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Phoenix Politicians Weigh In On Pension Reform Measure

The Arizona Republic runs a great column every week where they ask a dozen major political players in Phoenix a question regarding an important issue.

This week, pensions were the issue. Specifically Proposition 487, which would shift new hires into a 401(k)-style system as opposed to a defined benefit plan.

There has been much debate over whether the law would impact police and firefighters, who are supposed to be shielded from the law.

Here’s what some Phoenix politicians had to say about the ballot measure, from the Arizona Republic:

We asked: Do you think Prop. 487 will impact the retirement benefits of current or future police officers and firefighters? Why or why not?

“Whatever the long-term impact of the proposition, it’s likely that if it’s passed, it will take years in court to clarify its true intent. The losers will be Phoenix taxpayers, who will bear the costs of a prolonged legal debate.”

— Thelda Williams,District 1, northwest Phoenix

“No. I don’t believe that ‘preamble’ is an accurate term given voters will support or oppose the measure in its entirety, including this language from Page 1 in the ‘preamble:’ ‘This Act is not intended to affect individuals who are members of, or are eligible to join, any other public retirement system in the State of Arizona such as the Public Safety Employees’ Retirement System.’ While I understand those in the system are unhappy with this initiative, the alternative is to do nothing. That is not acceptable. Inaction by the council led to this citizen action in the first place.”

— Jim Waring,vice mayor (District 2), northeast Phoenix

“Prop. 487, as written, impacts the retirement benefits of current and future public-safety personnel and does not exclude these employees as stated in the preamble. According to city analysis, Section 2.2 (C) runs counter to the current Public Safety Personnel Retirement Plan that is required by state statute for current and future public-safety employees. Therefore, future contributions to this plan would not be warranted and current public-safety employees would have these benefits frozen. Prop. 487 also prevents contributions to additional plans such as the Medical Expense Reimbursement Plan, Post Employment Health Plan and Fire Employee Benefit Trust.”

— Michael Nowakowski,District 7, southwest Phoenix and parts of downtown

“Prop. 487 will absolutely impact police and firefighters. The only section of the measure that would have the force of law makes no special exemptions for public safety — whether that was the intent of who wrote it or not. Prop. 487 is the wrong reform. It is poorly written and will have devastating effects on taxpayers, police officers and firefighters alike. These brave men and women work every day to make sure that we are safe, and we owe it to them to protect their retirement. I urge Phoenix residents to vote no on Prop. 487.”

— Daniel Valenzuela,District 5, Maryvale and west Phoenix

“The proponents of Prop. 487 did a sloppy job drafting this initiative. Prop. 487’s backers claim any harm to public-safety personnel was a careless mistake. However, this doesn’t square away with what proponents are actually trying to put in our city charter. Prop. 487 amends our charter with poorly-written language that would cost millions, making it harder for us to fund infrastructure improvements. The best-case scenario for first responders under Prop. 487 is that their status will be in jeopardy, potentially for years, as the fate of their benefits is determined by the courts following expensive litigation.”

— Kate Gallego, District 8, southwest Phoenix and parts of downtown

“Voters can fix the broken pension system, saving $500 million, by voting yes on Prop. 487. The government unions have waged an all-out campaign of disinformation to stop pension reform. Prop. 487 does not impact public safety because: 1. Public-safety pensions are administered by the state, not the city. 2. State law doesn’t allow participants in PSPRS to opt out. 3. The initiative clearly states that it does notaffect public-safety personnel. Escalating pension costs means fewer services, less police and more taxes and fees. Prop. 487 brings financial accountability. Don’t believe the disinformation the government unions are propagating.”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“Fellow Phoenix residents, I call it the way I see it. Prop. 487 is confusing and poorly written. If it passes, it could end up in court with the potential for millions of dollars going to legal fees, instead of supporting vital programs and services for our community. In addition, Prop. 487 could have detrimental consequences for our public-safety personnel and other city employees. Specifically, Prop. 487 could end defined-benefit pensions for Phoenix police officers and firefighters, making the women and men of public safety the only public-safety personnel in Arizona who could not earn a defined-benefit pension. Our police officers and firefighters work hard to keep our community safe, and we as a community should protect our public safety personnel’s retirement. This proposition is not the way to reform our city’s pension plan.”

— Laura Pastor,District 4, central and parts of west Phoenix

“Yes. Prop. 487 will hurt our current police officers and fire fighters, and could even end death and disability benefits for our first responders. It is one of the many reasons why I oppose this initiative. The plain language prevents the City from making contributions to the state public safety pension system. Those behind the effort have not had this intent, but this initiative was so poorly written – so badly constructed – that it will have devastating consequences for Phoenix. On top of that, it will cost taxpayers $350 million. It’s the wrong reform, and we can’t afford it.”

