Ted Ballantine | Pension360

Canada Pension Funds In Talks To Buy Satellite Company

Canada’s Public Sector Pension Investment Board and the Ontario Teachers’ Pension Plan are putting together a $7 billion deal to acquire Canadian satellite company Telesat Holdings Inc.

When all is said and done, each pension fund will have a 50 percent stake in the company.

New Jersey Pension Funding Drops 20 Points As New Accounting Rules Kick In

The funding status of New Jersey’s pension system dropped 20 points this week as the state’s Treasury Department began measuring funding using new accounting rules.

From Reuters:

In a document released on Tuesday after a bond sale, the state revealed that one of its five main pension funds will have insufficient assets to cover projected benefit payments within 10 years.

Under new pension accounting standards, issued by the Government Accounting Standards Board (GASB), the New Jersey system’s overall funded level stands at 44 percent for fiscal 2014, compared to the 63 percent previously determined by standard actuarial methods. Eighty percent or more is generally considered healthy.

[…]

New Jersey Treasury Department spokesman Christopher Santarelli said in a statement that the retirement system had current assets of about $40 billion.

But he added that the new pension reporting system, based on actual contributions, “underscores the urgent need for additional, aggressive reform of a pension and health benefits system that if fully funded would eat up 20 percent of New Jersey’s budget.”

[…]

The GASB rules measure a retirement system’s net position as a percentage of total pension liability.

The net position uses market asset values instead of actuarial ones. In the case of more poorly funded systems such as New Jersey’s, it also uses lower discount rates that make the liabilities appear much higher.

Fitch said the funding drop “wasn’t a surprise”, but that pensions remain a serious problem. From Fitch:

The significantly weaker pension figures released by the state of New Jersey today in a supplemental bond sale disclosure are not a surprise, in Fitch’s view. The state is the first to disclose materially weaker pension metrics following its conversion to new accounting requirements under GASB statement 67.

[…]

For more than a decade, the state has severely underfunded the actuarially calculated contributions needed to progress toward full actuarial funding, even following extensive plan reforms, and the state cut its already insufficient contributions for fiscal years 2014 and 2015 to address unexpected structural budget weakness. The governor has convened a special pension taskforce to propose options for additional pension reform and is expected to make a proposal to the legislature in early 2015. Fitch’s Negative Outlook at the current rating level reflects the concern that state corrective action to address its budgetary and pension challenges will be difficult to achieve and sustain over time, particularly given its narrow liquidity, limited fiscal flexibility, and the risk that litigation may defer or dilute pension reforms.

Fitch continues to believe that the new GASB pension standards represent a step forward in improving pension transparency. For example, the requirement to calculate total pension liabilities under the more conservative entry age normal cost method, rather than the multiple options allowable under the old standards, will increase the comparability of governments’ pension liabilities. Although most large public plans already used entry age normal, New Jersey did not, and the materially higher total pension liabilities that it disclosed under the GASB 67 standard reflect in part this switch.

Read Fitch’s full statement here.

Survey: Pension Funds Looking to Increase Internal Asset Management

Pension funds across the world are looking to bring asset management responsibilities in-house, according to a recent survey by State Street.

In addition, a majority of funds are thinking of turning to lower-cost investment strategies.

From ValueWalk:

Over the next three years, a whopping 81 percent of pension fund respondents said they are exploring bringing more asset management responsibilities in-house. A primary reason? Fees and costs were a major issue, with 29 percent saying it was a challenge for the pensions to justify the fees of their asset managers.

An unspoken issue is the relatively low returns, as many hedge funds are both highly correlated to the performance of the stock market as well as underperforming major stock market indices. This leads to the question: why not just primarily invest in an stock index ETF for the primary equity exposure?

As part of this shift to internal investing, 53 percent of the respondents are expecting to use more lower-cost strategies to achieve desired investment outcomes. This would likely include low cost ETFs designed to capture the beta of the stock market.

“Pension funds’ desire to deliver strong investment returns to their participants coupled with improved oversight and governance and is leading to a need for more in-house accountability for asset and risk management,” said Martin J. Sullivan, head of Asset Owner sector solutions for North America, State Street. “However, this undertaking requires pension funds to carefully evaluate how to achieve a balance of in-house and external talent, tools and technologies.”

