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Critics, Unions Bash Phoenix Pension Proposal

Labor groups and others in Phoenix are expressing outrage over a pension reform proposal – titled Proposition 487 – that would shift all new hires by the city into a new, 401(k)-style plan as opposed to the traditional pension plan that workers currently belong to.

The critics claim the new plan would cut benefits for disabled workers cut death benefits, as well. Reported by the Arizona Republic:

Opponents of a ballot initiative to end Phoenix’s employee pension system are raising concerns it could curb benefits for disabled city workers and the survivors of dead police officers and firefighters.

[…]

The message comes as Phoenix’s firefighter union has jumped full force into the effort to persuade voters to reject the initiative in the Nov. 4 election, putting up hundreds of “NO! ON 487″ signs across the city and campaigning door-to-door.

Fire Fighters Opposed to Prop. 487, a political committee, recently posted a photo of a fireman’s daughter on its Facebook page, saying, “If Prop. 487 passes and the unthinkable were to happen to her dad at work, Claire and her mom would receive nothing. Taking line-of-duty death benefits from firefighters and police officers is simply wrong.”

As it stands, the family of a city employee who dies prematurely can receive a portion of his or her pension as a death benefit. An employee who is injured can retire early and collect a portion of his or her pension.

Supporters of the reform initiative claim that critics are trying to distract voters from the real issue: the sustainability of the city’s pension system. From the Arizona Republic:

Supporters of the initiative, also known as the Phoenix Pension Reform Act, contend the arguments about disability retirement and death benefits for first responders is a red herring meant to distract voters who have the chance to stop a costly pension system. The city’s costs for the pensions of civilian workers have soared to $129 million this year, up from $27.8 million in fiscal 2002.

Voters will vote on the ballot initiative on November 4.

Delving Deeper Into New York Fund’s Partnership With Goldman Sachs

New York State Comptroller Thomas P. DiNapoli announced yesterday that New York’s Common Retirement Fund (CRF) plans to give $2 billion to Goldman Sachs for investing in global stocks.

The partnership is the first of its kind of the CRF. Aaron Elstein, who runs the In The Markets blog, weighed in on the partnership in a column on Wednesday:

“This innovative partnership gives the New York State Common Retirement Fund full access to world-class global equity investment opportunities and the nimbleness to take advantage of them on a timely basis,” DiNapoli said.

The innovative thing is that the pension fund hasn’t hired Goldman before. As for “access to world-class global equity investment opportunities,” it seems worth noting that mutual funds bearing the Goldman Sachs name have collectively returned 12.43% over the past five years, according to Morningstar, which is average for their category. In 2010 and 2011 the funds underperformed their category and in 2012 and 2013 outperformed. This year, their total return of 4.7% is exactly in line with the category. Maybe the global equity investment opportunities from Goldman aren’t really the ones to which you’d want special access. (A spokesman for the comptroller’s office later said Goldman can’t pitch in-house funds to the pension fund.)

Certainly the New York state pension fund will be offered investments that Goldman doesn’t make available to mutual fund customers. We know that because the press release said the pension fund and Goldman “will initially focus on dynamic manager selection opportunities in global equities to enhance returns in the Fund’s equity portfolio.” That doesn’t sound like such a bargain, either.

“Dynamic manager selection opportunities” is gibberish that in its tortured way means Goldman will introduce the pension fund to money managers who aim to outperform the market.

Elstein goes on to dissect the rest of yesterday’s press release from DiNapoli and also touches on the drawbacks of actively managing investments. Read the whole column here.

Two Studies Give New Insight Into Retirement Challenges

Two studies came out earlier this week that shed further light onto the challenges facing Americans entering retirement.

The Joint Center for Housing Studies of Harvard University (JCHS) released a study on the housing needs of retirees, and the Federal Reserve Board issued its Survey of Consumer Finances (SCF), which gives insights into the income of retirees as well as their participation in retirement plans. Money magazine did a nice job summarizing the findings:

The Harvard study found that our existing housing stock is ill-suited to meet seniors’ needs, including affordability, accessibility, social connectivity and support services. And high housing costs are eating into the ability of low-income older adults to pay for necessities like food and healthcare.

