Kentucky Teachers’ Pension Asks Lawmakers For Funding Help; Will Present Bond Proposal

Kentucky flag

The Kentucky Teachers’ Retirement System is seeking help from the state legislature in easing its pension obligations. The plan involves the state issuing bonds.

Details on the proposal are sparse, but KTRS officials will present their plan to lawmakers on Wednesday.

From the Courier Journal:

The Kentucky Teachers’ Retirement System is proposing that the state issue a new bond to help shore up underfunded teacher pensions.

Officials from KTRS will present the proposal to lawmakers on the Interim Joint Committee on State Government on Wednesday afternoon. An official said last week that the plan will center on using existing revenue streams that will soon become available once the state retires debt service on older bonds.

According to the 2013 valuation, KTRS faces more than $13.8 billion in unfunded liabilities and has only 52 percent of the money it needs to pay out pension benefits in coming decades.

The system has asked the state to provide around $400 million in additional funding each year to keep the system solvent.

The plan could well be for the state to issue “pension obligation bonds”. Governing magazine explains the concept of POB’s:

Pension Obligation Bonds (commonly referred to as POBs), allow governments to issue taxable bonds for the purposes of putting money toward or fully paying off the unfunded portion of a pension liability. The proceeds from the bond issue go in the pension fund. The theory is that the rate of return on the investment will be greater than the interest rate the government pays to bond investors so that the transaction is favorable to the government; it makes money off the deal.

KTRS manages $17.5 billion in assets. The system is about 51 percent funded.

Arizona Taxpayers To Foot Legal Bills For 4 Ex-Pension Employees

Arizona sign

Four ex-employees of the Arizona Public Safety Personnel Retirement System are being sued by a real estate investment firm for “defaming” the firm by raising questions about how it values assets.

The lawsuit is private, but the legal costs incurred defending the ex-employees will be paid with public money, according to the Arizona Republic:

The state Department of Administration has agreed to pay the private legal tabs of four former high-ranking employees of the Public Safety Personnel Retirement System who are being sued by Scottsdale-based Desert Troon, a real estate partner with the trust that manages some pension fund assets.

The four ex-employees have raised questions about the valuation of the real-estate assets managed by Troon. Troon has in turn accused the four former PSPRS employees in a lawsuit of engaging in a post-employment conspiracy to defame and falsely disparage senior management at the company and the pension system.

Jeff Grant, ADOA deputy director, said the state agreed to pay for the legal defenses of the men in response to a request from their attorneys. The four are Andrew Carriker, former PSPRS in-house counsel; and ex-investment managers Anton Orlich, Mark Selfridge and Paul Corens.

Grant said the state is obligated to provide a legal defense for current or former employees when sued for “acts within the course and scope of employment.” He added that state law does not set a financial limit for a legal defense.

Grant said the state can withdraw defense funding if “facts reveal later that it is not obligated” to cover the cost.

[…]

The PSPRS employees targeted in the Desert Troon lawsuit quit last year in protest over how PSPRS was reporting the values of trust real-estate assets managed by Desert Troon. The ex-employees raised questions about whether real-estate investment values were inflated to trigger staff bonuses. Desert Troon and PSPRS have denied any wrongdoing.

The claims of inflated asset values triggered an FBI investigation, but no charges have been filed.

It isn’t the first time the pension fund’s legal costs have come under fire. Pension360 has previously covered how the fund spent nearly $2 million on outside legal advice last year despite having in-house counsel.

Chicago Lawmakers Request SEC Investigation Into Donations to Emanuel From Investment Firms With City Pension Contracts

Rahm Emanuel

Chicago aldermen announced yesterday they were requesting an SEC investigation into donations received by city Mayor Rahm Emanuel from investment firms that manage the city’s pension money.

From the International Business Times:

The aldermen scheduled a City Hall news conference Tuesday to announce the action.

