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CalPERS Reprimands Two Board Members for Campaign Finance Violation, Bashing CIO

Two CalPERS board members were punished yesterday; one for failing to disclose campaign finance documents and the other for publicly criticizing the fund’s chief investment officer.

One board member, J.J. Jelincic, was instructed to stop speaking to the press after he publicly criticized CalPERS’ new chief investment officer, Ted Eliopoulos. Writes the Sacramento Bee:

“He doesn’t have the temperament or the management skills,” Jelincic said in a Sept. 29 Pensions & Investments story about the hiring [of the fund’s new CIO].

And he didn’t stop there. Eliopolous played favorites with staff, Jelincic said, listened too much to outside consultants and made poor investment decisions.

CalPERS board President Rob Feckner called the comments “unfortunate and a breach of board governance policy of civility and courtesy as well as a breach of the CalPERS core values.” Jelincic was then instructed to stop talking to the media.

After the board meeting, Jelincic told the media:

“I’m not sure what the hell it meant other than they didn’t want me talking to the press.” As for the statements he made about Eliopoulos, he added: “It was a comment on a public action.”

The other reprimanded board member, Priya Mathur, was stripped of several leadership positions on Wednesday after repeatedly failing to disclose campaign finance disclosures. From the Sacramento Bee:

Priya Mathur, a board member since 2003, was removed as board vice president and chair of the CalPERS Pension and Health Benefits Committee. She also is out as vice chair of two committees: Board Governance and Performance, Compensation & Talent Management.

Mathur, who is facing a $4,000 fine from the state Fair Political Practices Commission, sat stoically as CalPERS board President Rob Feckner announced the punishment at a board meeting. She didn’t speak and wasn’t available for comment afterward.

[…]

The FPPC is fining Mathur for failing to file four campaign finance statements in connection with her recent successful bid for re-election to the CalPERS board.

She had no campaign funds to report, and Mathur has previously described the issue as a paperwork snafu. Nonetheless, “we still believe that rules are rules,” Feckner said.

Mathur has been fined $13,000 by the FPPC during her tenure as a board member. She failed to make necessary disclosures in 2002, 2007, 2008, 2010, 2012 and 2013.

Fact Check: Would Phoenix’s Pension Proposal Really Cost $350 Million?

In just two weeks, Phoenix residents will head to the ballot boxes to vote on Proposition 487, the controversial pension reform measure that would shift new hires into a 401(k)-type system.

Recently, a group opposing the law made a bold claim:

“Prop. 487 will cost Phoenix taxpayers more than $350 million over the next 20 years.”

But is it true?

The Arizona Republic did some fact checking. They found that the switch to a 401(k)-type system wouldn’t save the city any money initially. In fact, one report claims that the switch would indeed cost the city $350 million:

That [401(k)] provision would not save money, according to the city’s actuary. A report from the financial analysis firm Cheiron states that closing the pension system and replacing it with a 401(k)-style plan would cost the city an estimated $358 million over the first 20 years, assuming the city contributes 5 percent of employees’ pay to the defined-contribution plan.

An analyst for Cheiron and city officials said the move to a 401(k)-style plan itself would cost more initially because Phoenix must pay down its massive unfunded pension liability while funding a new retirement plan.

The city’s pension system for general employees, the City of Phoenix Employees’ Retirement System, is only 64.2 percent funded, meaning it doesn’t have the assets to pay about $1.09 billion in existing liabilities. In other words, the city only has about 64 cents on the dollar to cover all of its long-term payments for current and future retirees.

Phoenix must pay off that pension debt regardless of what voters decide. Prop. 487 wouldn’t decrease the existing unfunded liability, but it would stop the city’s liability from growing, opponents and supporters agree.

But there’s a twist: other aspects of Prop. 487 could offset the previously-mentioned costs. From the Arizona Republic:

Other changes outlined in Prop. 487 could offset that up-front cost of switching to a 401(k)-style plan. If fully implemented, the initiative would save the city a net of at least $325 million over the first 20 years, according to Cheiron’s report.

Two key provisions of Prop. 487 could save money in the first 20 years:

–Make permanent and expand reforms the city has made to combat the practice of “pension spiking,” generally seen as the artificial inflation of a city employee’s income to boost retirement benefits. It would exclude from the pension calculation any compensation beyond base pay and expand the number of years used to determine an employee’s final average salary, a key part of the benefit formula. Those changes could save an estimated $475 million over the first 20 years, Cheiron’s report states.