Housing is the largest expenditure in most household budgets, and so is a linchpin of financial security and well-being. “It’s really at the nexus of your financial health, physical health and healthcare,” says Jennifer Molinsky, research associate at the JCHS and principal author of the study.

Harvard found that a third of adults over age 50 pay more than 30% of their income for housing—including 37% of people over age 80. Harvard defines that group as “housing cost burdened.” Another group of “severely burdened” older Americans spend more than 50% of income on housing. That group spends 43% less on food, and 59% less on healthcare, compared with households that can afford their housing.

Homeowners are much less likely to be cost-burdened than renters, the study found. But more homeowners are carrying mortgages well into retirement. More than 70% of homeowners aged 50 to 64 were still paying off mortgages in 2010.

The Federal Reserve Board also released its Survey of Consumer Finances (SCF). The findings, explained by Money:

The Federal Reserve findings on middle-class retirement prospects are equally troubling. Despite the economy’s gradual mending, the SCF found a widening gap in income and net worth. The top 10% of households was the only income band registering rising income (up 2% since 2010). Households between the 40th and 90th percentiles of income saw little change in average real incomes from 2010 to 2013. And the rate of homeownership was 65%, down from 69% in 2004 and 67% in 2010.

Ownership of retirement plan accounts also fell sharply. In the bottom half of income distribution, just 40% of households owned any type of account—IRA, 401(k) or traditional pension—in 2013, down from 48% in the 2007 survey. The Fed attributes the drop mainly to declining IRA and 401(k) coverage, since defined benefit coverage remained flat. Meanwhile, coverage in the top half of income distribution was much higher. In the top 10%, 95% of families are covered.

Overall, the average value of retirement accounts jumped a substantial 10% from 2010 to 2013, to $201,300. The Fed attributed that to the strong stock market and larger contributions. But for the lowest-income group that owned accounts, the average combined IRA and 401(k) value was just $39,100—and that is down more than 20% from 2007.

There’s a growing debate about whether a retirement crisis is real or imagined. These numbers will add to that debate, but will likely do little to resolve it. The Harvard study was funded in part by the AARP Foundation, an affiliation that critics will use to discredit the study’s conclusions.

Photo by www.SeniorLiving.Org

Video: Pension Reform in Alaska, by Sen. Hollis French

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The 2014 Council of State Governments Conference was held last month, but video of the presentations has just started to surface.

There were a handful of presentations on public pension topics. One such presentation

focused on pension reform in Alaska. The talk was given by Alaskan Senator Hollis French.

The video description reads:

Shortfalls in state-run retirement systems continue to grow, and in the 2012 fiscal year, the gap between promises to state workers and funding in the accounts reached $915 billion. Unfunded pension obligations can have significant implications for a state’s fiscal stability, including lower credit ratings, increased borrowing costs and the diversion of state resources away from other spending priorities like infrastructure and education.

Ohio Auditor Decries New Pension Accounting Rules

Ohio Auditor Dave Yost says Ohio’s local governments could be harmed by new rules from the Governmental Accounting Standards Board pertaining to pension liabilities.

Specifically, Yost says the new rules will cast a false light on the finances of local municipalities due to the way health care must be reported. From the Cleveland Plain Dealer:

The [Governmental Accounting Standards] board recommended governments account for and report post-employment benefits besides pension liabilities, such as health care, the same way they do for pension liabilities. The board concluded that these non-pension benefits are a form of compensation such as salaries and pensions, promised to employees in exchange for their present services and thus should be included.

But in Ohio, retirement medical coverage is not guaranteed by state pension systems. State law requires local governments to contribute to one of five state pension plans: the State Teachers Retirement System, Ohio Public Employees Retirement System, Police and Fire Pension Fund, School Employees Retirement System and the Ohio State Highway Patrol Retirement System.

State law allows pension systems to offer medical insurance, but there is no legal obligation to employers beyond the employer pension contribution. Yost noted in his written testimony that Ohio’s pension systems choose to fund medical care through established contributions.

Yost said the proposed rule requires employers to record a liability they have no control over and, in Ohio, a liability state retirement systems have no duty to ever provide.

“Recording this liability will result in misleading financial statements. When the public looks at local government financial statements, with this other post-employment benefit now recorded as a liability, they may see what appears to be a government in the red, when the reality is something altogether different,” Yost said. “This will prove to be a difficult issue for local government finance officers to explain to their legislative authorities and, ultimately, taxpayers.”

