Ted Ballantine | Pension360

Poll: Retirees Ready To Leave New Jersey

A recent poll reveals that a large percentage of New Jersey residents plan to leave the state before retiring – 25 percent of respondents said it was “very likely” that they would move away from New Jersey and retire in another state.

From the Daily Journal:

Joseph Peters wants to retire in New Jersey, but instead he plans to move elsewhere.

[…]

He’s not alone.

Half of New Jerseyans would like to retire elsewhere, according to a new Monmouth University/Asbury Park Press poll. More than a quarter of those surveyed consider it very likely that they will actually move. Cost of living and taxes remain the driving factors for those wanting to flee upon retirement, with more than a third of adults concerned about their savings.

“Taxes are considerably less in Pennsylvania and areas that I’m looking at,” said Peters, who will rely on his savings in his employer’s 401(k) plan, a federal pension and Social Security in retirement. “My federal pension will not have a state tax on it in Pennsylvania, and the property costs are considerably less for buying a raw piece of land and building a new house, or even buying an existing house.”

If soon-to-be-retirees do start moving, there are implications for New Jersey’s economy. From the Daily Journal:

If more retirees follow Peters’ footsteps, New Jersey gradually will experience a difficult time making economic ends meet. An exodus of retirees would mean the loss of income taxes from their pensions and sales taxes from their spending at businesses within the Garden State. Combined, the factors paint a grim picture for those left behind.

“That means less state revenues for other programs that may be valuable to New Jersey citizens,” said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

But New Jersey’s options to fix the situation remain scarce. The Garden State’s budget fell short by $800 million last year. The state balanced its budget this year only after Gov. Chris Christie slashed the state’s contribution to a pension fund for public workers.

“We don’t have a lot of wiggle room to adjust our tax system as it is since we’re short of revenues,” Hughes said. New Jersey’s “not going to change that destiny very much. We are going to lose some affluent seniors, middle-income seniors and the like.”

New Jersey’s housing costs for seniors are the highest in the U.S., and healthcare costs are the third-highest.

The state also taxes pension benefits at a rate of 3.6 percent; that number has grown from 3.1 percent since 2000.

Illinois Teachers’ Fund Returns 17 Percent; Unfunded Liabilities Still Growing

The Illinois Teachers’ Retirement System announced over the weekend its investments had returned over 17 percent in fiscal year 2013-14.

As a result, the system’s funding ratio improved – climbing from 42.5 percent to 44.2 percent.

But unfunded liabilities grew, as well.

From Reuters:

The funded ratio for Illinois’ biggest public worker pension fund improved slightly in fiscal 2014 due to strong investment returns, but the system still ranks among the worst funded major retirement systems, the Teachers’ Retirement System (TRS) said on Friday.

The system for teachers and other school workers outside of the Chicago Public Schools reported that its funded ratio rose to 44.2 percent in the fiscal year that ended June 30 from 42.5 percent. While that marked the first improvement since fiscal 2006, the funded ratio remains far below the 80 percent level considered healthy.

“An improved funded ratio is always good news, but it doesn’t mean by any means that the financial problems at TRS have been solved. We cannot invest our way out of this problem,” TRS Executive Director Dick Ingram said in a statement.

The retirement system said its investment rate of return was 17.4 percent, net of fees. But its unfunded liability grew by 10.51 percent from $55.73 billion at the end of fiscal 2013 to $61.59 billion.

“TRS members still face a fiscal day of reckoning in the future unless a dramatic improvement is seen over time in the funded status,” Ingram said.

TRS manages $45.3 billion in assets for its nearly 400,000 members.

New York Teachers’ Fund Takes Lead Plaintiff Role In Class Action Suit Against GM

The New York State Teachers’ Retirement System is leading a class action lawsuit against General Motors; the suit claims GM made misleading and false statements about the safety of their vehicles before disclosing many vehicles had faulty ignition switches.

From Pensions & Investments:

New York State Teachers’ Retirement System, Albany, has been approved as lead plaintiff in a class-action lawsuit against General Motors Co., claiming GM committed fraud in its disclosure of faulty ignition switches.

John Cardillo, a spokesman for the $108.2 billion pension fund, said in an e-mail Friday that NYSTRS had been chosen lead plaintiff, but he declined to provide details. “We do not comment on pending litigation,” he wrote.

The pension fund was granted lead plaintiff status Oct. 24 by U.S. District Judge Linda V. Parker of the U.S. District Court in Detroit. In her ruling, Ms. Parker said the pension fund had suffered the greatest losses among four plaintiffs seeking lead-plaintiff status.

According to Ms. Parker’s ruling, the pension fund owns about $98 million in GM shares, and it claimed an estimated loss of $6.23 million between Nov. 17, 2010, and March 10, 2014 — the period cited in the suit against GM.