In a letter to Andrew Ceresney, who directs the SEC’s division of enforcement, Aldermen Bob Fioretti, Scott Waguespack and John Arena write the donations constitute “pay-to-play actions” that “have violated the public trust and are a breach of the fiduciary duty” by the Emanuel administration officials who oversee the city pension systems. They say “Chicago has a deep history of pay-to-play” and that their “goal is to end these tactics and protect the citizens of Chicago and employees’ investments.” 

In a speech last week, Ceresney vowed increased enforcement of the SEC’s pay-to-play rule, which was passed in 2011 after an influence-peddling scandal at the New York State pension system.

The SEC and Emanuel’s office did not respond to IBTimes’ request for comment. In a statement about the donations emailed to Bloomberg News, Emanuel’s campaign manager asserted the donations comply with “the higher standards the mayor voluntarily imposes on himself per his executive order” banning contributions from city contractors. 

[…]

On top of the request for an SEC investigation, the aldermen are asking for the city’s inspector general to conduct a review of whether the donations violate Emanuel’s own executive order barring campaign donations from city contractors and subcontractors.

They are also asking Emanuel to release a full list of all the financial firms managing the city’s $23 billion pension system — including the firms in pooled investments known as a “fund-of-funds.” IBTimes obtained documents showing executives at a firm managing Chicago pension money through two Chicago pension systems’ fund-of-funds had made significant campaign contributions to Emanuel.

A copy of the letter sent to the SEC can be read below:

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Photo by Pete Souza

San Jose Police Staffing Could Fall to 30-Year Low In Midst of Retirement Surge, Pension Uncertainty

police siren

A new report reveals that the number of police officers employed by the San Jose Police Department could soon drop below 1,000 as it continues to lose policemen and women.

If the Department loses about 50 more officers, which is anticipated to happen by next July, its employment levels will drop to depths not seen in 30 years.

The staffing problems have been attributed to uncertainty surrounding pension benefits and a surge in retirements.

From the Mercury News:

The number of San Jose police officers will fall to the lowest in three decades if current trends continue unabated, and even that projection hinges on an optimistic view of the agency’s ability to retain officers and recruit new blood, according to a new report.

A department report produced for Tuesday’s City Council meeting estimates that with current attrition and hiring, the number of sworn staff will drop from the current 1,010 down to 988 by July, which would mark the first time since 1985 that the force steadily fielded fewer than 1,000 officers. That same model projects a sworn staff of 949 by July 2017.

[…]

Retention “continues to be a major challenge in maintaining current staffing levels,” states the report, which was signed by Chief Larry Esquivel and notes that the department has been challenged by a “lower qualified candidate pool.”

The chief’s report notes that the city set aside a $10 million reserve to bring the authorized number of police positions to 1,250. The department has not been able to meet its authorized staffing level since 2011 due to the aforementioned struggles with retention, with upward of 100 officers leaving each year from resignation or retirement for the past three years.

More from Mercury News on the reasons behind the staffing problem:

An array of factors have been cited in the steady departure of officers, including an anticipated retirement surge of Baby Boomer hires and ongoing legal battles over pension and disability reform between city leaders and the police union. Some gains have been made, including an 11-percent pay restoration, but other items such as a recovery of bilingual pay and a proposed part-time work plan for retirement-eligible officers are pending negotiation and approval.

The San Jose City Council received the report on Tuesday.

 

Photo by  Stefano Mortellaro via Flickr CC LIcense

Illinois Universities Pension Hires Search Firm to Find New Executive Director

NOW HIRINGWilliam Mabe, executive director of the State University Retirement System of Illinois (SURS), announced in September that he would be retiring on March 31.

SURS has now hired an executive search firm, the Hollins Group, to find his replacement before Mabe’s retirement date.

From the Associated Press:

The State Universities Retirement System has hired a search firm to help it find a new director.

The executive committee of the SURS board of trustees voted this month to hire The Hollins Group of Chicago.

Executive Director William Mabe (MAYB’) plans to retire in March.

Derrick Buckingham will serve as lead consultant. He is senior vice president and managing director for The Hollins Group.

