Ted Ballantine | Pension360

Jury Will Hear Rhode Island Pension Lawsuit; Trial Set for April

A Rhode Island judge sided with the state on Tuesday when she ruled that a jury will hear the lawsuit over the state’s 2011 pension reforms.

More details from WPRI:

Taft-Carter said that while she disagreed with state lawyers’ arguments that they had a constitutional right to a jury trial in the pension case, she would use her discretion to grant a jury trial in light of what she said is the Rhode Island Supreme Court’s long-stated preference for using juries.

“Being mindful of the importance of a jury trial in this country, and our Supreme Court’s expressed preference in favor of having questions of facts to be tried before a jury even where equitable claims are involved, the court is satisfied that these cases should be properly tried before a jury,” Taft-Carter said from the bench.

[…]

R.I. Superior Court Judge Sarah Taft-Carter read her lengthy decision about the jury trial from the bench Tuesday morning at Newport County Superior Court, where she is currently assigned to hear cases. She announced the trial date after conferring with lawyers from both sides in a closed-door status conference.

At stake is whether Rhode Island legislators acted constitutionally three years ago when they reduced future retirement benefits to shave roughly $4 billion off the shortfall in the state’s pension fund for government workers and taxpayers.

Reactions from lawyers on both sides of the case:

John Tarantino, a lawyer for the state, said he was pleased by Taft-Carter’s decision but that it was too early to say when jury selection would take place or how many jurors there would be. “We think a jury should decide it,” he told reporters. “I’m a big believer in jury trials.”

Lawyers for the union plaintiffs declined to comment on the state’s legal victory Tuesday.

[…]

Tarantino and the other lawyers representing Gov. Lincoln Chafee and General Treasurer Gina Raimondo argued in court filings that the state, as a defendant, has a constitutional right to a jury trial and should be allowed to have jurors decide the case, rather than just Taft-Carter ruling on her own. The lawyers representing the unions and retirees opposed the idea, saying it didn’t fit the legal issues at hand.

The state’s 2011 pension reforms were especially controversial because they applied to all workers and retirees, not just new hires.

Video: Public Pension Issues in 2014 and Beyond

This presentation, Public Pension Issues in 2014 and Beyond, was given by Paul Angelo at the 2014 CSG National Conference. Angelo is the Senior Vice President and Actuary for Segal Consulting

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.

New Chicago Treasurer Aims to Invest Pension Money Locally

Chicago treasurer Kurt Summers was sworn into office this week and quickly unveiled plans to increase the amount of pension money that goes toward Chicago-based investments.

His plans, from the Sun-Times:

[Summers] wants to hold an annual investor conference for the 200 fund managers who already get Chicago’s money and for hundreds more who desperately want a piece of the $50 billion pie.

At that conference, local entrepreneurs, many of whom have trouble getting access to capital to fund their innovative ideas, will get a chance to present their ideas to make the case for investment.

If Summers has his way, the city’s investment decisions will be based, in large part, on how much of the money is being invested in Chicago neighborhoods.

“We’re gonna bring them to Chicago. We’re gonna show them Chicago entrepreneurs and businesses and neighborhoods. And we’re gonna use our own capital. We’re gonna walk the talk, basically, and look to invest in Chicago,” said Summers, who is running unopposed in the Feb. 24 election.

“Today, we’re basically investing anywhere else but Chicago. And we’re telling the rest of the world that we don’t think Chicago is a worthy investment for our portfolios. That’s not the message we want to send. We’re also telling people in Chicago that we’d rather put our money anywhere else in the world but here. And that’s also not the message we want to send. We’re gonna change that.”

When Chicago starts making local investments a priority, Summers said he’s convinced that “the market will follow,” bringing tens of millions of dollars in capital to Chicago neighborhoods.

“We begin by asking the question of every manager that invests with us what their process is for evaluating Chicago investments,” he said.

“In every RFP and every investment management discussion … every board vote, they’re gonna be asked that question. And they’d better have a good answer. If they don’t, they won’t have my support.”

As treasurer, Summers will sit on the boards of five of the city’s pension funds.

How Credit Rating Agencies Reacted to Illinois Pension Ruling

None of the three major rating agencies changed their outlook on Illinois’ credit in the wake of a lower court ruling that deemed the state’s pension reform law unconstitutional.