The complaint against GM alleges the company “touted the safety, quality and reliability of GM vehicles … despite their knowledge that millions of GM vehicles were plagued with faulty ignition switches,” Ms. Parker wrote, citing the complaint. “Throughout the class period, defendants made allegedly false and/or misleading statements, and failed to disclose materially adverse facts related to the quality and safety of GM vehicles and defects in those vehicles.”

The NYSTRS manages $95 billion in assets.

New Mexico Pension Commits Additional $50 Million To Real Estate

The New Mexico Educational Retirement Board will make a $25 million commitment to a vehicle that invests in distressed Western European properties, and will commit an additional $25 million to another fund that invests in healthcare properties in the U.S.

From IPE Real Estate:

The New Mexico Educational Retirement Board is to make an additional $25m (€19.6m) commitment to Kildare European Partners I.

The pension fund also made a $125m investment in April of this year.

Mark Canavan, head of real assets at the pension fund, said New Mexico had concluded the manager of the fund was “best in class”.

European Partners I could have a total equity raise of as much as $2bn for opportunistic real estate, with a 13% potential IRR.

The vehicle will invest in individual and entity-level assets with operating companies in Western Europe.

New Mexico is also making a $25m commitment to Hammes Partners II, having approved an initial $25m commitment late last year.

The fund is investing in a variety of US healthcare-related properties, with a projected $300m total equity raise.

Hammes II is the first fund product offered by Hammes – all previous investments were invested on behalf of high net worth individuals, family office and publicly traded healthcare REITs on a deal-by-deal arrangement.

Capital for the two funds comes from New Mexico’s increased targeted allocation to real estate – up from 5% to 7% earlier this year.

The Retirement Board isn’t the only pension fund putting more money in the Kildare fund. In September, CalSTRS committed $100 million to European Partners I; the fund now has committed a total of $200 million to the vehicle.

Jacksonville Pension Reform Bill Faces Obstacles As It Heads To City Council

Jacksonville Mayor Alvin Brown’s pension reform bill is headed to the City Council, where it will be scrutinized and approved by two separate committees.

But it won’t be smooth sailing for the bill, as several council members will likely push for unpopular amendments to the measure.

The bill aims to improve the funding of the city’s public safety pension system by forcing the city to make higher payments to the system – to the tune of an extra $40 million a year.

From the St. Augustine Record:

When Mayor Alvin Brown’s pension reform deal heads to a City Council committee today, the meeting will be led by a councilman pushing for several significant changes that could jeopardize the bill.

Rules committee Chairman Bill Gulliford said he’ll try to convince his colleagues to adopt one of the six amendments he’s proposed to the pension package, which was based on negotiations Brown conducted earlier this year with the Police and Fire Pension Fund.

Gulliford’s amendments would seek further reductions in pension benefits for current police and firefighters, which the pension fund rejected during negotiations.

If the council approves any amendments to the pension deal, the pension fund’s board also must approve the changes.

Brown has touted his deal as the city’s best shot yet at fixing its pension crisis and its looming $1.65 billion pension debt. He has said the deal would save the city $1.5 billion in the next 35 years.

[…]

In recent weeks, some council members questioned the deal’s merits.

The leading criticism: Brown hasn’t identified a realistic funding source for the $400 million more the city and its taxpayers will contribute to the fund over 10 years — on top of the yearly required amount — a major component of the deal’s saving.

The extra $40 million per year in contributions would expedite the paydown of the city’s debt obligation to the pension fund and save money over the long haul, just as homeowners benefit by making extra payments on their mortgages.

Brown’s legislation would use money from the pension fund’s reserve accounts to cover this year’s $40 million payment and then $21 million in the 2015-16 budget. But there isn’t a definitive plan yet to pay the rest.

Other critics say current police and firefighters really didn’t sacrifice anything to help resolve the pension plan’s woes.

For the bill to pass, ten council members need to support it. Currently, only seven council members are on board.

California Attorney: Bankruptcy “Not a Practical or Desirable” Way To Cut Pensions

Teague Paterson, an attorney from Sacramento specializing in labor law, has penned a column in Monday’s Sacramento Bee in which he explains his position that bankruptcy is “not a practical or desirable” way to cut pension benefits.

From the column:

Imagine for a moment that you have run into deep financial trouble and have decided to file for bankruptcy protection. Your credit rating plummets, your home is sold at a fire sale, and you can’t rent an apartment or buy a car. You spend long hours at the negotiating table as creditors pick over the remains of your finances. Ultimately, you place your future in the hands of a total stranger, the bankruptcy judge.

Isn’t that a scenario that you would try to avoid at all costs?

