Ted Ballantine | Pension360

Federal Judge Won’t Issue Ruling in Pension Fight Between City, Public Safety Workers

A U.S. District Court Judge has declined to issue a ruling in a decade-long dispute between the city of Annapolis and its retired public safety workers.

The dispute, explained by the Capital Gazette:

A federal judge has declined to wade into a 12-year dispute between the City of Annapolis and retired public safety workers over pension benefits.

Senior U.S. District Court Judge for the District of Maryland William M. Nickerson issued an opinion on Tuesday dismissing the city’s claims for declaratory judgment in its case against some 60 retirees. The city filed the federal action in August, after a 10-year old case filed by the retirees against the city was reopened in Anne Arundel Circuit Court.

The city sought to have changes to its retirement program over the past year declared constitutional and consistent with state law. This was after the retirees filed their own motion for declaratory judgment in Anne Arundel Circuit Court in June in light of the changes to the retirement program.

[…]

Former Annapolis police and firefighters are classified under four retirement plans. Individual retirees receive benefits from the plan in place upon their retirement. Two of the plans contain language in the city code tying pension increases to active-duty employee salaries.

“Each retired member’s pension shall be increased by the same percentage as any increase in the pay scale for members of the same rank and years of service who are on active duty,” the code reads.

Retirees sued Annapolis in 2002 seeking retroactive payments dating to 1995. After six years of legal battles, the state’s Court of Appeals ruled in favor of the retirees. The Circuit Court of Anne Arundel County later issued a declaratory judgment for pension increases, despite a premonition from then-Mayor Ellen Moyer that the ruling would bankrupt the city.

The city’s retirement plan liabilities increased by $6.2 million because of the ruling, according to a 2013 report produced for the city.

Annapolis had suspended adjustments to police and fire retiree benefits since 2009. City employees did not receive pay increases during that time period.

In Oct. 2013, the city announced a deal with its four public-sector unions on pay increases. Employees would receive a 10-percent raise over the next three fiscal years. Retirees would receive annual 2-percent increases, regardless of future city pay increases.

“Thus, the Retirees would receive only a 6 percent pension increase while active members would receive a 10 percent increase in pay,” Nickerson’s opinion reads.

The changes funded the retirement plan by 100 percent, according to the city.

The Annapolis City Council says it is deciding how to move forward in light of the ruling.

Photo by Joe Gratz via Flickr CC License

Florida Town Negotiates Pension Changes With Police Force

The Florida town of Delray Beach this week negotiated a series of pension changes with its police force; the town eliminated early retirement for new hires and lowered the multiplier used to calculate pension benefits for new and current employees.

Un-vested employees also won’t be able to use overtime to boost their pension benefits.

In return, employees will see higher salaries.

From Boca:

Delray Beach successfully completed the city’s push for pension reform this week when the Police Benevolent Association ratified a three-year contract that will save the city $21.3 million in pension contributions over 30 years.

The vote by the police department’s officers and sergeants was overwhelming. Ninety-two approved ratification while just 11 opposed it. The contract will be retroactive until Oct. 1, the start of Delray’s budget year.

For pensions, the contract divides the officers and sergeants into four tiers. Tier 1 includes all employees with at least 20 years of service and all retirees. Their pension benefits won’t change.

Tier 2 includes those with between 10 and 20 years of employment. The “multiplier” used to calculate their benefits will drop from 3.5 percent to 3 percent, and their starting benefit will be limited to $108,000, which is still generous. The lower multiplier also will apply to those in Tier 3—employees with fewer than 10 years of service, meaning they are not yet vested. For new hires—Tier 4—the multiplier will be 2.75 percent, and early retirement will be eliminated.

Not surprisingly, the contract favors seniority, which is typical with most union deals. For all but the new hires, vested officers and sergeants will get at least a 1 percent annual cost-of-living increase in their pensions. That is a perk almost no private-sector employees enjoy.

Still, the contract does a lot for pension sustainability. New hires and those not vested won’t be able to use overtime in calculating pension benefits. Delray Beach should insist on continuing that change in future contract negotiations. New hires won’t get early retirement, and their benefit will be limited to roughly two-thirds of their final average salary.

