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New York Teachers Pension Lowers School Contribution Rate

The New York Teachers Retirement System (TRS) informed schools this month that their contribution rates would be lowered for the first time in five years.

Contribution rates will fall from 17.53 percent of payroll to 13 percent.

The change applies to schools, not to employees of the schools.

From the Democrat and Chronicle:

The drop, which will be as much as 26 percent, will be a major help to school districts that have faced higher bills for retirement costs in recent years, school officials said.

The Teachers Retirement System quietly told school districts late this month that their pension costs for the 2015-16 school year, which starts July 1, will fall from 17.53 percent of payroll to as low as 13 percent of payroll.

It will be the first drop since the 2009-10 school year. In the current fiscal year, the contribution rates are up 7.8 percent after rising 37 percent the year prior.

The retirement system will finalize its rate for the 2015-16 school year in February. The rate will be between 13 percent and 13.5 percent, and the bill is due in the fall 2016.

“Favorable investment returns over the last several years are the primary reason for the decrease in the rate,” the Teachers Retirement System said in a bulletin to school districts.

Pension costs are easing for schools and governments after they skyrocketed amid the recession — the result of major declines on Wall Street.

New York TRS manages $108 billion in assets and returned 18.2 percent last fiscal year.

Detroit Pension Funds’ Legal Fees to Be Reviewed

U.S. Bankruptcy Judge Steven Rhodes said Wednesday that there will be a review of the legal fees incurred by Detroit’s pension funds – the Police and Fire Retirement System and General Retirement System – during bankruptcy proceedings.

More details from Detroit News:

U.S. Bankruptcy Judge Steven Rhodes ruled Wednesday that the Police and Fire Retirement System and General Retirement System should be subjected to the court’s review of costs associated with litigating the largest bankruptcy in U.S. history.

Robert Gordon, an attorney for the pension funds, argued in court Monday that they should not be subject to fee examiner Robert Fishman’s ongoing reviews because Detroit taxpayers are not directly footing their legal bills.

Rhodes disagreed, while acknowledging there’s no legal precedent for having a creditor’s legal fees subject to court review in a Chapter 9 municipal bankruptcy.

“Simply stated, the city funds the plans and the plans pay its professional fees and expenses from those funds and their earnings,” Rhodes wrote in a five-page ruling. “Contrary to the retirement systems’ assertion, the application of the statute does not depend on a line-item administrative expense paid directly by the city.”

The final cost of millions of dollars in fees charged by an army of city consultants and attorneys remains one of the last hurdles to Detroit’s exit from bankruptcy. Fees from financial advisers, restructuring consultants and law firms had topped $140 million, according to Emergency Manager Kevyn Orr’s office.

[…]

Mayor Mike Duggan has expressed concerns that cost overruns from legal bills could endanger the city’s plan of adjustment, the budgetary blueprint that will govern Detroit’s finances for the next decade.

On Monday, an attorney for Greenhill & Co. disclosed that the financial firm has billed the two retirement systems $3.55 million for its services. The firm’s advisers helped General Retirement System and Police and Fire Retirement System officials negotiate with Orr’s legal team over changes to pensions and long-term investment assumptions.

Alabama Pension Approves Changes To Investment Policy, Governance Structure

The Retirement System of Alabama has updated its investment policy and made some governance changes.

But the specifics of the changes are currently unknown as they are still being finalized.

More details on the investment policy changes from the Times-Daily:

Copies of the two resolutions approved Monday by the Employees’ Retirement System Board were not available Tuesday. The TimesDaily has filed an open records request with the agency for the documents.

One board member said the investment policy add steps to the process.

Board vice chair Jackie Graham, who is also the state’s personnel director, did not return calls Tuesday.

Leura Canary, RSA’s general counsel, returned a request for comment from the system Tuesday, but said she couldn’t provide a copy of the investment policy resolution because it wasn’t yet in its final form.

“It is a good thing for the board to review investment policies, and we’re working to implement the revised policy,” she said.