If the consequences for an individual facing bankruptcy are devastating, the consequences for a municipality are 10 times as dangerous. Bankrupt cities face soaring crime rates, shrinking property sales, and the reduction or elimination of basic public services. It’s is not a decision that an elected official or city manager would willingly make unless there were no other options, as the decision by a bankruptcy judge presiding over Stockton’s bankruptcy makes clear.

Judge Christopher Klein’s ruling Thursday to approve Stockton’s bankruptcy plan confirms that the situation in Stockton will have little impact over the larger national debate on public pensions. Municipalities will not be filing for bankruptcy in waves in efforts to jettison pension debt.

For the very few severely distressed cities that may consider bankruptcy, the question will not be whether they can reduce pensions, but whether they should. In Stockton, the answer to that question was clear to all with a stake in Stockton’s future – and after two years of litigation that cost tens of millions of taxpayer dollars, the bankruptcy judge agreed.

Another key excerpt from the column:

Despite the media attention to cities such as Stockton and Detroit, municipal bankruptcy is exceedingly rare. According to one analysis, 13 local governments had bankruptcy filings since 2008. Five of those have been dismissed. To put it in context, there are more than 39,000 local governments in the U.S.

Although the bankruptcy process threatened to rob Stockton of its ability to make the best decisions for its residents, ultimately the judge accepted the city’s decision. In Stockton, the practicalities of running a city with an eye toward a brighter future shaped this outcome. Judge Klein acknowledged the serious and considerable pre-bankruptcy concessions accepted by Stockton’s employees, and the virtual guarantee that employees would leave to work elsewhere if Stockton reduced their compensation any further.

Stockton faced a unique set of circumstances brought on by revenue losses and a crippling national recession. Thankfully, it’s a situation that the overwhelming majority of municipalities will never have to face. As much as pension opponents would like to focus their analyses of Stockton as a blow to pension security, bankruptcy is simply not a practical or desirable option for cities dealing with pension obligations.

Read the whole piece here.

Photo by TaxRebate.org.uk

New York Pensions Paid More Fees To Wall Street In 2013-14, But Fee Growth Is Slowing

New York City released its annual financial report Friday, which gave observers a peek into a part of pension finances under growing scrutiny: investment fees paid by the city’s 5 major pension funds.

The fees paid by the city’s pension funds have grown since last year. But the rate at which they’re growing has slowed significantly.

From Bloomberg:

New York’s five pension funds paid Wall Street investment managers $530.2 million in the most recent fiscal year, an 8.5 percent increase, according to the city’s annual financial report released today.

The rate of growth in the year through June slowed compared with the previous period, when expenses paid to the city’s almost 250 managers rose 28 percent.

New York City Comptroller Scott Stringer, who serves as chief investment adviser to the pensions, has vowed to reduce fees and increase internal management. Fees erode returns crucial to funding benefits for New York’s more than 237,000 retirees and future payments to 344,000 employees.

Pension assets for police officers, firefighters, teachers, school administrators and civilian employees rose about 17 percent to $160.6 billion in the 12 months ended June 30, according to the report.

Eric Sumberg, a spokesman for Stringer, didn’t immediately respond to a request for comment.

The five pension funds included in the report are: the New York City Employees’ Retirement System (NYCERS), Teachers’ Retirement System of The City of New York (TRS), New York City Police Pension Fund, New York City Fire Pension Fund, and the New York City Board of Education Retirement System (BERS).

Collectively, the funds allocate 6 percent of assets to private equity, 2 percent to hedge funds, 29 percent to fixed income and 58 percent to equities.

$200 Million To Asia Private Equity Among Series of Moves By Illinois Teachers’ Fund

The Illinois Teachers’ Retirement System (TRS) made a series of moves at Thursday’s board meeting that included making $300 million in commitments to two private equity funds and approving the hire of a firm to manage domestic stocks.

The system made several new commitments, including $300 million to two private equity funds, one focusing on Asia and the other on technology. From Pensions & Investments:

Siris Capital Group […] graduated from the emerging managers program with a commitment of $100 million to its technology-focused private equity fund, Siris Partners III. TRS invested $12.5 million in Siris Partners II.

TRS committed up to $200 million to a customized Asia-focused private equity strategy managed in a strategic partnership by Asia Alternatives Management. The allocation will be split evenly between a diversified fund of funds and a co-investment fund. The goal is to eventually move some of the Asian private equity managers from the fund of funds into TRS’ direct investment portfolio, Stefan Backhus, private equity investment officer, told trustees.

Taurus Funds Management, a new manager for the TRS, right, received a $30 million commitment to its Taurus Mining Finance Fund.

Active large-cap value equity managers Affinity Investment Advisors and Lombardia Capital Partners each received $25 million commitments from the emerging managers program for domestic and international portfolios, respectively.

Trustees ratified staff-initiated co-investments of $18.5 million and $20 million to existing managers Carlyle Group and Natural Gas Partners, respectively.