But rating agencies are certainly keeping a close watch on the state as the reform law moves up to the Supreme Court. And all three agencies had something to say after the ruling.

Moody’s had the harshest take, calling the ruling “credit negative” that leaves the door open for a rating downgrade. Summarized by Governing:

[Moody’s] issued an analysis on Nov. 24 that said the “state’s negative outlook indicates the possibility that factors such as further growth in the state’s pension liabilities will drive the rating lower still.” The state is appealing the decision to the Illinois Supreme Court but Moody’s was wary of its chances and pointed out that the top court this summer indicated in a separate case on retiree health benefits that would adhere strictly to the pension protection clause.

A top Moody’s official commented further in a WUIS report:

“The average state from our perspective or the expected rating for a state is AA1, which is our second highest rating. And so Illinois is A3, so that’s five rating notches below that,” said Ted Hampton, a Vice President at Moody’s Investor Service. “Which is to say, it’s still an investment-grade rating. It’s still a strong rating in the context of every kind of security that we rate. But it’s far below all of the other states.”

Hampton says Moody’s saw Illinois’ passage of the pension overhaul as beneficial, but not enough to move the credit ratings needle – because a court challenge was suspected. The recent court ruling likewise wasn’t not enough to prompt a change, though Moody’s called the decision “credit negative” in a notice sent out Tues., Nov. 24.

“We do get a lot of inquiries about states, particularly Illinois where there are problems that are in the news, and where the situation is in flux. And publishing these comments helps us get our opinion out to those investors, or to the general public,” Hampton said.

Fitch and S&P said the pension ruling didn’t move the needle much as far as the state’s credit rating. From Governing:

Fitch Ratings and Standard & Poor’s were far more forgiving. Both said they had already factored in the likelihood of court challenge into their current ratings for Illinois. “More importantly, from a credit perspective,” S&P added, savings from the pension reform are not included in the fiscal 2015 budget.”

Interestingly, Fitch’s main concern wasn’t the pension ruling. Instead, the agency said the real concern was the expiration of several tax increases. From Governing:

Fitch did note another trouble spot for Illinois’ credit lurking just ahead: the scheduled expiration of temporary tax increases in 2015. “The state passed a placeholder budget for the current fiscal year with a stated intent to revisit the issue after the November elections,” Fitch said. “Taking steps to address the long-standing structural mismatch between revenues and spending would put the state on more solid financial footing, while failure to take action would be a return to past practices and leave the state poorly positioned to confront future downturns.”

Kentucky Teachers’ Pension Continues to Shield Investment Information From Public View

Pension360 covered last month the Kentucky teacher, Randy Wieck, who is suing the Kentucky Teachers’ Retirement System (KTRS) claiming the fund has “failed in their fiduciary duty” by letting the system become one of the worst funded teachers’ plans in the country.

Another component of his lawsuit deals with the lack of transparency surrounding the fund’s investments, a complaint of many stakeholders. Last week, KTRS stoked the flames of that complaint by denying Wieck access to contracts with investment firms.

Reported by the Kentucky Center for Investigative Reporting:

Randolph Wieck, a history teacher at DuPont Manual High School, sent an open records request Oct. 28 to the Kentucky Teachers’ Retirement System, which covers more than 140,000 school system workers statewide. Wieck asked for details of the contracts with some of the investment firms that manage part of KTRS’ $18 billion-plus in assets.

Wieck, who recently filed a lawsuit against the teachers’ pension system, wants to know what his retirement money is being invested in—and how much in fees KTRS is paying to big private equity firms. Among the funds he asked for details on were the Carlyle Global Financial Services Partners II fund and the Blackstone Partners VII L.P. fund.

KTRS denied his request in a Nov. 26 letter. Because KTRS agreed with the investment firms to keep contract details secret, it told Wieck that state law forbade it from disclosing them.

“Disclosure of these trade secrets would permit an unfair commercial advantage to their competitors,” wrote KTRS General Counsel Robert Barnes.

KTRS manages $17.5 billion in assets. The system was 51 percent funded in 2013 — but that ratio could drop to as low as 40 percent once the system begins measuring liabilities according to new GASB standards.

Memphis Weighs Two Pension Reform Measures

The Memphis City Council meets two times in December, and at one of those meetings they are expected to vote on the two pension reform measures that sit before them.

