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Kentucky Lawmakers to Push for Pension Reforms Before Funding Teachers’ System

The Kentucky General Assembly is considering issuing billions of dollars worth of bonds to help fund the state’s Teachers’ Retirement System (KTRS).

But the funding may come with a catch as many lawmakers want to attach strings to the funds, which range anywhere from forcing new transparency requirements on the system to making benefit changes.

From the Courier-Journal:

So far, legislators have pre-filed at least four bills that would alter some aspect of teacher pensions, and leaders from both the House and Senate say any bonding needs to be paired with reforms.

“There is not a lot of enthusiasm for borrowing more money to pay off the KTRS debt without structural changes accompanying that effort,” said Senate Majority Leader Damon Thayer, R-Georgetown.

Thayer said lawmakers need to consider adjustments to employee contributions and cost-of-living increases, along with new policies that promote transparency in the system.

House Speaker Greg Stumbo, who argues that bond proposals have merit under today’s market conditions, likewise favors measures to improve oversight and transparency as part of the overall funding scheme.

“I think to sell it, it needs to be part of the package,” Stumbo, D-Prestonsburg, said.

[…]

McDaniel, R-Latonia, is sponsoring a bill that would require public retirement systems — including KTRS — to disclose more information about use of investment middlemen known as placement agents.

In the House, Rep. Jim Wayne, D-Louisville, has pre-filed legislation that would, among other things, ban the use of placement agents and require KTRS to publicly disclose information about investments and contracts.

Wayne said the bonding proposal makes some fiscal sense if the state can borrow money at a interest rate lower than its investment return.

But he warned that lawmakers can’t trust the system to act in the best interest of retirees without more transparency, and he says the funding problem is better addressed through tax reform.

KTRS manages $17.5 billion in assets.

Pensions Eye Indian Infrastructure

In December, the Canada Pension Plan Investment Board (CPPIB) made a $157 million investment in the infrastructure arm of an Indian engineering company.

The CPPIB says investments with India are a “key part” of its long-term plans.

Other pension funds may also find the county’s infrastructure to be an attractive investment. From the Economic Times:

Indian road projects are likely to post a significant rise in merger and acquisition activity in 2015 as pension and private equity funds are eyeing these projects for handsome returns.

Increase in road traffic and a better economic climate have made the sector lucrative for investors with deep pockets, looking for long-term investment opportunities. In the last one month, two road projects have changed hands and sector players and experts anticipate more such deals in the offing.” Funds and institutional investors are interested in high yield, long-term investments and road projects offer a good opportunity.

[…]

“Revenue from roads will improve as GDP picks up, so it is an attractive investment option. The slowdown in the last two-three years has dampened the price expectation of developers, so the mismatch in valuation expectation has reduced,” said MK Sinha, managing partner and chief executive officer of IDFC Alternatives.

[…]

Infrastructure industry players said that more pension funds are in the market scouting for investment opportunities, with a clear preference for operational road projects. Pension funds primarily manage funds for people who are retiring and looking for low-risk investments with consistent returns for in the long term. Their interest in Indian infrastructure will augur well for the capital-intensive business whose long-term capital needs cannot be met my banks alone.

In 2014 the CPPIB announced plans to open an India office.

Minnesota Retirement Board Won’t Support Corporate Inversion of Medtronic

The Minnesota State Board of Investment, the entity that manages assets for the state’s retirement systems, decided on Friday that it will not vote in favor of Medtronic’s acquisition Covidien.

Medtronic is Minnesota’s largest medical technology company, and Covidien is a medical supplier based in Dublin.

The retirement board has a say in the decision because it is a shareholder in both companies.

Illinois Pension Contributions To Rise By $700 Million in 2015

Illinois’ payments to its pension systems will jump by almost $700 million in 2015 after three of its state-level systems lowered their assumed rates of return.

From the Journal-Standard:

The total state contribution to the five state-funded pension systems next year is $7.537 billion. That’s an increase of more than $680 million over the amount the state had to contribute to the systems in the current fiscal year.

The numbers are compiled by the pension systems, but were reviewed and contained in a report by the state actuary issued Wednesday by Auditor General William Holland’s office.

The increase for next year’s budget is sharply higher than the increase in the current state budget. This year, lawmakers only needed to find an additional $100 million to meet the pension obligations. It was the smallest increase in years after a series of $1 billion hikes.

No reason was identified for the increase, although the report did note that three of the five systems lowered the estimated rate of return they expect to receive on their investments. Pension systems get their money through employee contributions, state contributions and investment income. When the systems expect to make less on their investments, the difference is usually made up with higher state contributions.

Cheiron, the state’s actuary, said last year it thought the three biggest pension systems were being overly optimistic about how much investment income they could earn. Since then, the Teachers Retirement System, State Universities Retirement System and State Employees Retirement system, all cut their expected rate of return on investments.

The Judges Retirement System and General Assembly Retirement System had previously cut their estimates.

Illinois shoulders approximately $111 billion in pension debt.

Chart: Institutional Investors’ Planned Allocation To Hedge Funds Over the Next Three Years

An Ernst & Young survey asked institutional investors how they were planning to shift their hedge fund allocations over the next three years.

The 2014 responses can be seen above, paired with responses to the same question from 2012 and 2013.

Chart credit: Ernst & Young 2014 survey

Settling Pension Lawsuit Is Top Priority for Raimondo

When Rhode Island Governor-elect Gina Raimondo takes office this month, one of her top priorities will be negotiating a settlement with public employee unions in the lawsuit challenging the state’s 2011 pension changes.

