Ted Ballantine | Pension360

Ohio PERS Director Leaves For Ohio State CIO Job

Ohio PERS has announced that its director of investments, John C. Lane, will be leaving his post to become the chief investment officer at Ohio State University. From the Columbus Dispatch:

John C. Lane is to start work as Ohio State’s vice president and chief investment officer on Oct. 29 after the university’s board of trustees confirms the appointment, according to an OSU news release this afternoon. He has managed investments for the public employees pension system since 2010 and previously managed investments for Eastman Kodak and for the Pennsylvania Public School Employees’ Retirement System.

At Ohio State, Lane replaces Jonathan Hook, who left this spring to take a job managing investments for a nonprofit foundation. Hook was paid $627,300 per year. Ohio State did not immediately disclose what it intends to pay Lane.

“John Lane has demonstrated excellent results throughout his career and I am confident he will lead us to a new level of performance,” Geoff Chatas, OSU’s senior vice president and chief financial officer, said in the news release. “He possesses the expertise to assure that the university succeeds in its responsibility to the public and our supporters to maximize investment returns.”

Lane will report to Chatas in his new role.

Lane will be managing $3.4 billion of assets for the University.

Missouri Fund Looking For Next Executive Director; Announces Hiring of Search Firm

Missouri’s second-largest public pension fund has hired a firm to search for its next executive director, after its current director announced plans to retire by 2016.

From Pensions & Investments:

Missouri State Employees’ Retirement System. Jefferson City, hired EFL Associates as an executive search firm for its search for an executive director, said Candy Smith, spokeswoman.

The $9.3 billion pension fund issued an RFP in April following Executive Director Gary Findlay’s announcement he plans to retire on Dec. 31, 2015. He joined the pension fund as executive director in 1994.

Ms. Smith said the pension fund plans to finalize the parameters of the executive director position at its Nov. 20 meeting, and that EFL will launch the search next year.

The job description listed on the EFL website reads:

Ideal candidates will have significant leadership experience in a public pension system, financial services organization or other customer service-oriented organization; 5+ years of staff management experience, demonstrated fiscal management, budgeting/planning skills; project management skills related to IT initiatives, experience managing external relationships, including legislative ones; an understanding of actuarial concepts; and working knowledge of institutional investment concepts. For additional information, please click on the link (the Position Title) and email us your resume for Position 7394.

CalPERS CEO Addresses Stockton Ruling

The CalPers Building in West Sacramento California. — The CalPERS building in West Sacramento, California.

Anne Stausboll, CEO of the California Public Employees Retirement System, released a statement addressing a recent court ruling that the bankrupt city of Stockton could cut pensions and stop contributing to CalPERS as part of its bankruptcy proceedings.

The statement in full:

The ruling last week by a federal bankruptcy judge in Stockton’s bankruptcy case has caused many to speculate about the future of pensions. Public employees, retirees, employers, lawyers, taxpayers, and journalists have legitimate questions and concerns.

As the administrator of pensions, the California Public Employees’ Retirement System does not win or lose in this situation. If pensions are reduced in bankruptcies, the only losers are public employees.

Contrary to the belief of many pension critics, CalPERS is no Goliath. Franklin Templeton Investments – the last bondholder standing in the way of the city of Stockton’s plan to rebuild – is no David.

Franklin Templeton is a sophisticated Wall Street investor that did its due diligence, analyzed the risks, and decided to make a $36 million investment in Stockton. As it turns out, the investment did not pay off. That’s how the investment world works. Franklin needs to move on.

The real Davids are the current and former employees of the city of Stockton whose retirements are at stake. These librarians, secretaries, firefighters, police officers, 911 dispatchers, and school custodians chose to serve the public at lower salaries in return for the promise of a reliable and secure pension. Their pensions are deferred compensation that they earned by working 10, 20, and sometimes 30 years in service to their communities.

Public employees contribute from every paycheck toward their own retirement. It is not a bonus or optional benefit that an employer may choose to not pay during hard times.

We applaud the leadership of Stockton officials in finding solutions to protect the pension promises made to its public employees while forging a reasonable path toward a fiscally sustainable future.

CalPERS will stand by Stockton, its employees, and residents, and will continue to champion those who really stand to lose – the real Davids – the public employees and retirees who spent their careers serving our communities and California.

Photo by Stephen Curtin

Map: Retirement Income By State

Here’s a map of retirement income by state, measured as a percentage of pre-retirement income.

Experts generally say retirees need to be earning at least 70 percent of their pre-retirement income to maintain their lifestyle during retirement. Only one state fits that bill: Nevada.

This map was developed from a study of Census Bureau data by Interest.com.

You can find the study here.