Details on the reform measures, from Memphis Daily News:

One version is Memphis Mayor A C Wharton Jr.’s proposal that would move new city employees and those with less than 10 years of service to a separate retirement account that equals the unvested employees’ contributions in the existing pension plan plus a multiplier.

The second version, by council member Myron Lowery, would move new city employees only to a pension plan that is the “hybrid” plan Wharton proposed in October for new hires as well as unvested city employees. The hybrid is a combination of a cash balance plan and a defined contributions plan.

The motive behind the reform measures is simple: the city is looking to save money. In particular, it is looking to cut down on its actuarially required contribution, the annual payment it pays to the pension system. From Memphis Daily News:

The city’s target in the new plan is how it affects the city’s annual required contribution toward the pension liability. Joyner estimated that by applying a new pension plan to new hires only, the city saves an average of $2 million a year over 25 years.

There would be more savings on the ARC, as it is called, if the city includes unvested employees with five years or service or up to the 10-year mark, as Wharton has proposed.

“You would have additional savings, but that savings will all be generated by taking benefits from people who are not yet vested in those benefits,” Joyner said.

City Finance Director Brian Collins said the administration is sticking by its recommendation of including unvested city employees as well as new hires.

“If you just stuck with the mayor’s plan, that’s where you get the most savings of $10 million,” he said. “If you just looked at it with five years, it is closer to $3 million or $4 million a year off the status quo ARC.”

The council will hear final readings of the two reform measures during their December 2 meeting.

Jacksonville Poised to Pass Amended Pension Reform Plan

After months of debate, the Jacksonville City Council is as close as ever to passing an oft-amended pension reform bill.

The bill originally was designed to force the city to pay higher annual payments into its Police and Fire Pension Fund. But new amendments will likely force pensioners to shoulder some of the burden, as well.

Details on the new amendments to the bill, from the Florida Times-Union:

One amendment favored by City Council would give the city the power to unilaterally impose changes in pension benefits in three years if there is an impasse between the city and police and firefighter unions in future collective bargaining talks.

Gulliford said that would put Jacksonville in the same posture as other Florida cities.

Another amendment would change the cost-of-living adjustments that current police and firefighters would get for pension benefits earned after a new agreement takes effect. Instead of a guaranteed 3 percent COLA annually, the COLA would float based on Social Security’s cost-of-living index, with a maximum COLA of 4 percent.

That change would reduce the city’s pension cost in years when Social Security is less than 3 percent, but the city’s cost would be higher if inflation pushes that index above 3 percent.

According to the calculations of the Times-Union, the bill, amendments included, is likely to pass a vote by City Council:

Most Finance Committee members previously backed the amendments during an initial round of voting last week.

Though nothing would be final until the full council meets Dec. 9, the votes so far show an emerging majority of council is lining up to approve the pension legislation, albeit with significant differences from the tentative agreement put forward by Mayor Alvin Brown.

In the Rules Committee, the unanimous votes for the amended bill were cast by Bill Bishop, Johnny Gaffney, Bill Gulliford, Warren Jones, Robin Lumb, Don Redman and Matt Schellenberg.

[…]

In addition to the seven City Council members who voted to move forward with the amended bill Monday, the amendments drew support at last week’s Rules-Finance committee meeting from council members Richard Clark, Lori Boyer, John Crescimbeni and Jim Love. City Council President Clay Yarborough also supported the amendments.

That would add up to at least 12 members voting for the bill, which would exceed the 10 votes needed to get a majority on the 19-member council.

The city’s Police and Fire Pension Fund is 43 percent funded.

Ontario Teachers’ Pension Names New Director of Europe, Middle East and Africa Investments

The Ontario Teachers’ Pension Plan has appointed private equity veteran Jo Taylor to the post of Managing Director for Europe, Middle East and Africa (EMEA). Taylor will also head the pension fund’s London office.

From an OTPP release:

In his new role, Mr. Taylor retains primary responsibility for Teachers’ Private Capital and private equity investments in the region while assuming oversight for the full cycle of opportunity origination, analysis, value creation and execution of investment activities across asset classes.

In addition to setting the tone and direction of Teachers’ investment activities in the EMEA market, Mr. Taylor, who joined the organization in 2012, will guide all advisory relationships within the region and becomes a member of Teachers’ Investment Committee.