–Prohibit the city from contributing to more than one retirement account for each city worker, including current employees. Currently, the city contributes to a second retirement plan, known as deferred compensation, on top of most employees’ pensions. Cheiron projects eliminating deferred compensation would save an estimated $208 million.

Consultants for the city have said Prop. 487 could save additional money if those changes are applied to public-safety employees, who are in a separate, state-run pension system. Although the initiative contains intent language saying it doesn’t impact police officers and firefighters, supporters and opponents disagree whether it will be interpreted that way.

Interestingly, city officials have tended to agree that the reform measure would cost the city $350 million over the next 20 years. Officials are also worried about the litigation the proposal could invite if passed by voters.

New York Comptroller Candidates Square Off on Pensions

The New York State Comptroller serves as the sole trustee of New York’s $176.8 billion retirement system. So it’s not surprising that pensions were among the first issues broached during Wednesday night’s televised debate between the two candidates for Comptroller, incumbent Thomas DiNapoli (D) and newcomer Robert Antonacci (R).

Antonacci voiced several of his gripes with the state’s pension system; he claimed the assumed rate of return was too high and that the system should take on more characteristics of a 401(k)-style plan. From the Democrat and Chronicle:

Antonacci, who since 2007 has served as Onondaga County comptroller, took several opportunities to criticize DiNapoli’s oversight of the system. The pension fund’s assumed rate of return of 7.5 percent, Antonacci said, was too high.

A certified public accountant, Antonacci also said he believes the state should move toward offering defined-contribution retirement plans — what many would think of as a 401k-style plan. State and local-government employees currently receive defined-benefit plans, in which the payout at the time of retirement is determined by a formula and not subject to the whims of the stock market.

“We have to make some fundamental changes to the pension fund, including talking about a defined-contribution plan,” Antonacci said.

DiNapoli disagreed, saying a move to a 401k-style system would hurt working New Yorkers. He touted the performance of the pension fund — which is consistently ranked as one of the best-funded public plans in the country — while acknowledging his office may decide to lower the assumed rate of return in the future.

“Moving to defined contribution would put more and more New Yorkers at risk of not having adequate income in their golden years,” DiNapoli said. “That would be a bad choice for New Yorkers.”

DiNapoli is leading in the polls by 28 percent.

Photo by Awhill34 via Wikimedia Commons

Do Pensions Help Bring Talent To The Public Sector?

An oft-cited argument in favor of generous public pensions is that it helps the public sector recruit and retain high-quality workers.

But is that the case? That question is the subject of the latest report from the Center for Retirement Research at Boston College.

The findings of the report, as summarized by the CRR:

– Research shows that pensions help recruit and retain high-quality workers; thus, cutbacks in public pensions could hurt worker quality.

– One indicator of quality is the wage that a worker can earn in the private sector.

– Using this measure, states and localities consistently have a “quality gap” – the workers they lose have a higher private sector wage than those they gain.

– The analysis shows that jurisdictions with relatively generous pensions have smaller quality gaps, meaning they can better maintain a high-quality workforce.

– The bottom line is that states and localities should be cautious about scaling pensions back too far.

The report talks further about the correlation between cutting pensions and a widening “quality gap” between the public and private sector workforce:

As states grapple with challenges facing their pensions, many have taken steps that reduce benefit generosity for their new employees. The analysis suggests that states and localities with relatively generous pensions should be cautious, because reductions in benefits may result in a reduction in their ability to maintain a high-quality workforce. To the extent the quality gap already exists for many of these employers, reducing pension generosity may widen the gap.

A couple of caveats are important. First, some variables that may be correlated with both the quality gap and generosity of pensions – e.g., health insurance benefits – were not included in this analysis due to data limitations. If these factors (rather than pension normal costs) drove the result, then changes in pension benefits may have more muted effects than estimated here. Second, the non-linearity in the result is intriguing, but its source unclear. Why do plans at the bottom of the generosity distribution have smaller quality gaps than plans in the middle? Will reductions in these plans have any effect on the quality gap? Future research will seek to shed light on both the causality of the main result and on its apparent non-linearity.

Read the full report here.