In a September interview with the Chicago Sun-Times, Mabe talked about the reasons behind his retirement:

Mabe, 67, said in an interview…that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

SURS has 227,000 members.

 

Photo by Nathan Stephens via Flickr CC License

Group of Retirees To Appeal Detroit’s Pension Cuts

scissors cutting one dollar bill in half

The judge overseeing Detroit’s bankruptcy, Judge Steven Rhodes, said this month there was a 25 percent chance his ruling allowing pension cuts could be overturned if appealed.

That was enough to give a small group of retirees hope. The group, consisting of 133 working and retired city employees, is appealing the city’s pension cuts and asked Rhodes on Monday to delay the cuts until after an appeal can be heard.

From the Detroit News:

In a court filing, the group of retirees, survivors and city workers cited the 4-to-1 odds the Denver Broncos will win Super Bowl XLIX on Feb. 1 as part of their justification for time to appeal.

“Therefore, there is a reasonable likelihood of prevailing on the merits,” retired Detroit police officer and attorney Jamie S. Fields wrote in court motion for a limited stay of Rhodes’ ruling.

The appellants asked for a limited stay that wouldn’t impact other settlements tied to Detroit’s plan to fix city services and shed $7 billion in debt.

Fields, who retired in 2010 as a deputy police chief, argued Detroit should not be able “to avoid any meaningful appellate review of the unprecedented approach” used to forge settlements with labor unions, retiree groups, the city’s pension funds and financial creditors.

[…]

In his Nov. 7 ruling from the bench, Rhodes acknowledged the pension reductions could be a “real hardship” for some retirees.

“The pension reductions in the pension settlement are minor compared to any reasonably foreseeable outcome for these creditors without the pension settlement and the grand bargain,” Rhodes said.

The pension cuts were voted on and approved by city workers over the summer. They include a 4.5 percent benefit cut for general city retirees, and a reduced COLA (from 2.25 percent to 1 percent annually) for public safety retirees.

 

Photo by TaxRebate.org.uk via Flickr CC License

CalPERS Reviews Timber Allocation After Poor Performance

timber

CalPERS was among the first pension funds to invest in timber, and now is one of the largest timber owners in the country.

But the asset class has performed poorly in recent years, and performance (2.5 percent) came in below benchmarks again in fiscal year 2013-14.

As a result, the pension fund is reviewing its commitment to timber.

From the Wall Street Journal:

The California Public Employees Retirement System is reviewing its timber holdings following a period of poor performance and questions about whether the investments are large enough to impact overall returns for the nation’s largest public pension fund.

Top investment officers and consultants to the system known by its abbreviation Calpers discussed the $2.3 billion commitment at a board meeting Monday. One consultant, Wilshire Associates managing director Andrew Junkin, hinted at the review in an Oct. 22 letter to Calpers investment committee chair Henry Jones that cited the portfolio’s “structural weaknesses” and an evaluation of its “efficacy.”

A Calpers spokesman said no decisions have been made about the future of the timber portfolio. “This process has just begun,” he said via email.

Forests valued for their timber are Calpers’ worst-performing asset since the financial crisis, with returns down .8% over the last five years and 1% over the past three years. The portfolio gained 2.5% during the 2014 fiscal year but that was well below internal goals and industry averages.

Calpers is one of the largest holders of timber in the U.S. and owns 1.46 million acres, according to Forisk Consulting LLC. But one problem identified by Mr. Junkin is that these holdings are entirely concentrated in one part of the country — the U.S. Southeast. Outside the U.S. Calpers also owns properties in Brazil, Guatemala and Australia. The forests are also struggling due to the “timing of the original purchases,” according to the letter.

Chief among the CalPERS’ concerns are that its timber allocation isn’t large enough to make an impact on its portfolio. If that sounds familiar, it’s because CalPERS used the same logic as part of the rationale for exiting hedge funds. More details from the Wall Street Journal:

The size of the program presents another challenge. The holdings represent roughly 1% of total assets at Calpers…

“It could be argued” the current allocation “is not large enough to have a significant impact,” Mr. Junkin said in his letter. At the same time, “it would be massive challenge” to increase the size of the timberland holdings “to something more impactful, say 5%.”

