Pension360

Japan’s Government Pension Investment Fund (GPIF) this week sued Toshiba for losses incurred due to the company’s accounting scandal last year.

Toshiba shares took a major hit during the scandal, and are still down significantly from where they were before the controversy.

From Reuters:

Japan’s public pension fund said it sued Toshiba Corp (6502.T) for 964 million yen (6 million pounds) through an asset manager for losses stemming from the technology and industrial conglomerate’s $1.3 billion accounting scandal last year.

A Government Pension Investment Fund (GPIF) official confirmed a Wall Street Journal report on Thursday which said a lawsuit by Japan Trustee Services Bank against Toshiba, filed on May 6 and previously reported by other media, had been on its behalf.

A hearing is set for June 21, the official said.

[…]

Toshiba was not immediately available for comment.

An investigation last year found widespread accounting errors throughout the laptops-to-nuclear conglomerate, and blamed a corporate culture in which employees found it difficult to question their superiors.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Geordon Omand of the Canadian Press reports, Finance ministers reach agreement on expanding CPP:

Most of Canada’s finance ministers reached an agreement in principle Monday to revamp the Canada Pension Plan, although Quebec and Manitoba have not signed on to the deal.

Under the agreement, which would go into effect in 2019, an average Canadian worker earning about $55,000 will pay an additional $7 a month in 2019. That would increase to $34 a month by 2023.

Once the plan is fully implemented, the maximum annual benefits will increase by about one-third to $17,478.

Finance Minister Bill Morneau said the deal will improve the CPP in a way that will make a difference to working Canadians.

“We have come to a conclusion that we are going to improve the retirement security of Canadians, we’re going to improve the Canada Pension Plan that will make a real difference in future Canadians’ situations,” he said.

Morneau said Quebec, which has its own pension plan, and Manitoba continue to be part of the process, despite not signing on to the agreement.

“Quebec is in a different situation,” he added. “The Quebec pension plan is a different vehicle. The costs are different than the Canadian Pension Plan. The idea that more analysis is required is something that we completely understood around the table.”

For Manitoba, Morneau said the deal comes too soon for the province’s new Tory government.

“Manitoba is a brand-new government. They’ve been in power for four weeks, so they were a productive voice around the table, a voice of continued interest in working together, but of course this comes pretty fast and hard for them.”

Ontario Finance Minister Charles Sousa said young Canadians will reap the benefits from Monday’s decision.

“Today, this federal government has shown great leadership and great desire to do something of great benefit for our young people.”

Sousa said the plan would replace the one his government had been working on.

British Columbia Finance Minister Mike de Jong, who had reservations about expanding the CPP, said he came on board because the plan is affordable for employees.

“I think we have reached a balanced approach to setting the objectives that were set out.”

A change to the CPP needs the consent of Ottawa and a minimum of seven provinces representing at least two-thirds of the country’s population.

Heading into Monday’s federal-provincial meeting, it was still unclear whether Ottawa would piece together the minimum required provincial support for change. Saskatchewan, for example, did not support CPP enhancement.

Sources say Ottawa made a major 11th-hour push in hope of securing enough countrywide support to boost the CPP and suggest Prime Minister Justin Trudeau was involved in the extra effort.

There hasn’t been such a level of consensus on CPP reform at a national scale since the 1990s.

Morneau has argued that enhancing the CPP is critical to ensuring future generations will be able to retire in dignity, no matter the state of their finances.

However, critics have warned that expanding the CPP would squeeze workers and employers for additional contributions — and hurt the still-fragile Canadian economy.

The federal government intensified its lobbying efforts over the final days and hours of meetings in Vancouver as it tried to attract support from enough provinces to ensure a CPP upgrade, said sources with knowledge of the talks.

This is great news for future generations of Canadians. Read my last comment on chasing a CPP consensus to get my thoughts on why it’s critically important to enhance the CPP once and for all.

