Ted Ballantine | Pension360

New Jersey Lawmaker: Turn Pension Management Over To Unions

New Jersey Senate President Steve Sweeney (D-West Deptford) offered up a new idea for pension management during an interview on Monday: let unions manage their members’ pensions. The verbal proposal was short on details, but it would certainly be a dramatic change.

From NJ Biz:

“I think we need to turn the pensions over to the unions, where they’re responsible for managing it,” he said. “I think that they would be willing to do that if there was a funding source that made the payments.”

Sweeney said having the public worker unions manage their own pensions would put the unions in a position to succeed — or fail —on their own.

Sweeney says unions, not legislators, would have a better handle on how to manage their workers’ pensions and “should control the future of their retirement.”

“If they screw up the investments, they’re responsible,” he said. “Just because they would manage it, doesn’t mean they’d screw it up. In fact, they’d probably manage it better because there would be no politics in it, because it would be completely removed from politics.”

Sweeney, noting that it was the first time he had publicly voiced the idea, did not offer any additional insight on implementation strategy or plans to formalize the proposal.

Several union leaders, including the director of New Jersey’s largest public union, said the idea was interesting but hard to evaluate given the lack of details. From NJ Biz:

Hetty Rosenstein, state director for the Communications Workers of America, New Jersey’s largest public union, was intrigued by the idea, adding that she was in favor of more “genuine oversight” of pension management. But what that would actually look like under Sweeney’s proposal is yet to be seen, she said.

“Without more details, it’s difficult to respond,” Rosenstein said.

Steve Baker, associate director for public relations for the New Jersey Education Association, the state’s largest teachers union, declined to comment without first having more information.

Gov. Christie’s office hasn’t issued a statement or given a comment on the idea.

Major Pension Fund Backs London Mayor’s “Megafund” Idea

We covered yesterday the plan proposed by London Mayor Boris Johnson to merge the country’s 39,000 public sector pension plans into one scheme, which would invest in building and updating the UK’s roads, airports, railroads and other infrastructure.

Today, one of the UK’s largest pension funds has come out in support of the plan. From the Financial Times:

The £4.9bn London Pensions Fund Authority (LPFA) said it supported the London Mayor’s call for tens of thousands of public sector schemes to merge, with the money used for infrastructure investment.

[…]

“The overhead costs of running a large number of pension funds can run into billions of pounds,” said Edmund Truell, chairman of the LPFA.

“We have been trying to go direct with our investments and cut the layers of costs. I would consider it ‘job done’ if we were absorbed into a sovereign wealth fund.”

Pension investment advisers said it was far from perfect that so many small funds manage their investments individually but they would be concerned about the creation of one enormous fund.

“Many local authority funds are too small to be able to make individual investments in alternative assets or to have a bespoke liability-driven risk management strategy,” said Ros Altmann, a pensions expert.

“However, I would be concerned about too much concentration as well and would prefer to see a number of large funds, not just one or two.”

The Mayor originally proposed his plan in a weekend op-ed in the Telegraph, which can be read here.

Photo By Andrew Parsons/ i-Images

Chart: Asset Allocation Over Time and the Rise of Alternatives

Check out the fascinating graphic [above] detailing the different between alternatives allocations between 2006 and 2012. In six short years, alternative investments as a percentage of pension assets have doubled.

Now, compare that to the allocation of a public pension fund in 1980 [below].

Today, no pension system in its right mind would adhere to the allocations we saw in 1980, and for good reason. Still, it’s an interesting exercise to look back at how things have changed.

U.S. Supreme Court Won’t Hear New Orleans Pension Case

New Orleans has failed to pay $17.5 million in required pension contributions to the city’s firefighters’ pension fund since 2010. A state court last year ruled that the city had to repay the fund in full, and an appeals court affirmed the ruling.