The survey polled 134 pension executive from the Americas, Europe, the Middle East, Africa and Asia.

Is 80 Percent Funding All It’s Chalked Up To Be?

When it comes to pension funding, an 80 percent funded ratio is the benchmark for a “healthy plan”.

But over at the STUMP blog, actuary Mary Pat Campbell has penned a post taking issue with the 80 percent “rule”. According to Campbell, 80 percent isn’t a magic number that makes pensions “okay”.

The post is published below:

______________________

By Mary Pat Campbell, originally published at STUMP

I have just about had it with the 80 percent.

Unlike the commonplace idiocies of ‘You only use 10% of your brain’ or ‘The Great Wall of China is the only manmade object visible from space’, the 80 percent myth is dangerous.

I speak, of course, of the supposed percent fundedness level at which public pensions are “okay”.

The American Academy of Actuaries has a brief on the 80% pension funding myth, and I will give loads of examples of how even “100% funded” plans have been shown to be shaky.

But that’s not for today.

Today, I have decided to keep track of every idiot who refers to this 80% funding level (or something even worse) as proof that a pension plan is or is not okay. Generally, reporters fall afoul of this, and this is not necessarily concerning. People don’t think of reporters, as a group, as expert in anything.

But when there are politicians directly making decisions about public pensions, union leaders arguing about their public pensions, and dear lord, public plan TRUSTEES putting this bilge forth, that is super dangerous.

If you want to follow yourself, just create a google news alert on ‘80 percent pension’ — google news alerts don’t necessarily work the same for everybody, so feel free to email me at marypat.campbell@gmail.com if I missed any good (or, rather, horrible) examples.

So here goes:

Congrats, New Jersey Senate President Steven Sweeney — you are the inaugural member of my 80 Percent Pension Funding Hall of Shame!

TRENTON — State Senate President Stephen Sweeney is floating an idea to move the goal posts for funding public workers’ pensions in order to take pressure off the state budget.

Sweeney (D-Gloucester) said today the state — which by law is supposed to fund the pension system 100 percent by 2018 — should instead focus on getting the pension system 85 percent funded to put it in line with private sector plans that are considered healthy.

New Jersey’s pension funds are currently funded at about 54 percent, in part because the state skipped or made only partial payments for a decade. Under a 2011 law pushed by Sweeney and signed by Gov. Chris Christie that included cuts to workers’ pension and health benefits, the state is required to ramp up its payments to once again fully fund the system. However, Christie cut the payments by more than $2 billion for this budget year and the previous one.

Yes, yes, he picked 85 percent, but anything less than 100 percent is questionable. Especially with New Jersey math.

Here’s a nice kicker:

“The governor paints a very bleak picture by saying ‘look at what a big hole we’re in,’” said Sweeney. “The governor’s focus is basing everything on us being fully-funded. That’s not a realistic number. And a lot of pension systems live being 85 percent funded, or in the 80s.”

Yeah, they live right up until they don’t.

Ask the Detroit retirees what they think of their supposedly almost-100-percent-funded pension – pension benefits that got cut (note: it was not as fully funded as they thought, but that’s for another time.)

NEWS ALERT SENATOR SWEENEY: lots of public pensions aren’t doing well. While 85% funded would be a lot better than where NJ pensions are right now, that is not a laudable end goal.

I’ve already got THREE OTHER EXAMPLES for my new Hall of Shame from just this week, so this Hall of Shame is going to be filling up rapidly.

With respect to politicians, or union leaders, or other such, there is no cure (that is, I, personally, can’t do much about it other than mock them on the blog).

But at least with regards to reporters, I will be writing them and/or their organizations with links to the Academy’s brief. And maybe the blog posts where I call them idiots. We’ll see.

Canada Pension Eyes $1 Billion of Australian Timber

Canada’s Public Sector Pension Investment Board (PSP) is in talks to buy $1 billion worth of Australian timber assets from Hancock Timber Resource Group.