Bernard Dussault, Canada’s former Chief Actuary, was kind enough to share his thoughts with me:

• The increase in the 25% retirement pension rate (i.e. from 25% to 33.33%) is more modest than we ever heard before, still though a not negligible 8.33% increase.
• To my unexpected great satisfaction, the few details provided about the strengthening mean that lower income (e,g, $25,000) workers will not be excluded form coverage.
• Indeed, If the actual intent were to exclude them ($25,000), then Bill Morneau Statement’s “a Canadian with $50,000 in constant earnings throughout their working life would receive a yearly pension benefit of around $16,000 instead of the $12,000″ would be inaccurate because the strengthening with a $25,000 exclusion would provide a yearly pension of $14,000 instead of $16,000, as the first $25,000 of employment earnings would not benefit from the 8.33% increase.

Bernard also pointed out a few things which should be obvious:

1. Even if Manitoba did not vote for the now agreed CPP expansion, it shall join and be part of it.
2. Even if Quebec did not vote for the now agreed CPP expansion, it will have to expand the QPP in a manner similar to the CPP expansion. In this vein, QC may will do what it wants regarding the financing of their own expansion but shall not have a choice as to providing a design of benefits that shall be as beneficial as that of the CPP expansion. This relates to my point below, i.e. inclusion of low income earners.
3. Ontario Finance Minister indicated in the midst of yesterdays ’announcement that it will not implement the ORPP if the agreed CPP expansion is ultimately approved.

I thank Bernard for sharing his insights.

The US Defense Department created a 3-minute video, which provides information about their new retirement system that is set to take effect in the year 2018.

Pension360 has extensively covered the overhaul, which took place in 2015 and early 2016.

The newly released video aims to provide a complete financial literacy campaign offer by the Pentagon as they prepare troops and their families for the changes.

The military’s new retirement plan is quite comparable to the 401k plan offered by the private sector.

Find out more about the campaign at MilitaryTimes:

Starting in January 2018, military personnel with fewer than 12 years of service must choose whether to opt into the new “blended” system or stay enrolled in the traditional pension plan. Officials estimate that group includes 1.6 million people.

Those with more than 12 years in uniform will remain enrolled in the traditional pension plan.

[….]

Everyone who joins the military in 2018 and beyond will automatically be enroll in the new system.

In approving the new system, officials both in the Pentagon and on Capitol Hill have championed the fact that this new system will, for the first time, ensure service members who don’t stay in uniform for a full 20-year career will receive at least some retirement benefit upon leaving.

[….]

Notably, officials have yet to resolve one of the plan’s key components: its lump-sum payout option. The American Academy of Actuaries issued a warning to the Pentagon in May, saying it risks shortchanging enlisted personnel specifically.

Meanwhile, officials have introduced the first of four courses that will help the force prepare for decision time. They’re targeting the military’s leaders now, individuals expected to be on the receiving end of questions from rank-and-file personnel, but the course is open to anyone. It’s accessible via the department’s Joint Knowledge Online portal.

You can learn more about the new retirement plan here.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Geordan Omand of the Canadian Press reports, Revamp of Canada Pension Plan centre stage at finance ministers’ meeting:

The federal finance minister says revamping the Canada Pension Plan is critical to ensuring that future generations of Canadians can retire in dignity, no matter the state of their finances.

Bill Morneau joined his provincial and territorial counterparts in Vancouver on Monday to discuss reforming the national pension program over concerns that some Canadians will struggle financially come retirement.

“We’ve heard from Canadians (about) the importance of retirement security,” Morneau said before the meeting.

“I’m looking forward to working together with my colleagues across the country to improve the long-term future for Canadians.”

The pressure is on to reach a deal as Ontario’s plans to develop its own pension program are well on their way, though the province’s finance minister said his preference would be for a national strategy.

“We want consensus. We want everybody to participate. We want everybody involved,” said Charles Sousa, adding that he wants to reach a deal in Vancouver.

Quebec Finance Minister Carlos Leitao was not as optimistic about coming to an agreement on Monday, saying that any change would have to be targeted, modest and gradual to earn his province’s support. So far Ottawa’s plan is only two thirds of the way there, he said.

Leitao put forward a proposal during the meeting that more selectively targets those Canadians who are the least likely to save in order to avoid putting an additional financial burden on low-income earners.

Under the Quebec plan, increased pension premiums would only kick in for those who make more than about $27,000 per year, which is about half the yearly maximum pensionable earnings for 2017.

The proposal argues that supplementing the income of Canada’s lowest earners is better achieved through other government policies, such as old age security and the guaranteed income supplement.