But New Orleans tried to appeal the case to the U.S. Supreme Court – the city argued that it shouldn’t have had to shoulder the cost of the pension fund’s failed investments, which led to a decreased funding ratio and required higher payments from the city.

But today, the U.S. Supreme Court said it wouldn’t hear the case. From NOLA.com:

The U.S. Supreme Court has decided to stay out of the ongoing legal feud between the Mayor Mitch Landrieu and the New Orleans firefighters’ pension board, leaving the city to cover disputed payments to the firefighters’ collective retirement account over the past four years.

The high court refused on Monday to hear an appeal from Landrieu arguing that state Judge Robin Giarrusso overstepped her authority when in March 2013 she ordered City Hall to immediately pay $17.5 million to the firefighters’ pension fund for shortfalls in 2012. Her ruling was upheld by the state’s 4th Circuit Court of Appeal in December.

The Supreme Court’s decision likely will have little bearing on the case, considering that Landrieu and the pension board have begun work on a compromise. On Friday, the two sides agreed to refinance the city’s debts to the fund, a shift that would considerably lower the city’s monthly payments should Giarrusso agree to it. That $17.5 million bill, for instance, would be lowered to $9.2 million under the proposed arrangement.

The two sides go back to District court on October 21.

Photo by Mark Fischer via Flickr CC License

Video: CFO of Canada’s 2nd Largest Pension Asset Manager Talks Investment Strategy

Here’s a 24-minute talk with Maarika Paul, chief financial officer at Caisse de Depot et Placement du Québec, Canada’s second-largest pension fund.

Paul touches on infrastructure, e-commerce and real estate investing, as well as investing in Europe.

The video was taken at the Bloomberg Canadian Fixed Income Conference in New York.

Think Tank: Pennsylvania Lawmakers Need To Reform Pensions – Now

Katrina Anderson, a senior policy analyst and director of government affairs for the Commonwealth Foundation, has published an op-ed in today’s Patriot-News urging Pennsylvania lawmakers to “reform the [pension] system now”.

Ms. Anderson explains her support for a solution similar to Gov. Corbett’s plan, which would move new hires into a 401(k)-style plan. An excerpt from the op-ed:

The first step lawmakers need to take is changing state-level retirement plans for themselves and new teachers and government workers. This would not erase our $50 billion pension debt, but it would prevent the problem from getting worse while protecting families from higher taxes and preserving the system.

Our current pension system has a huge flaw: It’s too easy to boost benefits when times are good and skip payments when they aren’t.

Moving new employees to a well-designed 401(k)-style plan would prevent deliberate underfunding and make “kicking the can down the road” impossible.

Reform would also benefit employees. As workers change jobs—an average of 10 times in a career—retirement portability and personal ownership of investments have never been more important. Such flexibility simply can’t be found in the current system.

But flexibility is the hallmark of 401(k)-style plans, which are also always fully funded—meaning they carry no debt—and offer predictable costs.

Not only has most of the private sector already left the old system behind—including the Wolf Organizaiton, founded by Democratic gubernatorial candidate Tom Wolf—but many states have as well. Since 1996, 18 states have converted to plans which build on the 401(k) model.

There are several bills in the General Assembly that would address this crisis for new employees, including plans that combine aspects of the current system and 401(k)s into what’s commonly called a hybrid plan, as well as reforms addressing the municipal pension crisis.

Conventional wisdom says lawmakers won’t do anything significant shortly before an election. But many statesmen in the legislature are fighting on behalf of retired teachers like Bill Frye to address this issue now.

They should understand—as property tax payers already do—that the stakes are too high to play politics and ignore real reform.

Anderson points out that pension costs have risen more than $600 per household since 2008—and are projected to rise another $550 per household in the next five years.

Read the entire column here.

Some Pension Funds Are Interested In The Hedge Funds CalPERS Dropped

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

CalPERS announced plans to phase out its $4 billion hedge fund portfolio last month. But other pension funds are now interested in the hedge funds CalPERS is getting rid of, according to a report from FinAlternatives:

The California Public Employees’ Retirement System already has potential buyers kicking the tires of its $4 billion hedge fund portfolio.