[…]

Changes have been in the works for months. It was a year ago that the same board passed a resolution that said RSA’s three-member investment committee should “independently consider all investment recommendations made by (Bronner) and independently decide whether to approve or disapprove each investment recommendation.”

For decades, that approval was done by proxy, and committee members reviewed the investments later, but board members questioned the legality of that under state law.

Bronner said then that requiring pre-approval would slow the process and hurt RSA.

A bit of detail on the governance changes:

The other resolution approved Monday creates four committees to oversee various aspects of RSA’s operations.

“They are more for the purpose of setting policies for the operation of the Employees’ Retirement System and that’s very much consistent with standard board governing practices,” Canary said.

Pension Investment Advisor: Ignore CalPERS’ Lead on Hedge Fund Exit

An investment expert and member of the Alaska pension system’s investment board is calling CalPERS’ hedge fund exit a “perfect contrary indicator”.

Dr. Jerrold Mitchell sits on the Alaska Retirement Board’s Investment Advisory Council, which makes recommendations and reviews pension investment decisions. Dr. Mitchell was also formerly a CIO at the Boston Foundation and the Massachusetts Pension Reserves Investment Trust.

He encourages investors to ignore CalPERS’ lead on hedge fund investments.

New York Pension Declines After Quarter of Weak Investment Returns

The value of New York’s Common Retirement Fund dipped in the third quarter, from a record-high $180 billion to $178 billion.

The decline comes from weak investment returns over the last three months; in the case of the pension fund’s portfolio, the issue was underperformance of U.S. equities.

From News 10:

New York’s pension fund for government workers reports a decline to $178.3 billion following a negative return of less than 1 percent in its latest quarter.

Comptroller Thomas DiNapoli, the fund’s trustee, says investor “challenges” in the quarter ending Sept. 30 followed a “robust” previous quarter when the fund reached a record $180.7 billion.

It has about 38 percent of assets in domestic stocks, 17 percent in international stocks, 27 percent in cash, bonds and mortgages, 8 percent in private equity, 7 percent in real estate and the rest in other investments.

DiNapoli says Wednesday some gains were offset by underperforming U.S. stocks and global central bank actions that made international markets volatile.

For the fiscal year that ended March 31, the fund reported a 13 percent return on investment.

The Common Retirement Fund manages assets for New York’s Employees’ Retirement System (ERS) and Police and Fire Retirement System (PFRS).

Canada Pension Funds In Talks To Buy Satellite Company

Canada’s Public Sector Pension Investment Board and the Ontario Teachers’ Pension Plan are putting together a $7 billion deal to acquire Canadian satellite company Telesat Holdings Inc.

When all is said and done, each pension fund will have a 50 percent stake in the company.

New Jersey Pension Funding Drops 20 Points As New Accounting Rules Kick In

The funding status of New Jersey’s pension system dropped 20 points this week as the state’s Treasury Department began measuring funding using new accounting rules.

From Reuters:

In a document released on Tuesday after a bond sale, the state revealed that one of its five main pension funds will have insufficient assets to cover projected benefit payments within 10 years.

Under new pension accounting standards, issued by the Government Accounting Standards Board (GASB), the New Jersey system’s overall funded level stands at 44 percent for fiscal 2014, compared to the 63 percent previously determined by standard actuarial methods. Eighty percent or more is generally considered healthy.

[…]

New Jersey Treasury Department spokesman Christopher Santarelli said in a statement that the retirement system had current assets of about $40 billion.

But he added that the new pension reporting system, based on actual contributions, “underscores the urgent need for additional, aggressive reform of a pension and health benefits system that if fully funded would eat up 20 percent of New Jersey’s budget.”

[…]

The GASB rules measure a retirement system’s net position as a percentage of total pension liability.

The net position uses market asset values instead of actuarial ones. In the case of more poorly funded systems such as New Jersey’s, it also uses lower discount rates that make the liabilities appear much higher.