From the Providence Journal:

Days away from taking the oath of office that will make her the first female governor of Rhode Island, Governor-elect Gina Raimondo anticipates that public-employee pensions will be one of the first big items she tackles. Again.

Specifically, she anticipates “early” action to try to forge a settlement in the state’s high-stakes legal fight with its public-employee unions over the 2011 pension overhaul she crafted as state treasurer. “It is a priority,” she said.

[…]

With the state already facing a potential $200-million deficit, she said: “It is in no one’s interest to have a pension system which is unaffordable and unsustainable because, if you do that, a lot of people will get hurt.”

“So I will be reaching out,” she said Wednesday in a brief but wide-ranging interview in which she confirmed her intent to try to reopen the pension talks and, in the interim, ask lawmakers to extend the Feb. 5 deadline for the submission of her first budget proposal.

[…]

“A lot of work and good will went into the terms of the settlement agreement,” said Raimondo, who hopes to revive it. “It gives them peace of mind that their pension will be there … and that it is affordable for the state of Rhode Island.”

Should the state lose the lawsuit, “there would almost certainly be a number of municipal bankruptcies … [and] if we don’t fix the system, eventually you are going to have to go to retired people and cut their pensions … and that would be a terrible thing.”

Raimondo spearheaded the state’s 2011 pension changes, which cut benefits, froze COLAs and raised the retirement age.

Photo by By Jim Jones (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Canada Pension Funding Declined in 2014

The collective funding ratio of Canada’s defined-benefit pension plans declined by 2.7 percentage points in 2014, according to Aon Hewitt.

From Benefits Canada:

The median solvency ratio of 449 Aon Hewitt administered pension plans from the public, semi-public and private sectors stood at 90.6% at Dec. 31, 2014.

That represents a decline of 0.5 percentage points over the previous quarter ended Sept. 30, 2014, and a 2.7 percentage-point drop from plan solvency at Dec. 31, 2013.

Since peaking at 96.6% in April 2014, overall plan solvency has declined by 5.9 percentage points, continuing the trend towards worsening plan solvency that began in the third quarter of 2014 (when the solvency ratio dropped to 91.1% from 96.2% in the previous quarter).

About 18.5% of plans were more than fully funded at the end of the year, compared with 23% in the previous quarter and 26% at the end of 2013. Plan sponsors that must file valuations as at Dec. 31, 2014 could see the amount of their deficiency contributions double in 2015 as a result of the lower solvency ratio, says Aon Hewitt.

“Plans that stayed exposed to interest rates really took a beating in 2014,” says William da Silva, senior partner, retirement practice with Aon Hewitt. “Those plan sponsors who have implemented or fine-tuned their risk management strategies performed much better than traditional plans amid interest rate declines.”

Aon Hewitt also said that new mortality tables from the Canadian Institute of Actuaries could lead to a further funding decline in the future.

Chicago Police Pension Begins Search For CIO

The Chicago Policemen’s Annuity & Benefit Fund has begun its search for a chief investment officer, according to a job posting and reporting by Pensions & Investments.

The job listing can be seen here.

More details from Pensions & Investments:

Chicago Policemen’s Annuity & Benefit Fund is searching for a chief investment officer, said acting CIO James Maloney, in an e-mail.

Mr. Maloney, chairman of the $4 billion pension fund’s investment committee, was appointed acting CIO last month following the departure of Samuel Kunz. Mr. Kunz joined the University of California, Oakland, in the new position of managing director, asset allocation and investment strategy.

[…]

The deadline for applications is Feb. 16. A hiring decision is anticipated this spring, Mr. Maloney wrote.

The CIO of the Chicago Policemen’s Annuity & Benefit Fund oversees a $4 billion portfolio.

Photo by Santiago Medem via Flickr CC

Scranton Considering Court Action to Halt Pension Raises for Retirees

Scranton’s pension systems could run out of money in less than 5 years. That looming insolvency is forcing the city to consider halting pension raises coming this year for retired police officers and firefighters.

From the Times-Tribune:

Arguing that the pension funds are not financially sound, Scranton continues to evaluate legal options to halt raises that are due retired police officers and firefighters, including possibly seeking an injunction, city solicitor Jason Shrive said Wednesday.

Mr. Shrive said no court action has been taken yet, but it remains a possibility if the fire and police pension boards go through with a plan to pay retirees half of the 1.75 percent salary increase that active police officers and firefighters will receive in January.

[…]

The raises go into effect today, but there is still time to challenge the payments because checks to retirees, who are paid semimonthly, won’t be issued until Jan. 15 and Jan. 28.

Mr. Shrive wrote to the police and fire pension boards in November, advising them that the city maintains that no raises can be paid to retirees based on a section of the city code that says increases in pensions “shall not be granted” unless the pension funds are actuarially sound. Mr. Shrive cited a report prepared in October by the plans’ actuary, who determined both plans are unsound.

[…]

“The city is still hopeful the various pension boards and the pension plan administrator will think better of the decision to pay the increases, in light of the plans’ funding,” he said. “If the boards and investment administrator still intend to make the increases … our legal options could be to seek injunctive relief against the issuance of those raises.”

Scranton’s police and fire pension funds have a combined deficit of $141 million.

Video: CalPERS Portfolio Manager on Using Influence to Improve Corporate Governance

http://youtu.be/edrGOBG5nXg

This video features a discussion with Anne Simpson, CalPERS Senior Portfolio Manager and Director of Global Governance, about how the pension fund uses its influence as a major shareholder to change corporate governance and push for better social and environmental practices within corporations.

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