Reforming the pension system needs the support of at least seven provinces representing two thirds of the country’s population, which gives Ontario an unofficial veto over any decision.

The legislation, as currently written, also states that any reforms can only be implemented three years after a federal-provincial agreement is reached.

Coming into the meeting, Saskatchewan and B.C. have suggested economic conditions aren’t right for a change that’s likely to lead to an increase in the premiums that come off workers’ paycheques.

That premium hike is why some critics of the expansion call it a payroll tax, a common refrain from the Opposition Conservatives who oppose an across-the-board expansion of the program.

Federal research has suggested that workers who are the least likely to save for retirement tend to be under the age of 30, earn between $55,000 and $75,000 (although some estimates are higher), and either don’t save enough or lack access to a workplace pension plan.

The federal and provincial governments are looking at a possible increase in the $55,000 cap on annual maximum pensionable earnings, which would result in both higher premiums and increased pension benefits.

Of course, critics abound. Kelly McParland of the National Post reports, Can Bill Morneau save Canada’s pension plan from Ontario?:

Canada’s finance ministers will meet in Vancouver today for a new round of talks on pensions, resolute in their determination to solve a crisis that doesn’t exist.

Federal Finance Minister Bill Morneau has pledged to seek agreement on “enhancing” the Canada Pension Plan by the end of the year. An initial meeting with provincial counterparts in December was considered a success in so far as no one stomped out of the room in outrage. But no actual money was on the table at the time; the ministers merely agreed to “enter into discussions to review next steps,” and to meet again. The Vancouver meeting may mark the beginning of the hard part.

The task is complicated by several uncomfortable realities. One is that there is no crisis. According to any number of reports by respected institutions, both in Canada and abroad, Canadian seniors are doing quite well. Four out of five have the income they need in retirement. The poverty rate among seniors has plummeted over the past four decades: although advocacy groups pick and choose the figures they use to best bolster their argument, even the starkest numbers suggest seven out of eight seniors are above the line. Compared to other developed countries, Canada ranks near the very top; Statistics Canada figures show the share of seniors living in low-income families fell from 29 per cent in 1976 to 5.2 per cent in 2011, four points lower than the overall population.

Despite the lack of a sweeping need, Morneau and Ontario Premier Kathleen Wynne have nonetheless signalled their intention to save the day. They fear the country’s aging population will mean an increased number of elderly who find themselves outliving their means. Indeed, after years of decline, poverty figures have been creeping higher, especially among older, widowed women. “Progressives” argue that Canadians aren’t saving enough, and thus need government action to protect them from the consequences.

Ontario wants Morneau to “fix” the CPP by increasing contributions. Former finance minister Jim Flaherty resisted similar pressure because it would mean higher premiums, and smaller paycheques, for working Canadians who can ill-afford it. That argument makes little headway in Ontario, where Wynne’s government is determined to press ahead with an Ontario-only scheme that will start siphoning money from contributors on Jan. 1, 2018. Only a broader reform of the CPP will stop the province from barreling ahead with its ill-conceived plan.

Ontario’s resolve is wrong-headed on several fronts. It will represent an additional cost of doing business in a province that has seen its manufacturing base erode and its finances sink deeper into debt. It will put a strain on those at lower income levels who can’t afford the additional deductions, and who are already adequately covered by the package of benefits that include the CPP, the Old Age Security pension and the Guaranteed Income Supplement. While a second government pension might benefit some middle-class Canadians, it would reduce the income available during their working years for raising families and paying mortgages, as well as for personal investments. Advocates of pension reform seem oblivious to the fact that, thanks to health improvements, many older Canadians prefer to continue working beyond the traditional retirement age of 65. Canadian seniors are not the doddering grandmas and grampas of the government’s imagination, but a vibrant and energetic cohort of people who aren’t prepared to be put out to pasture.

The situation represents a problem for Morneau. To halt Ontario’s plunge into ORPP he needs agreement on a federal enhancement to CPP that won’t do more harm than good. To significantly change CPP he also needs agreement from seven of 10 provinces representing two-thirds of the population. But Quebec is reluctant — “I don’t think there’s any sort of crisis in our public pension system,” says Finance Minister Carlos Leitao — Saskatchewan is opposed and British Columbia has doubts. Manitoba’s new Conservative government may also by more prone to small, targeted improvements over a sweeping revamp.