“Jo’s expanded role reflects our commitment to growing our global presence and deepening our long-term relationships with our partners in key markets. His experience, relationship-building skills and his deal and market knowledge make him the ideal person for this new position,” said Neil Petroff, Teachers’ Executive Vice-President and Chief Investment Officer.

Teachers’ will be opening an expanded London office at Portman Square in 2015 to accommodate a larger, multi-asset-class team. Teachers’ established its London office in 2007. It has a diverse portfolio of assets in the region valued at approximately $21 billion as of December 31, 2013.

The Ontario Teachers’ Pension Plan manages $140 billion in assets.

Big Raise on Horizon for Massachusetts Pension Investment Head

On Tuesday, the Massachusetts PRIM Board will vote on whether to give a big raise to PRIM CIO and Executive Director Michael G. Trotsky.

The raise, not including bonuses, would bring his annual salary from $295,000 to $360,000.

It’s a big raise, but the Boston Globe’s Steven Syre makes the case that the salary bump represents a “prudent investment” for taxpayers:

That is certainly a lot of money, nearly twice what Jackson’s commission thinks the governor should be paid. It would put Trotsky’s salary above average — but hardly on the top shelf — among people holding comparable public-sector positions around the country. He will remain wildly underpaid compared with people who do similar work for private companies.

[…]

Like many states, Massachusetts does not have enough money saved to cover pension payments due in the years ahead. The state has made some progress in closing that gap but the investment performance of the existing pension fund is a big part of the equation.

The dollars involved are huge. If the people running the pension fund can add a single percentage point to investment performance in a year, they will contribute an extra $600 million to the state. Mistakes can be equally expensive.

Pension fund executives do not manage money themselves. They allocate it to many different kinds of assets and then choose a long list of private firms to do the investing. This year, they have been moving money to become more conservative after years of strong financial markets.

Trotsky left the hedge fund world to become executive director of the state pension fund four years ago. Two years later, the fund’s chief investment officer left, and Trotsky took over those duties, too. He was paid another $50,000 for the added job, which would have cost well over $200,000 a year to fill, but otherwise has not gotten a raise since he arrived.

The fund’s investment performance has been good over the last four years, averaging more than 13 percent annually in strong financial markets. One point of reference: The investments outperformed Harvard’s endowment in each of those years.

Taxpayers have a lot at stake in the state pension fund. It’s a prudent investment to pay the people who manage your money.

The Pension Reserves Investment Management (PRIM) oversees management of $60 billion of the state’s pension assets.

New York City Council Members Urge State Lawmakers to Overturn Governor’s Veto of Veteran Pension Bill

Last month, New York Governor Andrew Cuomo vetoed a bill that would have granted certain war veterans a “jump-start” toward drawing a state pension.

Some members of New York’s City Council are calling on state lawmakers to overturn that veto.

From the Queens Chronicle:

Members of the City Council’s Veterans Committee are urging state lawmakers to overturn Gov. Cuomo’s veto of a bill that would allow veterans who served during peacetime or undesignated conflicts to purchase up to three years of credit toward a state pension plan.

“We firmly believe that all military service is public service and therefore all honorably discharged veterans deserve access to the additional retirement credits this bill would afford,” a written statement by the members of the committee states.

The committee on Nov. 20 wrote to both Senate Majority Leader Dean Skelos (R-Nassau) and Assembly Speaker Sheldon Silver (D-Manhattan), urging the two to direct their respective houses to vote in a special session of the state Legislature to override the veto of the governor.

Councilman Eric Ulrich (R-Ozone Park), chairman of the Veterans Committee, said the two leaders should “not allow Gov. Cuomo’s veto to essentially close the door on helping thousands of veterans who deserve the help the most.”

Cuomo’s thoughts on the bill:

Cuomo on Nov. 7 vetoed the bill, stating that it would “run rough-shod over systemic reforms carefully negotiated with the Legislature to avoid saddling local property taxpayers with additional, unmanageable burdens.”

“It is disheartening to see the Legislature reverse course only two years after it overwhelmingly agreed to avoid tossing these burdens onto local taxpayers in cities, towns, counties and school districts,” Cuomo added.

“But the Legislature has chosen to ignore its commitment to shield property taxpayers from the costs of the new statewide pension enhancements.”

The estimated first-year cost to city employers would be about $18 million, according to the bill.

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