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New Jersey May Be Working Up Proposal to Merge Municipal, State Pensions

The leader of a group that represents New Jersey’s municipalities is warning mayors that state officials may try to merge state and municipal pension systems.

Bill Dressel, the executive director of the New Jersey State League of Municipalities, says the state is working on such a proposal in an attempt to improve the health of the state’s pension system.

New Jersey’s municipal pension systems are in much better shape than the state-level systems.

Florida Pension Commits $200 Million to Apartments, Industrial Real Estate

The Florida State Board of Administration – the entity that manages the state’s pension assets – has invested $200 million in apartment buildings and industrial real estate in Chicago, Boston, Michigan and Florida, according to a report from Investments & Pensions Europe.

More details from IPE:

The four deals, closed through Heitman, will focus on the apartment and industrial sectors.

The pension fund is also considering three fund commitments worth a combined $213m but declined to provide further details.

Two industrial purchases, in markets not considered to be top tier, were bought for $43.9m and $29.1m, respectively.

The 672,000sqft Romeo industrial asset in Chicago and a 500,000sqft warehouse/industrial property in Denver were bought at $65 and $58 per sqft.

[…]

Florida also bought a 417-unit complex in a suburb north of Miami, paying $80.5m, or $193,000 a unit.

The fund also paid $59.4m for the Hannah Lofts student housing complex in East Lansing, Michigan, close to Michigan State University.

The Florida SBA manages $138.6 billion in pension assets.

Photo by Gwan Kho via Flickr CC License

Jacksonville Mayor Submits New, Updated Reform Bill

Jacksonville Mayor Alvin Brown has submitted a reworked version of the city’s pension reform proposal, which was previously passed by City Council but wasn’t approved by the city’s Police and Fire Pension Fund.

The bill needs to be approved by both entities before it passes into law. The City Council may vote on the new bill next month, according to the Jacksonville Business Journal.

More details from the Jacksonville Business Journal:

Brown’s bill comes in the wake of a City Council version of pension reform legislation, which was approved by a 16-3 margin in December, being sent back by the Police and Fire Pension Fund.

City Council worked with Brown to come up with changes that will, hopefully, appease the board. City Council still expects to make some changes, though, President Clay Yarborough told the Florida Times-Union.

Some of the sticking points of the council-approved bill were the interest rate that firefighters and police officers get on Deferred Retirement Option Program accounts, cost-of-living adjustments and City Council’s power to change benefits.

The council’s agreement with the Police and Fire Pension Fund will go until 2030. After 2030, the city and unions will have to settle all disputes through collective bargaining.

Additionally, City Council will be able to make changes to benefits if the groups are not able to reach an agreement.

The city’s Police and Fire Pension Fund was 43 percent funded at the end of 2013.

Photo by pshab via Flickr CC License

Would a “Buyback” Program Help Ease Pennsylvania’s Pension Problems?

Pennsylvania is shouldering $47 billion of pension debt, according to the Governor’s Office, and that figure doesn’t include the unfunded liabilities of the state’s municipal pension systems.

No easy solution awaits. But Thomas A. Firey, managing editor of economics journal Regulation, writes on Philly.com that a “buyback” program is worth considering.

Firey writes:

The deficits have prompted calls to cut benefits, but workers and their unions reply that these promises were made in good faith – and written into contracts. It’s hard to disagree. Also hard to dispute are the concerns of state residents who point to an already heavy tax burden that makes it hard to provide for their families, let alone public employees. Finally, there are those who worry that essential services could be cut in any pension fix.

[…]

Harrisburg should create a program that would allow individual state and local public employees to voluntarily sell back some of their pension benefits in exchange for cash. If engineered correctly (perhaps using an auction mechanism), the overall savings to taxpayers could be very large, even if the state has to borrow money for the payouts.

If this program were implemented, everyone would win. Workers who sign up would get more immediate compensation, while non-participating members would see no change in their retirement benefits. The long-term pension cost to taxpayers would be reduced, and lawmakers would be under less pressure to cut government programs.

The new governor, state legislators, and union leaders should consider this option if they are serious about addressing the commonwealth’s pension crisis.

Read the full piece, including a description of a similar initiative’s fate in Illinois, here.

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Dallas Pension Overvalued Real Estate Investments by Millions, According to Review

An audit of the Dallas Police and Fire Pension System has revealed that the fund overvalued a number of risky real estate investments, including a vineyard in California and luxury homes in Hawaii.

The fund invests heavily in real estate but suffered $96 million in real estate losses in 2013 [Read the Pension360 coverage here].

From the Dallas Morning News:

After a year of wrangling and delay, an independent review of the $3.3 billion fund has confirmed what many suspected: accounting problems.

The review, which focused on the fund’s real estate holdings in 2013, estimates that it overvalued some properties by tens of millions of dollars.

The new appraisals and the city’s push for an audit came after The Dallas Morning News flagged problems with the fund’s accounting. The News reported in early 2013 that the fund valued many of its real estate ventures by what it had invested, rather than by appraisals or other methods. This was contrary to widely accepted standards.

“This report shows we need better governance and more transparency into our pension fund so we can address issues as they come up — not years after the damage has been done,” said Mayor Pro Tem Tennell Atkins, reading from a statement at a news conference he called Tuesday.

The specific findings:

[The review] found that $772 million in assets were at risk of being overvalued “because the valuation approaches or methods … appear to have been improperly applied and/or inconsistent with commonly accepted valuation practice.”

From this pool, Deloitte selected nine large assets that the fund had valued collectively at $585 million. The firm estimated the actual value of these assets instead to be between $507 million and $559 million.

Overvaluing assets on a fund’s books can create a falsely optimistic picture of its overall health, leaving police, firefighters and taxpayers on the hook for the future.