More details from the Australian:

CANADA’S Public Sector Pension Investment Board could be about to swoop on one of Australia’s most valuable timber plantations, with sources saying about $1 billion worth of forests owned by Hancock Timber Resource Group are on its radar.

PSP executives have been in Sydney this week sounding out counterparties ahead of what some say is shaping up to be an aggressive acquisition spree by the Canadians focusing on Australian property, agriculture and billions of dollars’ worth of upcoming infrastructure assets for sale by federal and state governments.

It is understood a major Australian acquisition is on the cards by PSP and the seller it is engaged with is Hancocks.

Recent forestry portfolios placed up for sale have struggled to secure strong prices, but the industry is now shaking off pain from weaker industry demand and collapsed managed investment schemes, which could see some plantations sell for some more bullish prices, with an increasing appetite for timber from woodchip markets.

[…]

Across the Tasman, PSP is finalising the purchase of forest plantations from Harvard Management in conjunction with New Zealand Superannuation and local Iwi tribes worth $NZ2.35bn ($2.15bn), and recently outlaid more than $NZ1bn for the acquisition of AMP’s office portfolio.

PSP manages $97 billion in assets.

Photo by Rick Payette via Flickr CC License

Video: Is a U.S. Market Decline “On Hold” Due to Japan Pension’s Asset Allocation Changes?

The above interview features Axel Merk, President and Chief Investment Officer of Merk Investments, talking about the impact of the asset allocation shifts untertaken by Japan’s Government Pension Investment Fund (GPIF) earlier this month.

From the video description:

Axel Merk, President and Chief Investment Officer, Merk Investments, says the overdue correction in U.S. stocks is delayed due to the asset allocation change in Japan’s Government Pension Investment Fund (GPIF).

Pennsylvania Lawmakers Mull Taking Up Pension Reform During Lame Duck Session

Tom Corbett has until January 20 before Tom Wolf takes over as governor of Pennsylvania. Corbett has spent the last year pushing for pension reform, but the proposed bills never gained traction in the legislature.

Now, a handful of lawmakers are considering quickly putting together and pushing through a pension reform bill — although the odds of it coming together so quickly are unlikely.

From the Pennsylvania Independent:

There’s still technically time for a final drive to pass legislation near and dear to conservatives. Whether lawmakers and outgoing Gov. Tom Corbett use it or just take a knee is the question.

State Sen. Jake Corman, the new Republican majority leader in his chamber, hasn’t ruled out having session days in the two weeks that fall between new lawmakers being sworn in Jan. 6 and Democratic Gov.-elect Tom Wolf taking office Jan. 20.

But, Corman told the PA Independent on Monday, it’s “highly, highly unlikely” legislation as complicated as liquor privatization or pension reform could be ready to sign before Corbett leaves office.

“We may get them started,” said Corman, a Centre County Republican who chaired the Appropriations Committee before ascending to floor leader earlier this month.

For anything to get to Corbett’s desk before his term ends, the state House would also have to convene, and legislation would have to clear both chambers. There’s time for it to happen, but bills would have to move quickly.

State Rep. Dave Reed, R-Indiana, the new House majority leader, has read about Corman’s comments, but said there have been no discussions in the House about a topic that’s quickly become political water cooler talk.

“It seems like an awful lot of folks are talking about it,” Reed said. “I think more folks outside the building than inside the building are talking about it at the moment.”

State Rep. Fred Keller, R-Snyder, said there has been “scuttlebutt” among rank-and-file lawmakers about the possibility of convening during the two-week period known as interregnum.

Keller would “absolutely” be in favor of it, he said, especially if pension reform is addressed. He also sees the controversial paycheck protection as possible legislation that could arise in the final weeks before Wolf takes over.

At least one lawmaker wouldn’t be on board with pushing through pension reform before Wolf takes officer. From the Independent:

Senate Minority Leader Jay Costa, D-Allegheny, has already sounded alarms that having a session before Wolf takes office would be “inappropriate, unprecedented and inexcusable.”