Photo by Kate Hiscock via Flickr CC License

Oklahoma Teacher’s Fund Hires Six Real Estate Managers

The Oklahoma Teacher’s Retirement System has chosen six real estate managers to handle a combined $300 million worth of non-core investments.

Reported by I&P Real Estate:

The US pension fund will invest in the American Realty Strategic Value Realty Fund, Antheus Realty Partners IV, Dune Real Estate Fund III, GreenOak Real Estate Partners US Fund II, Landmark Real Estate Fund VII and Starwood Opportunity Fund X Global.

The funds were selected on the recommendation of the fund’s consultant, Gregory W Group.

Oklahoma initially planned to invest $50m with each of the six managers.

Landmark, however, could not take the full amount by the time of the board’s approval and was allocated $35m.

The pension fund planned to spread the remaining $15m across the remaining five managers.

However, GreenOak closed its capital raise.

The other four managers will receive $53.7m each.

Antheus Realty Partners IV will focus solely on apartments, while Starwood will invest equally in Europe and the US.

Landmark will buy current limited partnership positions in existing funds on the secondary market.

American Realty will be buying value-add US office, industrial, retail and apartment properties and has raised $240m of capital for the open-ended fund.

GreenOak raised $756m for its US-focused fund, which will invest in several property classes.

Dune Capital is targeting an $850m total equity raise for its opportunity fund.

Investing in multiple property types, the fund has targeted IRRs of 15-17% net.

The pension fund is targeting net returns of 11-12 percent.

Ohio PERS Director Leaves For Ohio State CIO Job

Ohio PERS has announced that its director of investments, John C. Lane, will be leaving his post to become the chief investment officer at Ohio State University. From the Columbus Dispatch:

John C. Lane is to start work as Ohio State’s vice president and chief investment officer on Oct. 29 after the university’s board of trustees confirms the appointment, according to an OSU news release this afternoon. He has managed investments for the public employees pension system since 2010 and previously managed investments for Eastman Kodak and for the Pennsylvania Public School Employees’ Retirement System.

At Ohio State, Lane replaces Jonathan Hook, who left this spring to take a job managing investments for a nonprofit foundation. Hook was paid $627,300 per year. Ohio State did not immediately disclose what it intends to pay Lane.

“John Lane has demonstrated excellent results throughout his career and I am confident he will lead us to a new level of performance,” Geoff Chatas, OSU’s senior vice president and chief financial officer, said in the news release. “He possesses the expertise to assure that the university succeeds in its responsibility to the public and our supporters to maximize investment returns.”

Lane will report to Chatas in his new role.

Lane will be managing $3.4 billion of assets for the University.

Missouri Fund Looking For Next Executive Director; Announces Hiring of Search Firm

Missouri’s second-largest public pension fund has hired a firm to search for its next executive director, after its current director announced plans to retire by 2016.

From Pensions & Investments:

Missouri State Employees’ Retirement System. Jefferson City, hired EFL Associates as an executive search firm for its search for an executive director, said Candy Smith, spokeswoman.

The $9.3 billion pension fund issued an RFP in April following Executive Director Gary Findlay’s announcement he plans to retire on Dec. 31, 2015. He joined the pension fund as executive director in 1994.

Ms. Smith said the pension fund plans to finalize the parameters of the executive director position at its Nov. 20 meeting, and that EFL will launch the search next year.

The job description listed on the EFL website reads:

Ideal candidates will have significant leadership experience in a public pension system, financial services organization or other customer service-oriented organization; 5+ years of staff management experience, demonstrated fiscal management, budgeting/planning skills; project management skills related to IT initiatives, experience managing external relationships, including legislative ones; an understanding of actuarial concepts; and working knowledge of institutional investment concepts. For additional information, please click on the link (the Position Title) and email us your resume for Position 7394.

CalPERS CEO Addresses Stockton Ruling

The CalPers Building in West Sacramento California. — The CalPERS building in West Sacramento, California.

Anne Stausboll, CEO of the California Public Employees Retirement System, released a statement addressing a recent court ruling that the bankrupt city of Stockton could cut pensions and stop contributing to CalPERS as part of its bankruptcy proceedings.

The statement in full:

The ruling last week by a federal bankruptcy judge in Stockton’s bankruptcy case has caused many to speculate about the future of pensions. Public employees, retirees, employers, lawyers, taxpayers, and journalists have legitimate questions and concerns.