Yost is scheduled to testify today in a Chicago hearing on the new accounting rules.

Photo by www.SeniorLiving.Org

Canada Pension Board to Open India Office

Pension360 covered last week the reported interest in Indian investments expressed by the Canadian Pension Plan Investment Board (CPPIB). Today, that interest became much clearer, as the CPPIB announced plans to open an India office in Mumbai.

More details from the Economic Times:

Canada Pension Plan Investment Board (CPPIB), the giant pension fund that makes private-equity investments, plans to open an India office and has hired Kotak Realty Fund executive V Hari Krishna as a key member of its local team.

Krishna would join CPPIB in the coming month from the Kotak fund where he was a director for more than nine years, said two people having direct knowledge of the matter. He has also worked at real estate consultancy firms in the pat.

The proposed India office will be the second for CPPIB in an emerging market, indicating the fund’s growing focus on India where the economy is expected to turn around after two years of sub-5 per cent growth. “The India office will be set up in Mumbai in the next two-three quarters and CPPIB intends to do direct transaction over the next 12-18 months,” said one of the two people. “The fund has been looking to hire heads for real-estate, infrastructure and equities for India to drive investment.”

The pension fund refused to comment on office opening or recruitment in India, including of Krishna. “As a growing global investment organisation, we do look at expansion to more locations,” said Mark Machin, senior managing director and president of Asia at CPPIB. Krishna didn’t reply to a text message seeking comment.

The CPPIB appears to be primarily interested in Indian infrastructure and real estate investments. From the Economic Times:

In June this year, it offered to invest around $322 million in India’s infrastructure sector through L&T Infrastructure Development Projects, a unit of Larsen & Toubro.

It offered another $250 million in a strategic alliance with Piramal Enterprises to provide structured debt financing to residential projects across major urban centers this February, and a $200 million strategic alliance with the Shapoorji Pallonji group to acquire stabilised office buildings that are foreign-direct-investment compliant in late 2013.

“India is a key long-term growth market for CPPIB. The fund has committed approximately US $1.4 billion in India since 2010 and will continue to look to India for investments that fit with our long-term investment mandate,” CPPIB’s Machin said in an email response.

The CPPIB would not confirm or deny the plans for an India office.

United Nations Appoints New Officer To Head Pension Investments

The United Nations has hired a new top investment officer to manage the investments of its $54 billion pension fund. The position — officially titled Representative of the Secretary-General for Investments — will be manned by Carol Boykin, who has worked on the investment staff of numerous public pension funds over the last two decades. From Ai-CIO:

As representative of the secretary-general for investments—a role created in March—Carol Boykin will be responsible for overall asset management strategy, policy, and oversight.

She has spent the last several years as president of Bolton Partners Investment Consulting, an independent Baltimore-based benefits practice.

Boykin served as CIO of the Maryland State Retirement and Pension System from 1999 through 2003, before leaving abruptly. She had come to the then-$25.2 billion public fund from Lucent Technologies, where she spent two years as deputy CIO.

She began her career in 1995 at the New York State Teachers’ Retirement System, where she spent three and half years as a securities investment officer.

The UN’s defined benefit fund has a highly complex governance structure and is entirely internally managed.

Carol Boykin’s biography from Bolton Partners’ website reads:

Ms. Boykin is a CFA charterholder, and she is a member of CFA Institute. She is a past president of the Baltimore CFA Society, and she currently serves on their Advisory Board. She holds a Master of Science in Finance from Loyola University Maryland and a Bachelor of Arts in Economics from Emory University.

According to Chief Investment Officer magazine, the United Nations was actively looking to hire a woman or minority to lead the pension fund’s investments.

New Jersey Credit Rating Cut By S&P; Record 8th Downgrade Under Christie

Credit rating agency S&P has downgraded New Jersey’s credit rating by one step, to A. The downgrade comes just 5 days after Fitch downgraded the state’s rating.

Notably, the state has been downgraded eight times under Chris Christie, the most under any governor in the state’s history.