Fitch said the funding drop “wasn’t a surprise”, but that pensions remain a serious problem. From Fitch:

The significantly weaker pension figures released by the state of New Jersey today in a supplemental bond sale disclosure are not a surprise, in Fitch’s view. The state is the first to disclose materially weaker pension metrics following its conversion to new accounting requirements under GASB statement 67.

[…]

For more than a decade, the state has severely underfunded the actuarially calculated contributions needed to progress toward full actuarial funding, even following extensive plan reforms, and the state cut its already insufficient contributions for fiscal years 2014 and 2015 to address unexpected structural budget weakness. The governor has convened a special pension taskforce to propose options for additional pension reform and is expected to make a proposal to the legislature in early 2015. Fitch’s Negative Outlook at the current rating level reflects the concern that state corrective action to address its budgetary and pension challenges will be difficult to achieve and sustain over time, particularly given its narrow liquidity, limited fiscal flexibility, and the risk that litigation may defer or dilute pension reforms.

Fitch continues to believe that the new GASB pension standards represent a step forward in improving pension transparency. For example, the requirement to calculate total pension liabilities under the more conservative entry age normal cost method, rather than the multiple options allowable under the old standards, will increase the comparability of governments’ pension liabilities. Although most large public plans already used entry age normal, New Jersey did not, and the materially higher total pension liabilities that it disclosed under the GASB 67 standard reflect in part this switch.

Read Fitch’s full statement here.

Survey: Pension Funds Looking to Increase Internal Asset Management

Pension funds across the world are looking to bring asset management responsibilities in-house, according to a recent survey by State Street.

In addition, a majority of funds are thinking of turning to lower-cost investment strategies.

From ValueWalk:

Over the next three years, a whopping 81 percent of pension fund respondents said they are exploring bringing more asset management responsibilities in-house. A primary reason? Fees and costs were a major issue, with 29 percent saying it was a challenge for the pensions to justify the fees of their asset managers.

An unspoken issue is the relatively low returns, as many hedge funds are both highly correlated to the performance of the stock market as well as underperforming major stock market indices. This leads to the question: why not just primarily invest in an stock index ETF for the primary equity exposure?

As part of this shift to internal investing, 53 percent of the respondents are expecting to use more lower-cost strategies to achieve desired investment outcomes. This would likely include low cost ETFs designed to capture the beta of the stock market.

“Pension funds’ desire to deliver strong investment returns to their participants coupled with improved oversight and governance and is leading to a need for more in-house accountability for asset and risk management,” said Martin J. Sullivan, head of Asset Owner sector solutions for North America, State Street. “However, this undertaking requires pension funds to carefully evaluate how to achieve a balance of in-house and external talent, tools and technologies.”

The survey polled 134 pension executive from the Americas, Europe, the Middle East, Africa and Asia.

Is 80 Percent Funding All It’s Chalked Up To Be?

When it comes to pension funding, an 80 percent funded ratio is the benchmark for a “healthy plan”.

But over at the STUMP blog, actuary Mary Pat Campbell has penned a post taking issue with the 80 percent “rule”. According to Campbell, 80 percent isn’t a magic number that makes pensions “okay”.

The post is published below:

______________________

By Mary Pat Campbell, originally published at STUMP

I have just about had it with the 80 percent.

Unlike the commonplace idiocies of ‘You only use 10% of your brain’ or ‘The Great Wall of China is the only manmade object visible from space’, the 80 percent myth is dangerous.

I speak, of course, of the supposed percent fundedness level at which public pensions are “okay”.

The American Academy of Actuaries has a brief on the 80% pension funding myth, and I will give loads of examples of how even “100% funded” plans have been shown to be shaky.

But that’s not for today.

Today, I have decided to keep track of every idiot who refers to this 80% funding level (or something even worse) as proof that a pension plan is or is not okay. Generally, reporters fall afoul of this, and this is not necessarily concerning. People don’t think of reporters, as a group, as expert in anything.

