package included a partial [tax] exemption for military retirement pay, but it didn’t apply to those who had already retired before the law went into effect. It also allowed married couples making up to $58,000 a year to have all of their Social Security benefits exempted from Nebraska’s income tax.

But Nebraska retirees said those cuts aren’t enough to keep them from retiring to more tax-friendly states.

Nebraska lawmakers are currently considering three separate bills that would address the tax issue. From the Grand Island Independent:

One measure by [Sen. Paul] Schumacher would provide a tax exemption for earned income of Nebraskans who are at least 65 years old.

Schumacher said the bill would create a financial incentive for retiring baby boomers to stay in the workforce longer rather than retiring, which would help ease the state’s labor shortage. Lifting the tax burden would also help them add to their retirement savings, he said.

Another bill by Sen. Sue Crawford of Bellevue would give tax breaks to military retirees who live in Nebraska while working and earning retirement income. For every dollar those retirees earn from work, one dollar in retirement income would not be taxed. Joint filers could exempt up to $60,000 of their retirement income annually, for up to 15 years.

Sen. Brett Lindstrom of Omaha pitched a bill that would phase out Nebraska’s tax on Social Security income over five years.

The formal names of those bills are: LB63, LB165 and LB26

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712