Fund officials, in a statement released Tuesday by their public relations firm, called the overvaluation flagged by Deloitte “financially immaterial when measured against DPFP’s entire investment portfolio.”

The Dallas fund allocated nearly 50 percent of its assets towards real estate investments as of 2012.

Photo by thinkpanama via Flickr CC License

Kansas Pension Officials: State’s Plan to Delay Pension Payments Could Cost Billions in Long-Run

Kansas Gov. Sam Brownback in December diverted a $58 million payment from the pension system and used the money to plug holes in the state’s general budget.

The governor is seeking to delay more state payments to the pension fund, and is also looking to offset some of the costs by issuing pension obligation bonds.

But pension officials told lawmakers Tuesday that such a decision could end up costing the state between $3.7 billion and $9 billion in the long run.

From the Kansas City Star:

Changes to the state’s pension system proposed by Gov. Sam Brownback could cost Kansas $3.7 billion in the long run, lawmakers learned Tuesday.

The governor seeks to delay payments intended to shore up the state’s pension system to save money in the short term.

The Kansas Public Employees Retirement System faced an unfunded liability of $9.8 billion at the beginning of 2014. The state was on pace to pay it down to zero by 2033 because of reforms enacted during Brownback’s first term.

Instead, Brownback proposed Friday to pay down the unfunded liability more slowly, by 2043, to save money during the ongoing state budget crisis.

“It’s like the mortgage on your house. If you pay less, you’re going to pay longer and you’re going to pay more,” Alan Conroy, the executive director of KPERS, told the House Appropriations Committee.

The delay would increase costs overall by $9.1 billion. But Brownback proposes issuing $1.5 billion in bonds, and the profits from the interest on those bonds would partially offset that cost.

Rep. Kathy Wolfe Moore, a Kansas City, Kan., Democrat, said the state was undoing the progress it had made in reforming the pensions system.

“It costs us $9 billion with a B (to enact the governor’s plan). … So we’re doubling what we have now? We’re doubling our unfunded actuarial liability?” Wolfe Moore said. “We’re going in exactly the wrong direction as far as I can see.”

Kansas PERS was 56.4 percent as of the end of 2013.

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Illinois Unions Challenging Reform Law Ask Supreme Court to Slow Down

When the lawsuit against Illinois’ pension reform law went to the Supreme Court, the Court obliged the state’s request for an expedited process.

The state, win or lose, wants the court’s decision as soon as possible.

But unions and public employees fighting the law are now asking the court to slow down the process. They say they need more time to respond to arguments presented in briefs filed by nearly a dozen groups in support of the law last week.

From Northern Public Radio:

Unions and others fighting to prevent Illinois’ pension law from taking effect are asking the state Supreme Court to ease up on its accelerated timeline.A Sangamon County judge ruled the measure unconstitutional. But Attorney General Lisa Madigan filed paperwork earlier this month that says the state can use “police powers” to cut pensions.

Ten other groups filed briefs backing Madigan’s position.

John Fitzgerald is an attorney who represents retired public school teachers. He says lawyers need more time to respond to all of those additional arguments.

Fitzgerald says his side is still confident reducing benefits is illegal.

“Although we believe that the arguments raised by the amici need to be evaluated and responded to, we do not believe that any of those arguments have any merit; we do not believe that the amici have raised any arguments that should change the outcome of this case.”

The lawyers are asking for an additional month to file briefs with the court. Currently, the briefs are due Feb. 16.

CalPERS Is Cutting Its Private Equity Managers, But That Doesn’t Mean It’s Breaking Up With PE

CalPERS announced this week that it was cutting down the number of private equity managers it employs – possibly by as much as two-thirds.

The change comes in the name of cutting costs. A similar rationale was used when the pension fund decided to exit its entire hedge fund portfolio last year.

But unlike hedge funds, private equity will remain a significant part of CalPERS’ investment strategy going forward.

From the New York Times:

Calpers is not planning to significantly reduce its allocation to private equity, though it may redistribute it, Joe DeAnda, a Calpers spokesman, said in an email. He said the pension fund may increase its allocation to individual private equity managers as it culls the number of managers.

As of October, Calpers had $31.2 billion invested in private equity, or about 10.5 percent of its overall portfolio, according to the most recent disclosure. It aims to have 10 percent of its portfolio allocated to the strategy.

[…]

When it comes to private equity, Calpers is also trying to reduce costs. But its approach is more subtle.

Réal Desrochers, the pension’s head of private equity since 2011, announced in late 2013 that Calpers aimed to reduce the number of managers to as few as 100. (DealBook reported on it here.)

In a presentation to the Calpers investment committee in December that year, Mr. Desrochers discussed his review of the pension fund’s private equity portfolio. It included 389 managers at the time.

“I think this portfolio should have — given the size where we are — it should be probably around 100, 120, something like that,” Mr. Desrochers said. (See the 29:15-minute mark in this video.)

In other words, this move has been in the making for a long time.

CalPERS allocates about 10 percent of its assets towards private equity.

Photo by rocor via Flickr CC License

Pennsylvania Lawmaker Will Reintroduce Plan to Create 401(k) System for All New Public Employees

Pennsylvania State Rep. Warren Kampf says he will be reintroducing a bill that would significantly alter the states pension system.

The bill would create two new defined-contribution plans: one for state employees and one for school district employees.

All future state hires would be funneled into these 401(k)-style plans. In other words, the bill would block off the current defined-benefit pension system to all new hires.

Institutional Investors Push Oil Giants to Disclose Climate Change Risks

A coalition of 150 investors – including pension funds from around the world – are calling on oil giants BP and Shell to provide greater transparency regarding the risks that climate change poses to their business models.