The pension, which last month announced it would take at least a year to “strategically exit” its hedge fund investments, has received indications of interest for some or all of its holdings from other state pension funds, reports Fortune, citing sources familiar with the situation.

The State of Wisconsin Investment Board, which has yet to meet its hedge fund investment targets, was identified by a source as one of those potential buyers.

A CalPERS spokesman told Fortune the pension will “evaluate all possibilities” with the portfolio, but would not confirm interest from other pension funds.

“Ultimately, we will exit those investments in a manner that best serves the interests of the fund,” said the spokesman.

Pension360 has covered the fact that, while CalPERS has exited hedge funds, not many pensions have followed in their footsteps.

Photo by Stephen Curtin via Flickr CC License

Roger Martin: CalPERS, Other Top Funds Could Undermine Capitalism

Roger Martin, Academic Director of the Martin Prosperity Institute at the Rotman School of Management and the world’s 3^rd most influential business thinker according to the Thinkers50 list, has written a thought-provoking column over at the Harvard Business Review.

The premise of the column is that the largest pension funds are monopolistic entities – and although Martin doesn’t think they’re doing a bad job, he is worried that, like most monopolies in history, they will “slowly but surely gravitate to serving themselves, not their customers.”

Here’s a few excerpts from the column:

The top 350 pension and sovereign wealth funds control just under $20 trillion of assets. They are the largest holders of securities in for-profit organizations competing in democratic capitalist environments.

[…]

If one looks carefully at these holders of competitive, capitalist company securities, one thing jumps out distinctly: they are not themselves competitive, capitalist organizations. Virtually all of them share a single form: a monopoly enforced by government regulation. As a Canadian, I have no choice as to where the pension contributions that are legally deducted from my paycheck go. Whether I like it or not they are sent to the Canadian Pension Plan Investment Board. CPPIB is granted a monopoly right by the Government of Canada to serve me (except in Quebec, where the relevant and equivalent monopoly body is the Caisse de Dépôt et Placement du Québec).

The same rules hold in the home of the brave and the land of the free. California state employees, Texas teachers, and New York City workers have zero choice. They are served by government-regulated pension fund monopolies. In fact, 19 of the top 25 U.S. pension funds, with $2.1 trillion of assets under management, are government-regulated monopolies. The other six, with $500 billion of assets, are corporate-run monopolies in which employees have little or no ability to opt out.

Capitalism has broad support because of a general belief in the power of competition, free entry to industries, and customer choice to produce increasing productivity and high levels of innovation. However, the ownership of those actively competing companies is increasingly in the hands of organizations that face zero competition, no threat of entry, and have customers who are forced to use them.

Why is putting the economy in the hands of regulated monopolists a good idea? Obviously, many of those monopolists are doing a good job. I don’t begrudge sending my pension deductions to CPPIB because it is well run and does a nice job for me with my pension savings, and I have to applaud California Public Employees’ Pension Fund (America’s second largest pension fund with about a quarter of a trillion dollars of assets under management) for making the bold and brilliant decision to eliminate hedge fund investments from its holdings.

But the broad history of regulated monopolies is not inspiring. Without the forcing mechanisms of competition, entry, and choice, monopolies slowly but surely gravitate to serving themselves, not their customers.

[…]

If we really believe in competition and choice, then a big question we should all be asking ourselves today is what should be done about our monopolistic pension system?

You can read the rest of the piece here.

Photo by Dave Rutt via Flickr CC License

London Mayor Wants Pension Funds to Invest In UK Infrastructure

London Mayor Boris Johnson wants to merge the country’s 39,000 public sector pension plans into one scheme, which would invest in building and updating the UK’s roads, airports, railroads and other infrastructure.