[…]

Any decisions about those holdings will be closely watched within the industry, said Tom Harris, a University of Georgia professor of forest business management. “When they first got involved there was a lot of ‘wow, Calpers is in, we have come of age, this is a big deal,’” said Mr. Harris, who also publishes Timber Mart-South, a not for profit publication charting timber prices for 11 Southeastern states.

CalPERS is the country’s largest pension fund.

 

Photo by Rick Payette via Flickr CC License

Video: CalSTRS CIO Talks Passive Investing and the “Upside Potential” of the Japanese Market

Christopher Ailman, chief investment officer of CalSTRS, sat down with CNBC on Tuesday and talked about the “upside potential” of the Japanese market. He also discusses index investing and when to actively manage investments.

Chart: Illinois Pension Debt Has Nearly Doubled Since 2009

Illinois unfunded pension liabilities

Yesterday we brought you the numbers on Chicago’s per-capita pension debt, which ranks as the highest among the country’s 25 largest cities.

Today, we zoom out to look at Illinois’ unfunded pension liabilities, which have ballooned to $111 billion this year and nearly doubled since 2009.

Below, you can find a breakdown of where the liabilities are coming from, by system:

illinois systems

Chart credit: Illinois Policy

Rhode Island Pension Reform Law Sits in Legal Limbo on Three Year Anniversary – But Raimondo, Other Lawmakers Open To Settlement

Gina Raimondo

It’s been three years since Rhode Island passed into law a sweeping pension reform measure. But the law still sits in legal limbo after being challenged by labor groups.

A settlement has been hard to come by. But incoming Rhode Island governor Gina Raimondo said Monday she is open to a settlement. From WPRI:

Raimondo – who initially resisted efforts to mediate, but ended up supporting the failed settlement after a judge ordered talks – suggested Monday she remains open to settling but only if she can preserve the lion’s share of the savings from the original 2011 law. The previous settlement reduced the state’s pension shortfall by $3.86 billion, about 94% of the $4.09 billion the law saved.

“As I have said numerous times, I supported the settlement agreement,” Raimondo told WPRI.com in a statement. “I would like to see that back on the table and enacted to put the lawsuits behind us. I am open to making that happen.”

But Raimondo added: “What I am not interested in is going backwards from what was agreed upon in the settlement.” The state is already projecting a budget deficit of nearly $200 million next year; it would be more than twice as high if the old pension system were still in place.

She isn’t the only Rhode Island lawmaker eager to settle and put the legal challenge behind them. From WPRI:

Seth Magaziner – the Democrat newly elected to succeed Raimondo as treasurer, who will therefore become a lead defendant in the pension suit – has long backed seeking a deal.

“I continue to be supportive of renewing settlement talks, and am hopeful that a resolution can be reached that will keep the retirement system on a secure footing and avoid lengthy and expensive litigation,” Magaziner told WPRI.com in a statement Monday.

Legislative leaders are also open to the possibility.

House Speaker Nicholas Mattiello and Senate President M. Teresa Paiva Weed have both signaled in recent days they want to reduce or eliminate taxes on retirement income, such as Social Security and pension benefits – a new perk for older residents that could help smooth the way for settling the pension suit.

“The speaker will work with all parties to help facilitate a settlement of the pension lawsuit that is in the best interests of the citizens of our state,” Larry Berman, a spokesman for Mattiello, told WPRI.com in an email Monday.

Paiva Weed spokesman Greg Pare sounded a similar note. “The Senate worked closely with Treasurer Raimondo to develop the Rhode Island Retirement Security Act, and will continue to work with her as governor,” Pare told WPRI.com in an email Monday.

The pension reform law froze COLAs and moved most employees into a hybrid system with 401(k) qualities. An actuarial analysis stated the reforms improved the funding level of the state’s pension system from 42 percent to 56 percent.


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