Ontario’s ORPP would threaten the balkanization of a system intended to apply equally to all Canadians. It is in Canada’s interest to avoid this. Morneau must find a way to prevent Ontario from undermining the system as a whole while averting reforms that would be just as damaging. It’s a daunting task, demanded by an unnecessary crusade.

Every time provincial finance ministers get together to discuss enhancing the CPP, Canadians are bombarded by flimsy articles claiming “everything is fine, we don’t need to enhance the Canada Pension Plan.”

True, there is no imminent crisis and Canadian seniors are doing quite well on a relative basis but this is an extremely naive and shortsighted argument against not enhancing the CPP. It’s like knowing the tsunami is coming but we should all just relax instead of preparing for it (click on image):

The premise behind enhancing the CPP is to offer Canadians who are not saving enough for retirement a pension that ensures they can retire in dignity and security in an era that will be marked by ultra low rates and returns.

I know, some experts claim there is no savings problem in Canada, but other experts disagree and think that far too many Canadians are ill-prepared for retirement. Others claim that the majority of Canadians are saving, just not wisely (although the advice they offer is equally terrible).

The truth is a lot of Canadians aren’t saving enough in large part owing to the ongoing housing bubble in this country that keeps inflating residential real estate prices to epic levels. Many people are barely making their mortgage payments, leaving very little or no money to save for retirement.

But even those that do manage to save a lot of their discretionary income are better off with an enhanced CPP. Why? Because regardless of their family income and amount of savings, nothing beats a defined-benefit plan which offers predetermined benefits indexed to inflation that are not subject to the vagaries of public markets. Also, they can’t outlive their pension contributions to the CPP whereas most Canadians with no workplace pension will outlive their savings soon after they retire.

What else? Despite the critics, Canadians are getting a great bang for their CPP buck. The folks over at CPPIB are pension experts who know what they’re doing. They have the resources to pool investments, lower costs and invest directly in public and private markets across the world, leveraging off their scale, internal expertise and long investment horizon which allows them to capitalize on short-term market dislocations that can hurt or wipe out individual savers.

What about all those critics who claim that enhancing the CPP is a “tax” which will hurt the economy? They are completely and utterly clueless. Those CPP contributions will help fund the future retirement of millions of Canadians. And as the population ages, people with a fixed and secure income are in a better position to spend, allowing the federal and provincial governments to collect tax revenue in the form of sales taxes (conversely, the less money they have, they less they spend, the less sales taxes governments collect). Also, more people retiring in dignity and security means less money has to be spent on social welfare programs, reducing the overall debt.

In fact, the direct and indirect benefits of defined-benefit plans are grossly under-appreciated. It’s simply mind-boggling that anyone claiming to be a policy expert fails to see them. I don’t care about their political affiliation, good pension policy is good economic policy for the long-run. Period.

I mention this because one of my close friends is a die hard Conservative who totally agrees with me on enhancing the CPP. He too doesn’t understand the case against enhancing the CPP (many Conservatives are way off on this issue letting politics cloud their judgment).

As far as Ontario, the ORPP isn’t an impediment to an enhanced CPP and Premier Kathleen Wynne is signalling she’s willing to abandon her proposal to create a provincial pension plan if Monday’s meeting leads to a deal on improvements to the Canada Pension Plan.

Please keep all this in mind as the finance ministers debate yet again whether or not to enhance the CPP. I hope they get this right and finally introduce much needed change to bolster Canada’s retirement system.

The New York Common Retirement Fund generated a 0.19% return in fiscal year 2015-16, the lowest ROI since 2009.

The New York State Common Retirement Fund said that its non-US equities dropped about 8.54% from last year whereas their domestic equity investment lost .54% over the same time frame. These trends were in-line with the drop in the US and global equity markets.

More on the news at Reuters:

New York State Comptroller Thomas DiNapoli said that despite weak equity markets, the fund’s diversified portfolio and investment team delivered a positive return.

“We continue to have confidence in our asset allocation for the long term,” DiNapoli said. “Our investment team is focused on ensuring we remain one of the best funded and top performing plans in the country.”

The losses in equity investments for fiscal 2016 were offset by gains in investments in fixed-income, private equity, opportunistic alternatives and real estate.