Chart credit: Interest.com

Oregon Supreme Court Hears First Round of Arguments Over Pension Reforms

Did Oregon break its contractual obligation with public workers when the state cut pension COLAs? That’s what the Oregon Supreme Court will eventually have to decide.

On Tuesday, the court heard the first round of arguments from lawyers representing the state and public employees, respectively. From the Associated Press:

Attorneys representing public employees told the Oregon Supreme Court on Tuesday that a contract is a contract, and the justices should reject the Legislature’s attempt to reduce annual cost-of-living increases for retired workers.

But lawyers arguing on behalf of state and local governments told the justices during oral arguments there’s no evidence that lawmakers four decades ago intended cost-of-living adjustments for retirees to be a contractual obligation.

Keith Kutler, a state Department of Justice lawyer, described the cost-of-living adjustment as a gift or add-on for workers who were already retired in 1971. Because they were already retired, they could not have accepted contract terms, he said.

[…]

Greg Hartman, an attorney for the public employees, said what governments are seeking this time around amounts to a “full-scale assault” on Strunk and other prior rulings.

It is one thing, he said, to make changes to a pension system for workers who have yet to start their careers. It’s another to alter the terms of a deal for workers who agreed to provide service under certain expectations.

“If your promise is ‘we’ll get back to you on what that promise is,’ that’s not much of a contract,” Hartman said.

A few justices pressed government attorneys on the fairness issue. Justice Virginia Linder questioned why the 1971 Legislature was concerned about the future fiscal impact of the COLA if it was not intended to be a long-term contractual obligation.

Bill Gary, another attorney representing governments, countered that actuaries at the time could not determine the cost.

Some background on the pension reforms under the microscope in this case, from the AP:

State and local governments sought the pension cuts last year to avoid steep increases in their contributions to the Public Employees Retirement System. The action reduced employer contributions to the pension by roughly $800 million during the current two-year budget cycle. It’s unknown when the court will rule, but a decision is expected in time for the 2015 Legislature to deal with any fallout.

If the court upholds the changes, retired workers will see their pensions grow at a slower pace. Since the early 1970s, retirees have received an annual cost-of-living increase of 2 percent. Gov. John Kitzhaber and the Legislature reduced the annual adjustment (widely known as a COLA) to 1.25 percent on benefit amounts up to $60,000 and 0.15 on benefits exceeding $60,000.

The public employees may have precedent on their side. In 2003, the state Supreme Court struck down a law that suspended COLAs. The court said at the time that COLAs were part of the contract between the state and retirees.

Video: Do The Dutch Have The Pension Problem Solved?

The Dutch pension system is in the news again after an extensive New York Times report that shined light on a pension system that is “scrupulously funded” and “brutally honest” about its pension liabilities.

In light of that report, we though it would be appropriate to re-visit this 2013 video by PBS, which can be viewed above.

From the video description:

As cities and states across the U.S. grapple with their pension programs, we travel to one country — The Netherlands — that seems to have its pension problem solved. Ninety percent of Dutch workers get pensions, and retirees can expect roughly 70% of their working income paid to them for the rest of their lives. Olaf Sleijpen of the Central Bank of the Netherlands says “I think what makes it successful is that you basically force people to save for their old age.”

Report: U.S. Pension System Ranks 13th Among World’s Largest Economies; Faces “Major Shortcomings”

Mercer has released its 2014 Melbourne Mercer Global Pension Index report, which ranks the pension systems of the world’s 25 most advanced economies.

The report grades pension systems on coverage, governance, investment performance, tax support and plan design, among other criteria.

The United States’ pension system ranked 13^th overall, which equates to a “C” grade.

The report included a brief summary of how the U.S. could improve their ranking:

The overall index value for the American system could be increased by:

– raising the minimum pension for low-income pensioners

– adjusting the level of mandatory contributions to increase the net replacement for median-income earners

– improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement

– reducing pre-retirement leakage by further limiting the access to funds before retirement

– introducing a requirement that part of the retirement benefit must be taken as an income stream.

Here are the overall rankings:

Read the full report here.

CalPERS, Other Major Funds To Bid On Bankrupt Indiana Toll Road

CalPERS, the Canada Pension Plan Investment Board and other large funds from around the world are lining up to bid on an Indiana toll road that filed for bankruptcy last month.

The toll road is operated by a private company, ITR Concession Co LLC.

From Reuters:

The interest in the asset shows that infrastructure investors have not been fazed by the failure of one of the largest privatisations of U.S. infrastructure, even though any deal is expected to come at a significant discount to its original value.

Canada Pension Plan Investment Board (CPPIB) has teamed up with Ferrovial SA’s toll road operator Cintra and Canadian investment manager Brookfield Asset Management to make an offer, the people said this week.