Just as important, the contract achieves the city commission’s goal of focusing more on pay for police officers when they are working. The annual starting salary will be $48,000 in the first year of the contract. The officers and sergeants will get an immediate raise to compensate for the previous three years, when salaries were frozen. There will be a merit system for raises.

In an email, Mayor Cary Glickstein said, “We achieved our objectives of substantive pension reform, with benefit reductions of over $21 million and re-establishing taxpayer control of the board that manages the pension fund’s assets, while providing substantial wage increases required to attract and retain the best law enforcement personnel in South Florida.”

Delray Beach’s City Manager, Don Cooper, is expected to attempt to negotiate a similar contract with the city’s firefighters.

Photo by pshab via Flickr CC License

UK Pension Funds Raise Concerns Over Bonuses, Pay of Corporate Executives

U.S. public pension funds are no stranger to using their sway as major shareholders to push for corporate governance changes.

U.K. pension funds have that same influence – and this week, they used it to call for new rules surrounding executive bonuses and pay.

The pension funds say that executive compensation should be linked to company performance.

Reported by EveryInvestor:

In a letter sent to the chairmen of FTSE 350 businesses the National Association of Pension Funds warned that companies that have failed to create a strong link between executive rewards and performance should expect shareholders to repeat their concerns of spring 2012.

The NAPF also set out some guidelines it wants to see reflected in the pay policies set through 2014.

These include capping executive base pay increases at inflation and keeping them in line with the rest of the workforce. Where this is not the case, companies should offer a sound explanation.

The NAPF also criticised the use of peer group benchmarking where pay is set by comparing it to that of other executives from different companies. The NAPF believes this practice has contributed to the escalation of boardroom pay. It said boards should focus more on their own strategies and less on comparing themselves against their peers.

Ahead of the NAPF Investment Conference that opens in Edinburgh on Wednesday Joanne Segars, chief executive, NAPF, said shareholders were vocal last year and those companies that have failed to take a robust stance on boardroom pay should expect similar opposition this spring.

“Too many companies have allowed the link between pay and long-term business performance to weaken in recent years,” she said.

“Companies should keep executive base pay rises in line with the rest of the workforce, and those that deviate from that should have a good explanation ready. Bonus targets should be challenging and allied to the long-term growth of the business.

“Our members will push back on executives who compare themselves with others to try to justify pay rises. So-called peer comparisons have been a major factor behind rising boardroom pay levels.

Read the letter here.

Kolivakis Weighs In On Canada Pensions’ Clean Energy Bet

This week, two Canadian pension funds — the Ontario Teachers’ Pension Plan Board and the Public Sector Pension Investment Board – teamed up with Spanish bank Banco Santandar S.A. to manage a $2 billion portfolio of renewable energy assets.

Leo Kolivakis of the Pension Pulse blog weighed in on the clean energy bet in a post on Wednesday. The post is re-published below.

______________________

Originally published at Pension Pulse

This is a big deal and I expect to see more deals like this in the future as more European banks shed private assets to meet regulatory capital requirements. In doing so, they will looking to partner up with global pension and sovereign wealth funds that have very long-term investment horizons.

The Spaniards are global leaders in infrastructure projects (Germans and French are also top global infrastructure investors led by giants like HOCHTIEF and VINCI). When it comes to renewable energy, Spain is the first country to rely on wind as top energy source:

Spain is the first country in the world to draw a plurality of its power from wind energy for an entire year, according to new reports by the country’s energy regulator and wind energy advocacy group Spanish Wind Energy Association (AEE).

Wind accounted for 20.9 percent of the country’s energy last year — more than any other enough to power about 15.5 million households, with nuclear coming in a very close second at 20.8 percent. Wind energy usage was up over 13 percent from the year before, according to the report.

The news is being hailed by environmental advocates as a sign that Spain, and perhaps the rest of the world, is ready for a future based on renewables. But the record comes at the end of a very rocky year for Spain’s renewable energy sector, which was destabilized by subsidy cutbacks and arguments over how much the government should regulate renewable energy companies.