The Mayor says the plan would give pensioners great returns while improving the infrastructure of the country. From the Daily Mail:

A single fund could be used to create a ‘Citizen’s Wealth Fund’ to boost the economy and improve roads, rail and airport links.

Mr Johnson argued in the Daily Telegraph that incomes from tolls on new roads, passengers on new railways and airport charges would help create returns of up to 8 per cent for pensioners who invested with them.

He calculated local authority pension funds alone could hold assets of more than £180billion, while combining all public sector pensions would yield ‘hundreds of billions’.

Mr Johnson said: ‘There are more than 39,000 public sector pension funds in this country – each with its own trustees, managers and advisers and accountants. The waste is extraordinary.

‘Think of all those advisers and investment managers taking their fees – their little jaws wrapped blissfully around the giant polymammous udder of the state. Think of the duplication.

‘But it is worse than that – because this country is missing a huge opportunity, and one that is being exploited by more sensible governments around the world.’

Mr Johnson said: ‘The little pension funds will fight for their independence; they will make all sorts of spurious arguments about the need for “localism” in managing this dosh, when of course the advice is all subcontracted to the same legion of investment managers, and when what they really care about is their fees and their tickets to Wimbledon…and their golf-club bragging rights.

‘The vested interests must be ruthlessly overridden. It is time for Britain to have its own Citizens’ Wealth Fund, deploying our assets in a useful way, helping us to bolster pensioners and cut pointless public expenditure at the same time.’

Pension funds from other countries, such as Canada, have invested in British infrastructure already.

The Mayor originally proposed his plan in an op-ed yesterday in the Telegraph, which can be read here.

Photo By Andrew Parsons/ i-Images

New York’s Sole Pension Trustee Faces New Competition In Election

Two-term New York Comptroller Thomas DiNapoli is the sole trustee of New York’s largest pension funds, but he’s now facing competition from an unlikely source: a local auditor named Robert Antonacci who claims he is more qualified than DiNapoli.

From The Associated Press:

Democratic New York Comptroller Thomas DiNapoli, chief financial officer for the state, faces an election challenge from a little-known accountant and lawyer who does similar work for Onondaga County and says he’s more qualified.

Robert Antonacci said the power of the checkbook is the key to whether state programs — such as economic development projects — are delivering. The 49-year-old Republican also said that following the flow of money through politics is how you clean up corruption.

“You can really get into the engine of government from the experience I have,” Antonacci said. “We’re going to look at everything in terms of what makes New York state tick.”

State economic development efforts, seeding proposed business expansions with tax breaks, funding or other support in return for promised jobs, will be a big initiative if he’s elected, Antonacci said. The Cuomo administration’s Start-Up New York program is one place the comptroller should be looking and verifying data, he said.

“We’re going to start with the governor and the Legislature, not the village of Podunk,” he said, referring to the mission of the comptroller’s office to audit government entities small and large.

[…]

“When you talk about getting at the underbelly of how governments run, as a CPA I have 30 years of experience of understanding how business operates,” he said. “The data is the key, and when you’ve got a CPA looking at a financial statement it’s a lot different than somebody who doesn’t have that experience.”

Both candidates have addressed the state’s pension system, as managing the fund’s investments is a large part of the comptrollers job. From AP:

[DiNapoli’s] stewardship has helped New York’s pension fund for public workers rebound from the 2008 national recession and grow to a record $181 billion, with state and municipal contribution rates declining for 2015 and 2016, he said.

[…]

As for the state’s $180 billion pension fund, Antonacci said his goal will be maximizing the return to taxpayers and not shareholder activism.

DiNapoli, as the pension fund’s sole shareholder, has sponsored shareholder resolutions at large corporations calling for more complete disclosures of their political activities, environmental practices and workplace standards at the overseas factories of suppliers. DiNapoli said those measures help protect shareholders, their investments and the companies from potential risks.

The election will be held Nov. 4.

Photo by Awhill34 via Wikimedia Commons

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