Australia’s Hastings Funds Management has partnered with the California Public Employees’ Retirement System (Calpers) and Italian toll road operator Autostrade Meridionali SpA , the people said.

Spanish infrastructure operator Abertis Infraestructuras SA has teamed up with Borealis, which is the infrastructure investment arm of the Ontario Municipal Employees Retirement System, the people said. Australian infrastructure fund manager IFM Investors is also leading its own consortium, the people added.

The composition and number of the consortia could still change, the people said. Alberta Investment Management Corporation (AIMCo) and Abu Dhabi Investment Authority (ADIA) have considered joining the race but have yet to make a decision, some of the people said.

Sources told Reuters that the price tag will likely wind up somewhere between $4 billion and $5 billion.

Indiana leased the toll road out to ITR Concession Co for 75 years in 2006. In return, the state received $3.8 billion.

Corbett Says He’d Form Pension Commission If Elected To Second Term

We’re three weeks away from the gubernatorial election and incumbent Pennsylvania Gov. Corbett is trailing big in most polls.

The theme of his campaign has largely been pension reform, and he has been doubling down on that stance lately. On Wednesday, Corbett told a newspaper that, in addition to calling a special legislative session to address pension reform, he would also form a commission to study reform ideas.

From PennLive:

In an interview with PennLive’s editorial board on Wednesday, Corbett talked of forming a commission to study pension reform in advance of calling a special legislative session.

Corbett said he would establish a commission consisting of state and local government officials and union representatives to come up with some recommendations to address pension costs.

Those costs are growing in the state budget by $610 million annually until they plateau at $3.3 billion in 2017-18. Once the commission has completed its work and come up with some recommendations of what might work, he would call a special legislative session to focus on this issue.

“The legislators aren’t experts [on pension reform] by any stretch of the imagination and I’m not disparaging the legislators. This is a very complicated issue. Let’s sit down. Let’s get this studied. And let’s be willing to have the political courage to do it,” he said.

Taking a shot at his opponent who has downplayed the severity of the pension issue, Corbett said, “That’s more than a problem. That’s a crisis.”

The commission would likely look something like New Jersey’s Pension & Health Benefits Review Commission.

See further coverage of Pennsylvania’s governor race here.

More Private Equity, Less Fixed Income For Germany’s Largest Pension Fund

Bayerische Versorgungskammer (BVK), Germany’s largest manager of public pension assets, indicated this week that some major allocation changes could be coming to the fund.

Among the changes: doubling its private equity investments (from 4 percent of assets to 8 percent) and trimming its fixed-income holdings (from 60 percent of assets to 50 percent).

From Bloomberg:

Germany’s biggest public pension fund plans to invest more in private equity and hedge funds and reduce its bond holdings as low interest rates curb returns.

“We started committing the first funds to private equity in 2007 and we are now beginning to reap the first rewards,” said Andre Heimrich, chief investment officer of Bayerische Versorgungskammer, in an interview in Munich. “There is still room for expansion and we could imagine doubling our share of private-equity investments.” BVK currently has about 4 percent of its assets committed to buyout funds.

[…]

“The current low interest rate environment will persist for some time,” said Heimrich, who took over as CIO from Daniel Just, now BVK’s chief executive officer, in February 2013. “In Germany, we even might not have reached rock bottom yet.”

As a result, BVK plans to reduce fixed-income holdings, such as government bonds and covered bonds, to about 50 percent of its investments from 60 percent at present, Heimrich said.

Heimrich also outlined his expectations for returns. From Bloomberg:

BVK invests in private equity through firms including Pantheon International Participations Plc, a British investor in leveraged buyout firms. The first investments have seen annual returns of more than 10 percent, Heimrich said.

That compares with an expected return of about 7 percent on infrastructure investments, where BVK has placed about 3 percent of its assets through specialized funds that hold stakes in the likes of airports, harbors, electricity meters and prisons.

“We would like to do much more, but there are way too few projects on offer,” Heimrich said. “It would be a perfect asset class for us due to its long duration and above-average returns.”

BVK expects an average return on investment of 4 percent this year, higher than the minimum needed to meet commitments to pensioners, currently at about 3.7 percent, Heimrich said.

Apart from investing in real estate funds, BVK has been providing direct lending to commercial real estate projects as banks left an opening in recent years. It provided about 190 million euros in financing for the so-called Silver Tower in Frankfurt in 2011, 300 million euros for Tower 185 in the same city in 2013 and 450 million euros for shopping center Mall of Berlin this year. Two global real estate investment trusts, in which BVK invested about 500 million euros this year, have returned more than 10 percent by the end of August, he said.

BVK manages $76.5 billion in assets for 12 of Germany’s public pension plans.

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