Despite the flaws in Spain’s system, the numbers are promising for green energy fans. The renewable push brought down Spain’s greenhouse gas emissions by 23 percent, according to another industry report from Red Electric Espana (REE).

Spain also has one of the largest solar industries in the world, with solar power accounting for almost 2,000 megawatts in 2012. That’s more than many countries but still just a fraction of the energy produced by wind in Spain. In 2013, solar power accounted for 3.1 percent of Spain’s energy, according to the AEE report.

By contrast, the U.S. produced only 9 percent of its energy with renewable sources last year, and wind accounted for only 15 percent of that.

But as the world reaches for more renewables, Spain’s record-breaking year is also a cautionary tale.

Going into 2014, it’s unclear how wind will survive steep government cutbacks.

At the moment, Spain heavily subsidizes its renewable energy sector, which costs billions of dollars in a country still in the depths of a financial crisis. When the country tried to raise individual rates for renewables, people complained bitterly and the government backed off, leaving the country with a nearly $35 billion renewable energy deficit.

The idea that renewables can’t survive without heavy subsidies might be cooling off the market in Spain and elsewhere, bringing the future of renewable growth into question. Global investment in renewable energy slipped 12 percent last year, despite the fact that the European Union and the UN have set ambitious energy goals for the next decade.

It remains unclear how the world will meet those goals given the spending-averse climate of most Western governments, but there’s no doubt they’ll be looking to Spain in 2014 to see if it can be done without going broke.

Indeed, over the summer, Spain’s government dealt a death blow to renewable energy:

In the latest move to draw down Spain’s energy sector debt, Madrid unveiled a new clean energy bill this week that will cap earnings on power plants as well as introduce retroactive actions, earning a quick rebuke from the country’s already ailing renewable sector. According to a Bloomberg report, clean energy “generators will earn a rate of return of about 7.5 percent over their lifetimes,” adding that the rate may be revised every three years and is based on “the average interest of a 10-year sovereign bond plus 3 percentage points.” The new plan will be retroactively applied to programs active from July 2013.

The new plan was presented by Spain’s Industry Minister Jose Manuel Soria as a necessary evolution of the country’s renewable energy subsidy system, which he said would have gone bankrupt if no changes were made. Since taking over the country’s leadership in 2011, the right-leaning Partido Popular has continued to expand on earlier efforts to chip away at the country’s renewable energy support programs, which many critics have called unsustainable. Once hailed as one of Spain’s most viable sectors for strong growth, renewable energy has suffered under a steady restructuring of government support programs.

In addition to slowing the country’s solar and wind growth, the restructuring garnered legal action on the part of both international investors and domestic trade organizations, the latter of which has appealed to the European Commission for some level of protection from tariff and agreement reductions. Early cuts resulted in legal action against Madrid from over a dozen investment funds with stakes in the country’s solar market, adding to the unease of foreign investors.

I can tell you the cash strapped Greek government did the exact same thing on solar projects in Greece. One of the biggest risks in infrastructure projects is regulatory risk as these governments can change regulations at a moment’s notice, severely impacting the projected revenues.

What are the other risks with infrastructure projects? Currency risk and illiquidity risk as these are very long-term projects, typically with a much longer investment horizon than private equity or real estate.

But both PSP and Ontario Teachers’ are aware of these risks and still went ahead with this investments which meets their objective of finding investments that match their long-term liabilities. The Caisse has also been buying wind farms but I am wondering whether they’re blowing billions in the wind.

Interestingly, this is the second major deal between PSP and OTPP this year. In November, I wrote about how they are nearing a $7 billion deal for Canadian satellite company Telesat Holdings Inc.

And on last week, Bloomberg reported that Riverbed Technology (RVBD), under pressure from activist investor Elliott Management Corp., agreed to be acquired for about $3.6 billion by private-equity firm Thoma Bravo and Teacher’s Private Capital.

In fact, Ontario Teachers’ has been very busy completing all sorts of private market deals lately, all outside of Canada, which is smart.

Photo by penagate via Flickr CC

Florida Pension Changes May Unravel As Board Debates Reforms

The Jacksonville City Council and Mayor Alvin Brown spent most of the summer months debating and constructing a pension reform measure that aimed to improve the funding of the city’s Police and Fire Pension Fund.