[…]

The nation’s largest public pension fund, the California Public Employees’ Retirement System, on Monday forecast flat returns for its current fiscal year, ending June 30.

Calpers’ chief investment officer, Ted Eliopoulos, said returns would “likely to be flat, which is a nice way of saying zero.”

Dozens of federal lawmakers this week requested the Government Accountability Office (GAO) investigate the finances of the Central States Pension Fund.

The fund has 400,000 members across the country and recently attempted to cut its members’ benefits in a bid to remain solvent.

More from Bloomberg:

Ten Democrats in the Senate and 41 in the House requested on June 20 that the Government Accountability Office review the Central States, Southeast and Southwest Areas Pension Fund’s investment decisions going back to 1982, when the fund came under the supervision of a court-ordered consent decree.

The requests seek to determine if there was any wrongdoing that led to the fund’s severe financial woes. The fund has projected it will be insolvent in 10 years or less.

[…]

Thomas C. Nyhan, the executive director and general counsel of the Central States fund, told Bloomberg BNA June 20 that, “While we see no reason for the investigation, we welcome it.”

Nyhan said the fund was “confident the GAO will conclude there was absolutely no wrongdoing at any time in connection with the Fund’s investment practices and finally put to rest all of this groundless speculation. We will cooperate fully in any GAO review.”

He said that every year the fund “undergoes a full scope audit by an independent auditing firm, and files exhaustive, public financial reports with the U.S. Department of Labor.”

The GAO is likely to agree to investigate.

Holy Cross Hospital in Chicago was accused by a group of former employees of illegally categorizing its pension plan as a church plan so that it would be exempted from ERISA regulations.

In the 12-count complaint filed against the Chicago hospital, the hospital allegedly retroactively claimed a church plan classification in 1993. Church plans are exempt from the Employee Retirement Income Security Act that mandates pension plans to have sufficient fund allocation to provide the promised benefits to employees.

Read more about the issue at Becker’s Hospital Review:

In 2013, when Holy Cross merged with Chicago-based Sinai Health System, the plan was allegedly underfunded by $31 million. At that time, the hospital allegedly illegally transferred liability for the pension plan to an order of nuns called the Sisters of Saint Casimir of Chicago.

Two years later, the Sisters of Casimir announced that the pension plan would be terminated. The benefits were paid out in lump sums, which were calculated using discount rates that would not have been available under ERISA, according to the report.

In their lawsuit, the former Holy Cross workers are seeking class treatment for about 2,000 participants in the pension plan. They also seek a declaration that the plan is governed by ERISA and damages for the allegedly improper termination of the plan.

In their lawsuit, the former Holy Cross workers are seeking class treatment for about 2,000 participants in the pension plan. They also seek a declaration that the plan is governed by ERISA and damages for the allegedly improper termination of the plan.

Based on the reports by Bloomberg BNA, there are 30 similar cases that involve numerous healthcare companies with religious affiliations over the past three years.

Reporter Ed Mendel covered the California Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

When CalPERS approved regulations to carry out Gov. Brown’s pension reform legislation two years ago, critics said they allowed “99 ways to boost pensions” that undermine the cost-cutting plan for new employees.

The critics had a field day going through the list of 99 types of regular extra pay that boost pensions, pointing out what seemed to be absurd bonuses for doing part of the basic job.

A Wall Street Journal editorial mentioned law enforcement incentive pay for staying physically fit, longevity pay for staying on the job more than five years, and pay for maintaining a government-issued license required to perform job duties.

An in-depth story by the Los Angeles Times mentioned bonus pay for “librarians who help the public find books, secretaries who take dictation, groundskeepers who repair sprinklers, and school workers who supervise recess.”

CalPERS said that because the reform listed a half dozen types of pay that can’t be counted toward pensions for new hires, such as overtime and unused sick leave and vacation, the 99 types of previously allowed extra pay not listed continue to count toward pensions.

Critics said CalPERS made a pro-labor interpretation of reform legislation intended to cut pension costs. The Times noted that CalPERS sponsored legislation in 1993 authorizing it to determine what bonuses count toward pensions, then created a list.

“The long-term cost of pensions calculated with bonuses is billions of dollars more than with base pay only,” said the Times. “But the exact price tag remains a mystery. The labor-dominated CalPERS board voted without estimating the potential tab.”