— Greg Stanton, mayor

Money has flooded into Phoenix in recent weeks to fund both opponents and proponents of the law. But the source of much of that money is shrouded in secrecy, as Pension360 wrote on Monday.

Controversy Follows New Oregon PERS Director

The Oregon Public Employees Retirement System (PERS) has informed current deputy director Steve Rodeman that he will move into the fund’s top job when executive director Paul Cleary retires in December.

Rodeman has been the fund’s second-in-command since 2008. But his tenure hasn’t been without controversy – last year, there were complaints of harassment and discrimination in the workplace under Rodeman’s watch.

Reported by the Oregonian:

In July 2013, the former director of Human Resources at PERS, Helen Bamford, asked the Department of Justice to investigate employee complaints of discrimination, harassment and a hostile work environment against a group of managers, principally Rodeman, after her efforts to address the complaints internally were unsuccessful.

The DOJ investigation was resolved without a finding, but Bamford subsequently filed a whistleblower and discrimination complaint with the state Employee Relations Board and a tort claim against the state after being forced out of PERS “for the good of the agency.”

Bamford is currently working for the Oregon State Board of Nursing but still officially a PERS employee. She signed a settlement agreement last week with the state, which will pay her $30,000. Neither side admitted fault.

Board members said Friday they were aware of the complaints, but didn’t deal with them directly or discuss them as a board.

“Personnel matters don’t come before the board,” said Pat West, a retired Salem firefighter who sits on the board. “It’s not an issue we would deal with.”

Rodeman did not respond to a request for comment.

Rodeman will be paid an annual salary of $168,000 in his new position.

Patriot News: Are Hedge Funds Right For Pennsylvania?

Last week Pennsylvania’s auditor general publicly wondered whether hedge funds were a sound investment for the state’s “already stressed” pension systems.

The crux of the auditor’s concern was the millions in fees paid by the system. In an editorial Monday, the Patriot News also questioned the fees incurred by hedge fund investments – including the fees that the public doesn’t know about. From the Patriot News:

The Pennsylvania State Employees’ Retirement System (PSERS) paid about $149 million in fees to hedge funds in fiscal year 2013, according to WITF, the public broadcasting station.

The Philadelphia Inquirer has noted that “It’s hard to know how much Pennsylvania SERS paid, since some SERS hedge fund fees aren’t included in the agency’s annual report.”

WITF also noted that it’s not clear what the pension fund got after paying all that money, which is the point raised by Auditor General DePasquale.

[…]

Pennsylvania has been one of the most aggressive states investing in “alternative” vehicles like hedge funds. In 2012, The New York Times reported that Pennsylvania’s state employees pension fund had “more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.”

Those investments cost Pennsylvania $1.35 billion in management fees in the previous five years, according to the Times report.

The editorial wondered whether the state was really getting what it paid for performance-wise. From the Patriot News:

During that time, it appears Pennsylvania paid more and got less than other states did.

Over the five-year period, Pennsylvania’s annual returns were 3.6 percent. During that time, the New York Times report said the typical public pension fund earned 4.9 percent a year. And Georgia, which was barred by law from investing in high-fee alternative funds, earned 5.3 percent a year.

Georgia’s fees were a lot lower, too. For a pension fund about half the size of Pennsylvania’s, it paid just $54 million in fees over the five years. Pennsylvania paid 25 times as much for results that were significantly worse.

Pennsylvania’s two big pension funds are tens of billions of dollars short of being able to pay all the money they’ll owe to retirees.

One has to wonder whether one reason is that the funds are spending too much money on supposedly sophisticated investments that aren’t worth the cost.

It’s a question the Legislature needs to answer.

SERS allocates 7 percent of its assets, or $1.9 billion, towards hedge funds. PSERS, meanwhile, allocates 12.5 percent of its assets, or $5.7 billion, towards hedge funds.

Milwaukee Proposes Pay Raises To Offset Employee Pension Contributions

Milwaukee’s mayor, Tom Barrett, is planning to give city workers a pay raise to make up for the increased percentage of their paychecks that must be contributed to the pension system.

The increased pension contributions are a part of Wisconsin Gov. Scott Walker’s Act 10, which lowered pension costs for the state but shifted more expenses to employees.

From the Milwaukee Journal Sentinel:

The City of Milwaukee’s proposed 2015 budget would give pay raises of 3.9% to 2,331 workers next year to compensate them for state-mandated pension contributions, Mayor Tom Barrett said Monday.