“The ill-conceived idea to empower and use an unaccountable governor in his last days in office to revive already rejected policies would be viewed as an act of desperation and a serious blow to reform,” Costa said in a written statement. “I would be very surprised if Governor Corbett would allow himself to be used by Republican leadership in this way.”

Texas County Speeds Up Plan to Pay Down Pension Debt

Officials in Dawson County, Texas have revised a plan to pay down pension debt this week.

Originally, officials planned to fully pay down the county’s pension debt over a period of 15 years. Now, the county plans to pay down its debt completely by 2018.

From the Seminole Sentinel:

The Commissioners’ Court approved a decision to pay in full a deficit in the retirement plan for county employees during the next four years instead of during a longer period of time. By paying sooner than later, the county will save $ 861,000 in the long run, said County Auditor Rick Dollahan. The new payment plan is a decrease from original 15-year plan.

“I think it’s a good return on our investment, said Court member Blair Tharp.

Employees receive benefits through the Texas County and District Retirement System, in which a percentage of their paychecks, chosen by employers, are deposited into their TCDRS accounts. The savings grow at an annual, compounded rate, and upon retirement, employees receive a benefit payment for life based on the final account balance and employer matching. Employers pay 100 percent of their required contribution rate each year. The current deficit does not negatively affect employees’ retirement plan investments.

“I don’t want our retirees to get scared or worried. We’re in great shape,” Dollahan said.

Currently, the plan is funded at about 80 percent; the county plans to pay the deficit by 2018.

The Texas County & District Retirement System manages $23 billion in assets and works with 655 counties in Texas.

Kentucky Pension Committee Recommends Measures For Funding Improvement, Other Policy Changes

Kentucky’s Public Pension Oversight Board, a panel of lawmakers that “assists the General Assembly with its review, analysis, and oversight” of the Kentucky Retirement Systems (KRS), has made 13 recommendations aimed at improving the health of KRS and altering other KRS policies.

A handful of the key recommendations, from the Courier-Journal:

– The General Assembly should secure additional money to stave off any insolvency problems in KERS non-hazardous — the largest pension plan for state workers, which has only 21 percent of the money it needs to cover benefits.

– The Kentucky Teachers’ Retirement System, along with pension plans for lawmakers and judges, should be reviewed by the oversight board as part of its official duties.

– KRS should better publicize its board meetings, particularly to employee, retiree and interest groups.

– The General Assembly should enact legislation to regulate how agencies withdraw from the pension system — a concern that has emerged amid the bankruptcy of Seven Counties Services, the community mental health center for the Louisville area.

More on the measures related to improving the system’s funding situation, from CN2:

Of 13 recommendations tentatively approved by the oversight board, two dealt directly with securing additional funding for KERS non-hazardous. One, submitted by Sen. Jimmy Higdon, R-Lebanon, would seek financing to maintain the plan’s solvency while the other, filed by Rep. Brent Yonts, D-Greenville, and Sen. Joe Bowen, R-Owensboro, would support increased funding to KRS and particularly KERS non-hazardous to improve its cash flow issues.

One other recommendation seeks to cut down pension “spiking”. Eliminating “spiking” is not likely to have a big effect on the system’s funding situation.

Retiree advocacy group Kentucky Government Retirees released this statement on the proposals dealing specifically with improving funding:

As stakeholders in Kentucky Retirement Systems, we were gratified that the Public Pension Oversight Board today approved a recommendation calling upon the General Assembly to provide additional funding to avert insolvency in the Kentucky Employees Retirement System non-hazardous fund. The nation’s worst-funded state pension fund desperately needs an infusion of funds above the employer contributions. We hope the 2015 General Assembly will make the difficult decision to act on this recommendation.

Rhode Island Pension Investment Board Reviews Hedge Fund In Closed-Door Meeting

Rhode Island governor-elect Gina Raimondo and the state Investment Commission held a closed-door meeting last week to review a particular hedge fund, Mason Capital, in which $61.7 million of pension money is currently invested.

The exact reason for the meeting, and what was said during, is unknown because the session was exempt from the state’s Open Meetings Law.

The minutes of the meeting are sealed to “protect the interest of the state’s pension fund”, according to a Raimondo spokesman,