The Council approved the measure earlier this month. Now, the measure sits in front of the Police and Fire Pension Board, which will vote on it by January 15.

There’s no guarantee the board will approve the measure. From the Florida Times-Union:

It’s always been expected that changes to the 3 percent COLA and the guaranteed 8.4 percent return on DROP accounts for current employees were going to be stumbling blocks.

But the benefit changes for new hires hadn’t caused much of a stir until the board met last week to review the agreement.

Board members Richard Tuten and Larry Schmitt, representing the firefighters and police, said the changes are hard to swallow and will make it difficult to recruit good people needed to protect the city.

A third member of the board, former Sheriff Nat Glover, said he is uncomfortable with the changes and also concerned about the safety of the city.

Walt Bussells, the board’s chairman, said if a vote were taken, it would be 3-2 against.

“If we did do that, it kills the whole deal,” he said.

[…]

Tuten was the most vocal in his criticism of the changes for new hires and current employees.

He offered what he said was a string of broken promises and fear of more changes by politicians that “we can’t trust any farther than we can throw them.”

“If we are going to get keistered here, let’s go to court right now,” he said. “That’s what I get from my members.”

The measure calls for benefit changes for new police and fire hires, as well as COLA changes for current employees. In return, the city would pay an additional $40 million a year into the Police and Fire fund for the next 10 years.

Photo by pshab via Flickr CC License

Video: Chris Christie Talks New Jersey Pension System and Cutting the State’s Contribution

New Jersey Gov. Chris Christie gave an extended interview this week, during which he talked about his decision to cut the state’s pension contribution and paying off pension debt by increasing the tax on millionaires.

The pension conversation starts just past the 18:00 mark.

Feature photo by Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Kansas Lawmakers React to Governor’s Plan to Cut State Pension Contribution

Earlier this month, Kansas Gov. Sam Brownback announced his plan to cut the state’s annual pension payment by around $60 million and use the money to plug budget shortfalls elsewhere.

Several prominent lawmakers have now given their reactions to the proposal. From Salina.com:

[Steven] Johnson, R-Assaria, who is chairman of the House Pensions and Benefits Committee, was “not happy” with Tuesday’s proposal by Gov. Sam Brownback to cut the state’s pension contribution this year by $40 million as part of a plan to close a $280 million shortfall in the state budget.

And he’s not alone, even among Republicans.

“There’s no easy solution,” Johnson said Wednesday, “but I’m not happy with what they’re doing with KPERS.”

[…]

Late Wednesday afternoon, Kansas Treasurer Ron Estes, who campaigned with Brownback across the state just before the November election, released a statement critical of the planned KPERS cuts.

“While I understand the need to re-balance the budget in light of unexpected shortfalls, the decision to delay state contributions to our underfunded pension system is disappointing,” Estes wrote in the statement. “By delaying action now, we run the risk of KPERS consuming an even larger amount of our state’s budget at the expense of other vital state services to Kansans in the future.”

Senate Vice President Jeff King, R-Independence, who led KPERS reform in the Senate, said, “Over the last four years, Kansas has become the model for responsible pension reform. We inherited a pension system that was going broke and returned it to fiscal health. By raiding the KPERS fund instead of continuing prudent reform, Gov. Brownback is threatening to undo all of the hard-fought gains that we have made.”

The state’s Senate Minority Leader also weighed in. From the Topeka Capital-Journal:

Senate Minority Leader Anthony Hensley, D-Topeka, rejected the idea Brownback is protecting education funding by cutting KPERS instead. The governor has previously counted KPERS contributions when touting a high level of education spending under his administration. During the campaign, Brownback highlighted an overall increase of $270 million in education funding since 2011, a figure that included KPERS contributions.

“I would argue then, using his logic, that he’s actually cutting education,” Hensley said. “It’s so inconsistent, or downright contradictory, to make that kind of argument.”

Kansas PERS manages over $14 billion in assets.