The pay increases would cost the city $4.8 million, according to figures released Monday. The city also will eliminate the practice of mandatory furlough days as a budget-saving measure for all non-uniformed employees, at an additional cost of $2.7 million.

Those funds come from the $8 million in savings the city gained from not paying the employee pension contribution in 2015 for the 2,331 workers, according to Budget and Management Director Mark Nicolini.

Barrett said the employees deserve the boost in pay as compensation for the pension contributions after going without wage increases in 2011 and 2012 and contributing more toward health care costs in recent years.

Gov. Scott Walker’s signature change in public employee labor law, known as Act 10, bars municipalities from paying the employee share of pension contributions. So all local government employees — except firefighters and most law enforcement officers — are required to contribute half the cost of their pensions, under the law.

In Milwaukee, that amounts to 5.5% of a city worker’s pay for those employees hired before Jan. 1 of this year, Nicolini said.

The city council president agreed with the budgeted raises. From the Journal Sentinel:

Common Council President Michael Murphy said Monday he agreed with the mayor’s proposal. Non-uniformed employees have steadily lost income in the last several years when you consider the lack of raises and higher health care contributions, Murphy said.

“To attract and keep good employees, you can’t, year after year, tell them they are going to be making less money,” he said. “We have to compete with the private marketplace” for new hires.

The Wisconsin Supreme Court upheld the legality of Act 10 in a July ruling.

Photo By WisPolitics.com via Wikimedia Commons

Ohio Auditor: New Pension Accounting Rules Could “Distort” State’s Financial Condition

Ohio’s top auditor, Dave Yost, publicly stated earlier this month that new GASB accounting rules – ones that change the way pension liabilities are reported – would hurt Ohio and its local governments.

In an op-ed on the Heartland Institute website, he explains why. From the piece:

Ohio is one of six states treating pensions as a “simple property right.” By Ohio statute, the amount a public employer must contribute to its pension obligation is capped. If a portion of the pension liabilities of the state’s five systems continues to be unfunded, the impact could be shouldered by a combination of the local government, individual employees, reforms from current contributors, or capital shifts from non-mandated benefits (such as health insurance).

The concern in Ohio is that the GASB 68 requirement for local governments to report this liability could dramatically distort the financial condition of a local government. It is important to keep in mind that this new standard creates an accounting liability, rather than a legal liability.

In Ohio, there are no legal means to enforce the unfunded liability of the pension system as against the public employer.

Upon receiving this new standard and recognizing the challenges that GASB 68 poses, my office got to work to determine how Ohio’s local governments can accurately report their financial positions while also following accounting standards.

To comply with GASB 68, our office suggests Ohio governments report the proportionate share of the unfunded pension liability, as a separate line item on the entity’s Statement of Net Position, with the detail of multiple pension systems’ participation in the footnotes, as necessary.

Governments should also include language in their Management Discussion & Analysis (MD&A), explaining Ohio’s legal environment and the limitations on enforcement of the unfunded pension liability as against the local government.

Yost also claims that ratings agencies, including Moody’s and Fitch, could downgrade the state’s bond ratings due to the new way liabilities are reported. But the downgrades wouldn’t be fair, Yost argues, because the financial health of the state is the same even if the numbers look different.

Yost testified earlier this month in front of the GASB regarding the negative impact the rules could have on the state.

Photo by www.SeniorLiving.Org

NJ Newspaper: We Don’t Trust Christie’s Pension Panel

The Daily Record released a scathing editorial today denouncing the efficacy of New Jersey’s Pension and Benefit Study Commission and the motives behind its creation.

The editorial claims that Christie put the panel together to act as a political shield when he eventually cuts worker benefits – which Christie has said will be a major part of the reforms that will eventually be proposed.

From the editorial:

Union and Democratic leaders are already denouncing the commission’s report as a sham designed from the start to do little more than bolster Christie’s claims that benefit cuts are the only answer. We can’t blame them. Remember how eager Christie was to declare success when a reform agreement was reached in 2011? That supposedly set New Jersey’s pension system on the road to solvency.

But now we’re being told it’s not even close. What’s happened since then? New Jersey’s economy has continued to lag on Christie’s watch. The governor then reneged on one of the state’s pension payments into the system that was part of that original agreement. That only exacerbated the long-term financial burden and — not coincidentally — furthered Christie’s own argument that more benefit cuts are unavoidable.