Reported by Bloomberg:

The reduction to A, the sixth-highest level, with a stable outlook follows a Sept. 5 downgrade by Fitch Ratings. It gives New Jersey the same general-obligation grade as California, which is on track for an upgrade as revenue exceeds Democratic Governor Jerry Brown’s estimates. Only Illinois has lower ratings than New Jersey among U.S. states.

“New Jersey continues to struggle with structural imbalance,” S&P analyst John Sugden in New York said in a statement today. “The governor’s decision to delay pension funding, while providing the necessary tools for cash management and budget control, has significant negative implications for the state’s liability profile.”

Christie, a 52-year-old Republican in his second term, broke his promise this year to make $2.5 billion in extra pension payments in fiscal 2014 and 2015 to help trim unfunded obligations. He has called for more changes to the plan as costs for employee benefits crowd out other state spending.

[…]

New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion with Christie’s changes. It then grew to $47.2 billion in 2012 as he made only partial contributions.

For fiscal 2014, which ended June 30, Christie contributed $696 million, less than half the planned $1.6 billion. Superior Court Judge Mary C. Jacobson, ruling in Trenton on June 25 in a lawsuit filed by state worker unions, said Christie was within his power to reduce the payment because he faced a fiscal emergency.

All three of the major rating agencies – Fitch, Moody’s and S&P – have downgraded New Jersey’s credit rating in 2014.

Gina Raimondo Wins Rhode Island Democratic Primary; Pensions Remain Campaign Issue

Rhode Island Governor candidate Gina Raimondo has beaten out challengers Angel Taveras and Clay Pell to win the state’s Democratic Primary. From Politico:

With 96 percent of precincts reporting, Raimondo led Providence Mayor Angel Taveras, 42 percent to 29 percent, with first-time candidate Clay Pell at 27 percent.

Rhode Island Democrats are hoping Raimondo can break a long streak of gubernatorial heartbreak: It’s been since 1992, when Bruce Sundlin earned a second two-year term, that a Democrat won an election for governor. Current Gov. Lincoln Chafee, who is not seeking reelection, took office as an independent but later became a Democrat as he pondered his electoral future.

The primary was of particular interest because of the pension issues surrounding the candidates, and the lack of public-sector union support for Raimondo.

Some further analysis of the outcome, courtesy of Daniel DiSalvo at Public Sector Inc:

Raimondo won for three reasons. First, in a three way race that included the Mayor of Providence Angel Taveras and Clay Pell, the 32-year old scion of former Senator Claiborne Pell, Raimondo enjoyed greater name recognition and outraised and outspent her opponents.

Second, the Ocean State’s public employee unions were divided between Taveras and Pell. Traveras had run afoul of the state’s teacher unions after a labor dispute in Providence and he had also supported pension reform, albeit a milder version than Raimondo. In short, the unions could either back Pell–the least experienced candidate–or they could chose between pension reformers. Some went for Pell, most notably the teacher unions, and others for Taveras. The lack of unity weakened the force of the public employee voting block.

Third, the labor movement was divided between public and private sectors–a phenomenon that has occurred frequently in recent years. Many private sector unions, concerned about the state’s business climate, backed Raimondo.

Raimondo will face Allan Fung in the general election. Fung, who is currently the mayor of Cranston, defeated Ken Block in the Republican primary.

New Jersey Launches Website Seeking Pension Comments From Public

New Jersey’s newly established Pension and Benefit Study Commission is seeking public comments and suggestions regarding the panel’s mission of “making the system sustainable for taxpayers and retirees”.

Click here to access the comment form.

The panel was created by Chris Christie last month to brainstorm cost-cutting and reform ideas to implement into the state’s pension system.

More details from the Absury Park Press:

If you’re interested in providing Gov. Chris Christie with some feedback on how to handle New Jersey’s underfunded public employee pension systems, now is your chance.

The state Department of the Treasury has created a web page and a comments form for the newly formed New Jersey Pension and Health Benefit Study Commission.

That nine-member commission was appointed by Christie in August and tasked with providing recommendations for reforming the system, which has been chronically underfunded by the state for years.

[…]

The new web page features short biographies of the nine commission members, a widget that takes viewers to a page on which they can submit feedback and a link to Executive Order 161, which established the commission.

View the website by clicking here or visiting the direct URL:

https://www.state.nj.us/treas/reform.shtml

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