An illustration by Thomas Fuchs accompanying the Times story appears to show a pensioner at leisure on the backs of taxpayers.

Now the California Public Employees Retirement System board may have to revisit the controversial issue sharply criticized by major media. An update on the pension reform given to the board last week said the regulations never took effect.

Although much of the media criticism focused on the 99 types of extra pay, Brown’s Finance department had objected to a CalPERS decision to allow a pension boost from a “temporary upgrade” to a higher-paying position.

“Today CalPERS got it wrong,” Brown said in an August 2014 news release after the CalPERS board approved the regulations, referring to counting “temporary salary supplements” toward pensions.

“This vote undermines the pension reforms enacted just two years ago (AB 340 in 2012),” Brown said. “I’ve asked my staff to determine what actions can be taken to protect the integrity of the Public Employees Pension Reform Act.”

What the governor could do was not clear. A union-backed state constitutional amendment, Proposition 162 in 1992, gives CalPERS and other public pension boards sole control of their funds and administration.

As it turned out, Brown’s Finance department simply did not sign the regulations, a necessary step in the process. So, the regulations expired a year later, never taking effect. CalPERS proposed, the governor disposed.

The Brown administration thinks that allowing a temporary upgrade to a higher-paying position to count toward pensions would enable “spiking,” a boost in pensions from improperly increasing the final pay used to determine pension amounts.

“If someone is put into a higher-paying position at the end of their career, not on merit, that seems to present the potential for pension spiking,” Richard Gillihan, a Brown administration official, told his fellow CalPERS board members in April 2014.

The CalPERS staff reversed its position on temporary upgrade pay, excluding it from “pensionable compensation” in a circular sent to employers in December 2012, then including it in draft regulations.

Staff said the change reflected a reform cleanup bill, SB 13. If items other than base pay can be excluded from “pensionable compensation,” the staff reasoned, then there are items beyond base pay that are pensionable, like normal pay for temporary upgrades.

Whether temporary upgrade pay should count toward pensions split the 13-member CalPERS board: the governor’s three appointees opposed, the six members elected by active and retired employees in support.

In April 2014, a board committee removed temporary upgrade pay from the draft regulations, then it was replaced by the full board. In August 2014, Brown appointees tried and failed to remove temporary upgrade pay before the regulations were approved on a 7-to-5 vote.

Spiking is a recurring problem for pension systems. CalPERS and the California State Teachers Retirement System have anti-spiking units. To reduce spiking, the reform based new-employee pensions on a three-year pay average, a change from one year.

In addition to the pay regulations, the reform update given the board last week said two other unresolved issues will be addressed by “reconvening a team of stakeholders” that includes the Brown administration, employers, and labor unions.

A need to prevent the transfer of “excessive liability” was revealed when a former Glendale police chief, Randy Adams, took a high-paying job in Bell, more than doubling his pension to $510,000 and sticking Glendale and other former employers with the tab.

Transit workers got a two-year pension reform exemption after the federal government threatened to withhold $1.6 billion in transit grants, saying transit bargaining rights are protected. A court appeal and legislation (AB 1640) are pending.

The reform that took effect for new employees in CalPERS and county systems hired after Jan. 1, 2013, is expected to save CalPERS employers $29 billion to $38 billion over the next 30 years.

Brown could not get legislation for parts of his reform plan: adding two governor appointees to the CalPERS board and switching new employees to a “hybrid” plan combining a smaller pension and a 401(k)-style individual investment plan.

But the reform gives new hires a lower pension formula, caps the pay used to calculate pensions, requires employees to pay half the “normal” pension cost (excluding debt from previous years), and bars employer payment of the employee share of costs.

The reform only applies to new hires because a series of state court decisions, often called the “California rule,” are widely believed to prevent cuts in the pension offered at hire unless offset by a new benefit of comparable value.

In a surprise to some, the update said 29 percent of active CalPERS members, about 200,000 workers, are already covered by the reform, apparently due to filling positions vacated during the recession and other factors.

State savings are 1.2 percent of pay for miscellaneous workers and 5.1 percent of pay for peace officers, non-teaching school employee savings 1.7 percent of pay, and savings for other local government workers vary with their pension formulas.

“PEPRA is beginning to bend the cost curve and will continue to do so for many years,” Alan Milligan, CalPERS chief actuary, told the board last week.