As the administrator of pensions, the California Public Employees’ Retirement System does not win or lose in this situation. If pensions are reduced in bankruptcies, the only losers are public employees.

Contrary to the belief of many pension critics, CalPERS is no Goliath. Franklin Templeton Investments – the last bondholder standing in the way of the city of Stockton’s plan to rebuild – is no David.

Franklin Templeton is a sophisticated Wall Street investor that did its due diligence, analyzed the risks, and decided to make a $36 million investment in Stockton. As it turns out, the investment did not pay off. That’s how the investment world works. Franklin needs to move on.

The real Davids are the current and former employees of the city of Stockton whose retirements are at stake. These librarians, secretaries, firefighters, police officers, 911 dispatchers, and school custodians chose to serve the public at lower salaries in return for the promise of a reliable and secure pension. Their pensions are deferred compensation that they earned by working 10, 20, and sometimes 30 years in service to their communities.

Public employees contribute from every paycheck toward their own retirement. It is not a bonus or optional benefit that an employer may choose to not pay during hard times.

We applaud the leadership of Stockton officials in finding solutions to protect the pension promises made to its public employees while forging a reasonable path toward a fiscally sustainable future.

CalPERS will stand by Stockton, its employees, and residents, and will continue to champion those who really stand to lose – the real Davids – the public employees and retirees who spent their careers serving our communities and California.

Photo by Stephen Curtin

Map: Retirement Income By State

Here’s a map of retirement income by state, measured as a percentage of pre-retirement income.

Experts generally say retirees need to be earning at least 70 percent of their pre-retirement income to maintain their lifestyle during retirement. Only one state fits that bill: Nevada.

This map was developed from a study of Census Bureau data by Interest.com.

You can find the study here.

Chart credit: Interest.com

Oregon Supreme Court Hears First Round of Arguments Over Pension Reforms

Did Oregon break its contractual obligation with public workers when the state cut pension COLAs? That’s what the Oregon Supreme Court will eventually have to decide.

On Tuesday, the court heard the first round of arguments from lawyers representing the state and public employees, respectively. From the Associated Press:

Attorneys representing public employees told the Oregon Supreme Court on Tuesday that a contract is a contract, and the justices should reject the Legislature’s attempt to reduce annual cost-of-living increases for retired workers.

But lawyers arguing on behalf of state and local governments told the justices during oral arguments there’s no evidence that lawmakers four decades ago intended cost-of-living adjustments for retirees to be a contractual obligation.

Keith Kutler, a state Department of Justice lawyer, described the cost-of-living adjustment as a gift or add-on for workers who were already retired in 1971. Because they were already retired, they could not have accepted contract terms, he said.

[…]

Greg Hartman, an attorney for the public employees, said what governments are seeking this time around amounts to a “full-scale assault” on Strunk and other prior rulings.

It is one thing, he said, to make changes to a pension system for workers who have yet to start their careers. It’s another to alter the terms of a deal for workers who agreed to provide service under certain expectations.

“If your promise is ‘we’ll get back to you on what that promise is,’ that’s not much of a contract,” Hartman said.

A few justices pressed government attorneys on the fairness issue. Justice Virginia Linder questioned why the 1971 Legislature was concerned about the future fiscal impact of the COLA if it was not intended to be a long-term contractual obligation.

Bill Gary, another attorney representing governments, countered that actuaries at the time could not determine the cost.

Some background on the pension reforms under the microscope in this case, from the AP:

State and local governments sought the pension cuts last year to avoid steep increases in their contributions to the Public Employees Retirement System. The action reduced employer contributions to the pension by roughly $800 million during the current two-year budget cycle. It’s unknown when the court will rule, but a decision is expected in time for the 2015 Legislature to deal with any fallout.

If the court upholds the changes, retired workers will see their pensions grow at a slower pace. Since the early 1970s, retirees have received an annual cost-of-living increase of 2 percent. Gov. John Kitzhaber and the Legislature reduced the annual adjustment (widely known as a COLA) to 1.25 percent on benefit amounts up to $60,000 and 0.15 on benefits exceeding $60,000.

The public employees may have precedent on their side. In 2003, the state Supreme Court struck down a law that suspended COLAs. The court said at the time that COLAs were part of the contract between the state and retirees.

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