Photo credit: “Seal of Kansas” by [[User:Sagredo| – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons

Union Leader: Solutions to New Jersey Pension Woes Are in Christie’s Hands

Dominick Marino, the president of the Professional Firefighters Association of New Jersey, penned an op-ed in Wednesday’s Times of Trenton calling on New Jersey Gov. Chris Christie to take responsibility for the state’s pension problems – and to fix them.

Marino writes:

Gov. Chris Christie continues to blame everyone for the state’s pension problems – previous governors, lawmakers, firefighters and police officers – but he refuses to take responsibility for his own actions on the issue.

Apparently, he wants the public to believe that when it comes to pensions, the buck stops elsewhere. That’s wrong and he knows it. It was Christie who, in 2011, signed a law dramatically overhauling New Jersey’s public pension system, increasing the out-of-pocket contributions from workers and mandating a seven-year schedule of state payments to get the system back in the black.

Since the 2011 signing, everyone has been doing their part to follow the law except Christie. He has decided the state simply cannot afford to live up to the terms of the law he signed and has cut $1.6 billion from the state’s obligation of $2.25 billion for the current fiscal year.

[…]

The governor can point fingers all he wants, but it will likely be up to the courts to sort through Christie’s smoke-and-mirrors approach to pensions. Three of the state’s largest pension funds are suing Christie and his administration for failing to make the legally required payments.

According to Standard and Poor’s, the problem with the pension fund is not public employees and not the economy. It’s Christie not paying his bill. This from the ratings agency: “The long-term impact of continuation of a funding policy that allows the State to contribute less than the actuarially recommended contribution could impact, at some point, the Pension Plans’ ability to meet their obligations absent significant additional contributions by the State, increased investment returns, or actions or events resulting in reductions to liabilities of the Pension Plans.”

Read the entire piece here.

Photo by Bob Jagendorf from Manalapan, NJ, USA (NJ Governor Chris Christie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Chairman Appointed to Lead Netherlands’ Largest Pension

A new chairman has been appointed to the board of trustees for one of the largest pension funds in the world, the Dutch pension fund ABP.

The move follows the appointment earlier this year of a new chief investment officer.

From ai-cio.com:

The largest Dutch pension fund has appointed influential European politician Corien Wortmann-Kool as its new chair of trustees, capping off a year of staff changes.

Wortmann-Kool replaces Henk Brouwer who stepped down as chairman of ABP in May. She has been a member of the European Parliament since 2004, and was vice-chair of the European People’s Party from 2009 until stepping down as a politician in June this year.

Jose Meijer, vice-chairman of ABP’s board of trustees, said the appointment was “an ideal combination of knowledge and experience”, adding that Wortmann-Kool had “a great deal of knowledge about the financial sector, is an experienced and strong administrator, and also has an extensive network in Brussels and The Hague”.

“Confidence in pension funds has declined over the years,” Wortmann-Kool said. “There are many changes in store in the coming years, which means that uncertainty among participants in relation to pensions could increase. I want to contribute to good and honest communication with our participants about certainties and uncertainties, so that they know what they can and cannot expect from ABP.”

ABP manages $427 million in assets.

China to Overhaul Pension System; Government Employees to Contribute More

China is planning a major overhaul of its pension system after complaints of unfair wealth distribution and favoritism towards government employees.

Reported by Bloomberg:

China will abolish a dual-track pension system that favors government employees and discriminates against others to create a fairer retirement-savings system.

Under existing rules, about 37 million employees with government agencies, communist organs and public institutions don’t have to contribute anything to their pension savings, with the government paying pensions of about 90 percent of their pre-retirement salaries. Those employed by businesses from banks to bakeries must contribute 8 percent of their salary to pension accounts, on top of 20 percent of their wages that’s paid by employers to a pooled pension fund. On average, private retirees end up with 40 percent of their working pay.

As the system has increasingly become a source of resentment among the public, Vice Premier Ma Kai said yesterday that the State Council and the ruling Politburo have agreed to implement a “unified” pension system, and government employees will have to contribute to their own pension accounts, the official Xinhua News Agency reported.

The report didn’t provide a timetable for the reforms.

Approximately 338 million people are covered by China’s pension system.

Photo by Jonathan Kos-Read via Flickr CC License

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712