At the end of 2014, the average 401k balance was about $18,127. That figure, however, doesn’t begin to tell the full story.

According to the recent analysis by the Employee Benefit Research Institute of 24.9 million 401(k) plan participants, 40% of these have less than $10,000 and 20% have more than $100,000 in their balance.

The study also revealed the median account balance in various income brackets.

U.S. News has the results:

$20,000 to $40,000. It is difficult to save for retirement when you earn a modest salary. “Many people with small incomes think that it isn’t possible to save for retirement, but it really isn’t the case,” says Tim Baker, a certified financial planner for Script Financial in Baltimore. “When you’re young, one of the things that you have a lot of is time, which means lots of compounding periods for your money to go to work for you.” Many workers earning between $20,000 and $40,000 have managed to save something for retirement. The median 401(k) balance for people who have been on the job for five or more years ranges from $7,474 among workers in their 20s to $77,659 for people in their 50s.

[…]

$40,000 to $60,000. Employees earning between $40,000 and $60,000 are likely to have a little more room in their budget to save for retirement. The median 401(k) balance ranges from $16,502 among 20-somethings to $113,504 for workers in their 50s, according to the EBRI analysis.

[…]

$60,000 to $80,000. In this income bracket, even 20-somethings with a few years on the job have managed to accumulate $33,469, which still has decades to grow until retirement. And workers in their 30s have $60,504. Employees who are in their 50s have a median of $174,016, and 40-somethings have $123,554, according to the EBRI analysis.

[…]

$100,000 or more. Workers earning a six-figure salary generally have a much easier time saving for retirement than those who earn less. Fifty-something workers in this income bracket have a median of $434,733 in their 401(k) plan, and long-tenured 40-somethings have $325,054, according to the EBRI analysis.

 

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Andy Blatchford of The Canadian Press reports, Bill Morneau’s briefing book raises red flags on public pension investment:

A briefing book prepared last fall for incoming Finance Minister Bill Morneau warns that Canada’s spending on public pensions is dramatically lower than many other rich countries — even though private-sector pension coverage has deteriorated.

The document, obtained by The Canadian Press, said that between 1991 and 2013, private-sector pension coverage fell from 31 per cent to 24 per cent.

But at the same time, the document suggests the federal government is not picking up the slack.

Canada spends “significantly” less on publicly funded pension support — through programs such as the CPP/Quebec Pension Plan, Old Age Security and the Guaranteed Income Supplement — than other OECD countries, the briefing states.

A chart in the briefing binder projected Canada to rank No. 17 out of 20 countries in 2015 for public pension spending as a percentage of gross domestic product, with just over five per cent. It said the average OECD spending was projected to be 9.5 per cent of GDP.

The document also highlighted concerns that younger Canadians aren’t saving enough for their eventual retirement.

And while the number of private-sector pensions rebounded after the mid-2000s for young adults, there was a shift away from the more-desirable defined-benefit plans, said the heavily redacted note obtained under the Access to Information Act.

Between 1991 and 2013, defined-benefit coverage dropped to 11 per cent from 26 per cent, the document said. Meanwhile, a chart in the briefing binder showed that the percentage of defined-contribution plans had gradually increased.

Finance ministers meet next week

The adequacy of pension plans will be front and centre for Morneau next week when he meets with his provincial and territorial counterparts to discuss the possible enhancement of the Canadian Pension Plan.

During those talks in Vancouver, Morneau will push the federal Liberals’ quest to persuade enough provinces and territories to reform the CPP. A change would require support from seven of the 10 provinces representing two-thirds of the country’s population.

Any boost to CPP would be part of a long-term plan to address concerns about future generations of retirees rather than providing help for today’s seniors.

In fact, Morneau’s briefing document also included data showing that Canada’s retirement income system has been effective in reducing poverty among seniors.

It cited Statistics Canada data that found the share of seniors living in low-income families plummeted from about 29 per cent in 1976 to 5.2 per cent in 2011. Older Canadians fared better than the overall population, which had a low-income rate of nine per cent.

The briefing also said seniors poverty was concentrated among single people living in large urban areas, such as Toronto, Montreal and Vancouver.