But when there are politicians directly making decisions about public pensions, union leaders arguing about their public pensions, and dear lord, public plan TRUSTEES putting this bilge forth, that is super dangerous.

If you want to follow yourself, just create a google news alert on ‘80 percent pension’ — google news alerts don’t necessarily work the same for everybody, so feel free to email me at marypat.campbell@gmail.com if I missed any good (or, rather, horrible) examples.

So here goes:

Congrats, New Jersey Senate President Steven Sweeney — you are the inaugural member of my 80 Percent Pension Funding Hall of Shame!

TRENTON — State Senate President Stephen Sweeney is floating an idea to move the goal posts for funding public workers’ pensions in order to take pressure off the state budget.

Sweeney (D-Gloucester) said today the state — which by law is supposed to fund the pension system 100 percent by 2018 — should instead focus on getting the pension system 85 percent funded to put it in line with private sector plans that are considered healthy.

New Jersey’s pension funds are currently funded at about 54 percent, in part because the state skipped or made only partial payments for a decade. Under a 2011 law pushed by Sweeney and signed by Gov. Chris Christie that included cuts to workers’ pension and health benefits, the state is required to ramp up its payments to once again fully fund the system. However, Christie cut the payments by more than $2 billion for this budget year and the previous one.

Yes, yes, he picked 85 percent, but anything less than 100 percent is questionable. Especially with New Jersey math.

Here’s a nice kicker:

“The governor paints a very bleak picture by saying ‘look at what a big hole we’re in,’” said Sweeney. “The governor’s focus is basing everything on us being fully-funded. That’s not a realistic number. And a lot of pension systems live being 85 percent funded, or in the 80s.”

Yeah, they live right up until they don’t.

Ask the Detroit retirees what they think of their supposedly almost-100-percent-funded pension – pension benefits that got cut (note: it was not as fully funded as they thought, but that’s for another time.)

NEWS ALERT SENATOR SWEENEY: lots of public pensions aren’t doing well. While 85% funded would be a lot better than where NJ pensions are right now, that is not a laudable end goal.

I’ve already got THREE OTHER EXAMPLES for my new Hall of Shame from just this week, so this Hall of Shame is going to be filling up rapidly.

With respect to politicians, or union leaders, or other such, there is no cure (that is, I, personally, can’t do much about it other than mock them on the blog).

But at least with regards to reporters, I will be writing them and/or their organizations with links to the Academy’s brief. And maybe the blog posts where I call them idiots. We’ll see.

Canada Pension Eyes $1 Billion of Australian Timber

Canada’s Public Sector Pension Investment Board (PSP) is in talks to buy $1 billion worth of Australian timber assets from Hancock Timber Resource Group.

More details from the Australian:

CANADA’S Public Sector Pension Investment Board could be about to swoop on one of Australia’s most valuable timber plantations, with sources saying about $1 billion worth of forests owned by Hancock Timber Resource Group are on its radar.

PSP executives have been in Sydney this week sounding out counterparties ahead of what some say is shaping up to be an aggressive acquisition spree by the Canadians focusing on Australian property, agriculture and billions of dollars’ worth of upcoming infrastructure assets for sale by federal and state governments.

It is understood a major Australian acquisition is on the cards by PSP and the seller it is engaged with is Hancocks.

Recent forestry portfolios placed up for sale have struggled to secure strong prices, but the industry is now shaking off pain from weaker industry demand and collapsed managed investment schemes, which could see some plantations sell for some more bullish prices, with an increasing appetite for timber from woodchip markets.

[…]

Across the Tasman, PSP is finalising the purchase of forest plantations from Harvard Management in conjunction with New Zealand Superannuation and local Iwi tribes worth $NZ2.35bn ($2.15bn), and recently outlaid more than $NZ1bn for the acquisition of AMP’s office portfolio.

PSP manages $97 billion in assets.

Photo by Rick Payette via Flickr CC License

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