Funding for the Siris, Asia Alternatives, Taurus, Affinity, Lombardia, Carlyle Group and Natural Gas Partners hires will come from cash, index funds and rebalancing.

TRS also hired a new firm to manage domestic equities, promoted one other firm and fired another. From P&I:

Trustees of the $43.5 billion pension fund ratified the hire of LSV Asset Management by investment staff in August to manage $360 million in active domestic large-cap value stocks. LSV, which already managed $1.3 billion for TRS in two other equity strategies, replaced Loomis Sayles & Co., which was terminated in August.

Active bond manager Garcia Hamilton & Associates, was promoted from the pension fund’s $732 million emerging managers program to manage a 4% allocation from the fund’s $7.7 billion fixed-income portfolio. The $61 million Garcia Hamilton previously managed will be returned to the emerging managers program. Funding for the new account will come from reducing Prudential Asset Management’s core-plus bond portfolio and rebalancing among other fixed-income managers.

[…]

In further changes to the fixed-income portfolio, Hartford Investment Management was terminated as manager of a $350 million U.S. Treasury inflation-protected securities portfolio. Investment staff “believes the net-of-fees results from these mandates can be improved through two mandates. Further, staff prefers to utilize global inflation-linked mandates, while Hartford’s portfolio is U.S. only,” said R. Stanley Rupnik, chief investment officer, in an answer to a request for clarification.

The Illinois Teachers’ Retirement System manages $43.5 billion in assets.

Arizona’s Gubernatorial Candidates Both Vow To Address Pension Woes, But Specifics Hard To Come By

Both of Arizona’s gubernatorial candidates (Republican Doug Ducey and Democrat Fred DuVal) have said they will try to find a solution to the funding problems plaguing the Arizona Public Safety Personnel Retirement System (PSPRS). The system is only 49 percent funded.

But neither candidate offered much in the way of specifics during interviews with the Arizona Republic’s editorial board. From the Arizona Republic:

Neither Republican Doug Ducey nor Democrat Fred DuVal, during interviews with The Arizona Republic, offered specific plans to fix the troubled Public Safety Personnel Retirement System.

Both said they would try to develop a consensus among employees, employers and lawmakers to find a solution for the $7.78 billion unfunded liability that has put a crimp on local communities’ ability to hire police officers and firefighters.

DuVal and Ducey say working with all groups involved in the pension systems is the only way to avoid litigation, which thwarted pension reforms the 2011 Legislature enacted.

[…]

DuVal said PSPRS is financially unsustainable, but court rulings have made it clear that state constitutional changes, which would require voter approval, may be needed for reform.

“We want to approach this in a way that has long-term solutions,” DuVal said. “We need to make sure everyone is involved. We are looking at broad participation to avoid litigation.”

Ducey said basically the same thing.

“The biggest concern is to look at the unfunded liabilities,” Ducey said. “There are a number of reforms, and lot of different options. I want to talk to leaders of all the organizations.”

He also said he would embrace recommendations by a pension-reform task force he led as state treasurer, including limiting retirement benefits to base-salary compensation. That proposal would prevent using lump-sum payouts of vacation and sick time and prevent the artificial inflation, or “spiking,” of pensions.

The Arizona PSPRS saw its funding ratio drop dramatically over the course of fiscal year 2013-14 – from 58.7 percent to 49.2 percent. It isn’t the only Arizona retirement system in trouble. From the Arizona Republic:

The funding ratio for the Corrections Officer Retirement Plan dropped from 69.7 percent to 57.3 percent, and there are $1.1 billion in unfunded liabilities. The average pension is $26,299.

The funding ratio for the Elected Officials’ Retirement Plan dropped from 56.5 percent to 39.4 percent and there is a $482 million unfunded liability. The average pension is $50,338.

[…]

The plan for elected officials, which includes judges, is in the worst shape. It has less than 40 percent of the money it needs to pay for current and future pension obligations. The fund may run out of money in 20 years if no significant changes are made. That plan is closed to newly elected politicians, and is expected to eventually cease, but additional public funds may be needed.

PSPRS is shouldering $7.78 billion of unfunded liabilities. Since 2010, it has reduced its assumed rate of return from 8.5 percent to 7.8 percent.

Video: Implications of Japan Pension Fund’s Portfolio Shift

The video [above] discusses the decision by Japan’s Government Pension Investment Fund (GPIF) to double its allocation to equities and slash its bond holding, a move that coincides with the Bank of Japan boosting stimulus.

The video description reads:

John Herrmann, rates strategist at Mitsubishi UFJ, and Gary Langer, founder and president at Langer Research Associates, discuss the potential impact of the Bank of Japan boosting stimulus while pension funds move to equities from bonds and how the stock market figures into people’s every day economic lives. They speak on “Bloomberg Surveillance.”

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