Canada’s seniors poverty rate was also lower than many industrialized countries, the note said. The document included a chart that showed Canada was ranked No. 3 in 2013 among 14 OECD countries in terms for its seniors poverty rates — the average was 12.8 per cent.

Of course, not all Canadian seniors have left the workforce.

The document pointed to the labour-force participation rate of Canadians aged 55 to 74, which rose from about 30 per cent in 1995 to over 47 per cent in 2014. The OECD average in 2014 was 41 per cent.

The briefing note also said that the country’s aging population underscored a need to increase job-market participation among older workers because the decline of working-age Canadians “will put downward pressure on economic growth going forward.”

In order for Canada’s seniors poverty rate to stay low in the future, Bill Morneau better be able to convince his provincial counterparts next week to enhance the CPP once and for all.

The sad reality is we’re living in DC not DB world, and that has all sorts of implications. People aren’t saving enough for retirement, they end up having to work longer out of necessity not choice (if they can and are lucky enough) and if they don’t, they risk outliving their savings. Moreover, their retirement accounts are pretty much left at the mercy of public markets and brokers and mutual funds which charge them fees which take a big bite out of their returns over the years.

Ontario has taken the lead in terms of introducing a supplemental pension should the enhanced CPP option fail. The ORPP isn’t an impediment to an enhanced CPP but it shows why such a course of action makes sense boosting the retirement system and overall economy.

Of course, there are plenty of critics who argue against enhancing the CPP. The Fraser Institute (they just don’t give up) just released five myths on the Canada Pension Plan which you can watch below. I suggest you ignore pretty much everything that comes out of the Fraser Institute, it’s complete nonsense (read my comment on why Canadians are getting a good bang for their CPP buck).

Then there are other think tanks who think the problem isn’t with CPP but workplace DB pensions. CTV News reports, No need to raise workplace pension contributions:

A new study says automatically raising workplace pension contributions in tandem with the cost of living is unnecessary because Canadian retirees increasingly tighten their purse strings after they reach 70 years old.

The report by the C.D. Howe Institute think tank also argues that tying up the extra funds in pension contributions is an inefficient use of scarce financial resources for Canadians.

The research says lowering pension contributions for company plans – such as defined-benefit vehicles – would put more money in the pockets of families that are raising kids and paying down mortgages.

The study is released a few days before federal Finance Minister Bill Morneau is scheduled to meet his provincial and territorial counterparts to continue quickly evolving discussions on how to boost the Canada Pension Plan.

The federal Liberals have pledged to work with the provinces and territories to enhance CPP. They argue that expanding CPP across the country will ensure more Canadians have a secure retirement.

The C.D.Howe paper’s recommendations are mainly targeted at private pension plans – not the CPP.

Study author Frederick Vettese writes that CPP contributions should not be subject to any contribution reductions since the public plan is designed to cover basic needs like food and shelter for middle-income workers after they retire.

“Retirees in Canada and other developed countries demonstrate a strong tendency to reduce their out-of-pocket spending in real terms starting at around age 70 and accelerating at later ages,” wrote Vettese, chief actuary for the Morneau Shepell human resources firm, which was founded by Morneau’s father.

“This decline can hardly be attributed to insufficient financial resources because older retirees save more on average than people who are still working.”

Given this, Vettese added that indexing pension contributions to the cost of living could be reeled back without sacrificing consumption later in life.

The study pointed to a 2011 research paper that found the average Canadian household headed by someone aged 77 spent 40 per cent less than one headed by someone who was 54.

A U.S. study, also cited by the C.D. Howe report, said that between the ages of 60 and 80 Americans spent at least 50 per cent less on purchases such as cigarettes, airline tickets and camping equipment. The same study found that between the same ages people spent at least 50 per cent more on items such as hearing aids, prescription drugs and funeral services.

Until the election last fall, Bill Morneau was executive chairman of the company, which describes itself as Canada’s largest provider of pension-administration technology and services.

You can read the full report here. I respect the C.D. Howe Institute more than the Fraser Institute but any author who claims we should lower pension contributions at company DB plans so Canadians can put more money into paying off mortgages on their outrageously overvalued homes needs to have his head examined. I also don’t buy that we need to scale back inflation protection on the CPP.

All these think tanks should just step back and allow real pension experts like Bernard Dussault, Canada’s former Chief Actuary, to work on policy recommendations.