This is yet another case of Christie putting his own presidential ambition over the interests of New Jerseyans as he bows to national conservatives. The right wing doesn’t like unions, and will applaud any effort by governors and other elected officials to gut union influence. Slashing and burning public-worker benefits is a means to that end, and Christie is carrying out that task with dedication.

[…]

…When the commission delivers its recommendations, expect Christie to repeatedly cite them as “bipartisan” evidence of his wisdom in support of whatever cutback plan he puts forth. Democrats will ridicule the entire process as merely serving Christie’s will. And we’ll be no closer to arriving at some important decisions, in large part because Christie isn’t much worried about what New Jerseyans think anymore. He’s got bigger plans.

Read the rest of the editorial here.

More Than 1 in 8 Seniors Targeted by Pension Scams in UK

New research by Fidelity has revealed that 13 percent of seniors in the UK have been targeted by scammers looking to steal pension benefits. From AOL Money:

[The scammers] promise their victims that they can free up money tied up in their pension before they hit the age of 55 – and get their hands on their 25% lump sum or more. Those who are taken in by this sort of scam will lose most – if not all – of their savings.

The way these fraudsters work is that they tell victims they can free up part of their pension, and then the rest will be invested for them – often with a guaranteed return. In order to get their hands on their cash they have to transfer their pension into the ownership of the business the scammers have established for this purpose.

Often they will receive some sort of lump sum, but then the fraudsters will disappear with the rest of it. To make matters worse, because the pension investor has accessed their pension earlier than is allowed, they will also be hit with punitive taxes from the taxman.

Pension360 has covered a similarly harmful, but mostly legal, scam that occurs in the United States. Businesses offer seniors pension “advances”, which work like payday loans. Missouri is the only state to ban the practice so far.

Photo by www.SeniorLiving.Org

Controversial San Diego Fund Could Fire CIO Thursday, But Vote Will Be Close

The San Diego County Employees Retirement Association (SDCERA) has made headlines across the country for having maybe the highest risk tolerance of any pension fund in the country.

Lee Partridge, the fund’s outsourced Chief Investment Officer, is permitted to use up to 500 percent leverage on portions of the portfolio.

But the fund will vote Thursday on whether to fire Partridge after retirees have said they fear for their pensions under the risky strategy. According to insiders who spoke to Chief Investment Officer Magazine, the vote is too close to call:

The nine trustees of the San Diego County Employees Retirement Association (SDCERA) are set to vote on Thursday whether to terminate its outsourcing contract with Lee Partridge’s Salient Partners—a deal they passed eight to one in June.

The outcome is too close to call, according to several sources familiar with the matter. Three trustees have consistently backed and defended the arrangement, including David Myers and David Moore, while three others adamantly oppose it. A September 18 motion by Dianne Jacob initiated the vote, seconded by new member Samantha Begovich. In June, Dan McAllister alone came out against the contract. The positions of the final three trustees remain unclear.

In the event of a majority vote to dismiss Salient, the board is expected to nominate consultant Wurts & Associates as interim portfolio manager. A partner from recruiting firm Korn/Ferry is also slated to present about its recent search for an internal CIO for the California Public Employees’ Retirement System. According to the agenda, the board may then vote on whether to solicit proposals from recruitment firms to undertake their own search.

One trustee who will likely vote to fire the CIO, Samantha Begovich, said this at a board meeting earlier this month:

“It is well documented that we’re paying exorbitant, outlier-type fees with no incentives except to grow the fund…a contract with no ties to performance is something that I cannot support. And so I will be voting ‘no’ on that when the time comes.”

Another trustee who supports the current CIO said he was “flabbergasted” that the board is considering firing Partridge. From Chief Investment Officer:

“All of our board members were fully aware of the investment portfolio structure and how it would perform in an equity bull market,” wrote Trustee Myers, a Salient supporter, in response to the conflict. Likewise, “all understood, or at least I thought they understood, that it is the long term sustainability and performance of the retirement fund is what matters.”

Myers continued to say he was “flabbergasted” at the proposal to fire Salient and exit its investment strategy “without thinking through all of the implications and any form of a backup plan or approach. There are many terms to describe such proposals, but I would not describe them as ‘measured,’ ‘well thought out’ or even ‘analytical.’”

The vote will be held on Thursday, October 2.

North Carolina Pension To Stick With Hedge Funds As Major Union Calls For Divestment

A few days after CalPERS pulled out of hedge funds, the State Employees Association of North Carolina (SEANC) called on North Carolina’s pension fund to do the same.

The pension fund, however, has shown no willingness to follow in CalPERS’ path, and recently doubled down on its support of hedge funds as part of its portfolio.

Originally, SEANC released this statement:

“Other institutional investors around the world could potentially follow CalPERS’ lead and finally dump these high-risk funds,” said SEANC Executive Director Dana Cope. “Those who wait to cash in may find the money’s gone. That’s not a risk state workers are willing to take. It’s time to pull out of these investments now before the cart starts going downhill too fast for us to jump off.”

Hedge funds are notorious for high fees. Pension funds and investors pay these fees in hopes that the payoff will be higher, but for the past decade, hedge fund performance has been lacking. Cowell has the power to invest of 35 percent of the $90 billion state retirement system in “alternative investments,” a term that includes hedge funds.

But North Carolina hasn’t budged, and pension officials have supported their hedge fund allocation. From the News & Observer:

Kevin SigRist, chief investment officer of North Carolina’s $90 billion fund, said that the state is by and large pleased with the performance of its hedge fund investments and plans to stay the course.

North Carolina’s hedge fund investments generated an 11.48 percent return for the fiscal year that ended June 30, as well as a three-year return of 6.86 percent and a five-year return of 7.59 percent. That 11.48 percent return bests the 7.1 percent return that CalPERS reported from its hedge fund portfolio and compares to the state’s 15.88 percent overall return for its latest fiscal year.

“We would expect to continue to evaluate (hedge funds) and use them where appropriate and where we think there are benefits to the trust fund,” SigRist said.

[…]

SigRist said that the fact that hedge fund investments cut across asset classes is at the heart of why North Carolina doesn’t disclose how much of its pension fund is allocated to hedge funds – a practice that has drawn SEANC’s ire. Although the pension fund has stipulated the allocation to hedge fund strategies, he added, that’s only a piece of the pie because it’s based on an antiquated concept of what a hedge fund is.

Currently, North Carolina’s pension system has $3.9 billion in hedge funds, or 4.3 percent of total assets. They paid $91 million in fees to those funds in 2013.

Anonymous Money Floods Phoenix Pension Vote

A Phoenix ballot initiative – titled Proposition 487 – would block off the city’s traditional pension system from all new hires, and instead shift those employees into a new, 401(k)-style plan.

Unions have made no secret of their disdain for the initiative and have raised over $100,000, mostly from firefighters, to fund ads opposing the potential law.

But support for Proposition 487 is strong as well – $428,200 has been raised in support of the measure. The only problem: no one knows where that money is coming from. From the Arizona Republic:

Conservative advocacy groups with secretive funding sources are pouring money into a ballot-initiative effort to end the city pension system in Phoenix.

While it’s clear unions are bankrolling the opposition to Proposition 487, the sources of the pro side’s campaign war chest are unknown. Most of its cash has come from anonymous “dark money” groups — and the state is investigating its largest corporate backer over a complaint alleging campaign-finance violations.

So far, Citizens for Phoenix Pension Reform has received 98.5 percent of its money from corporate groups that don’t have to disclose their funding sources.

Campaign-finance reports filed late last week show the group has overwhelmingly outraised government-worker unions, raking in $428,200 through the Sept. 15 reporting period.

[…]

Most of the pro-reform group’s money — $335,750 — has come from the Arizona Free Enterprise Club, a non-profit corporation that’s not required to reveal its funding sources.

Because of its non-profit status, it does not have to disclose donors and therefore is considered a dark-money group. But it is required to spend more than half of its money on social-welfare causes. However, the Arizona Secretary of State’s Office concluded in August that there was “reasonable cause” to believe the Free Enterprise Club has violated elections laws and investigated its activities. Elections officials believe the club operates more like a political committee, which must disclose donors, than a non-profit.

Union groups are none too happy about the secretive funding sources. From the Arizona Republic:

Labor leaders against the initiative have made the shadow money a centerpiece of their campaign, posting hundreds of “Dark Money” arrows pointing to “YES on 487″ signs across the city. They assert the outside groups are propped up by right-wing billionaires and Wall Street bankers, who would benefit from axing pensions.

“If you have nothing to fear, say where your money is coming from,” said Frank Piccioli, president of the American Federation of State, County and Municipal Employees Local 2960, which includes about 2,145 office workers and 911 operators.

“Most of them do have ulterior interests. They have to be benefiting somebody,” he said. “What do you have to hide?”

Unions have raised $106,600 to fight Prop. 487, with the bulk of the money coming from Valley firefighter unions. The opposition campaign reported contributions from firefighters in Phoenix, Chandler, Tempe, Glendale and Peoria. The anti-Prop. 487 campaign also isn’t required to disclose individual donors, though labor leaders said the money comes from membership dues.

Phoenix residents will vote on the measure on November 4.

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