Ted Ballantine | Pension360

Norway Best Place For Elderly To Live

The Global AgeWatch Index, which rates the quality of life provided to elderly people by every country, was released yesterday. The country that offers the best quality of life to people over 60: Norway.

Pension coverage played a big role in the index’s ratings. From the Associated Press:

The Global AgeWatch Index, released on Tuesday, was compiled by HelpAge International, a London-based nonprofit with affiliates in 65 countries. Its mission is to help older people challenge discrimination, overcome poverty and lead secure, active lives.

The 13 indicators measured in the index include life expectancy, coverage by pension plans, access to public transit, and the poverty rate for people over 60. Scores of countries were not ranked due to lack of data for some of the criteria, but HelpAge said the countries included in the index are home to about 90 percent of the world’s 60-plus population.

Switzerland, Canada and Germany joined Norway and Sweden in the top five. The United States was eighth, Japan ninth, China 48th, Russia 65th and India 69th.

[…]

The new report devotes special attention to the issue of pensions and their role in helping older people remain active and self-sufficient. It praised several Latin American nations, including Bolivia, Peru and Mexico, for steps to extend pension coverage even to older people who did not contribute to pension plans when they were younger. Peru’s government established a means-tested pension program in 2011 that gives the equivalent of about $90 every two months to older people living in extreme poverty.

According to HelpAge, only half the world’s population can expect to receive even a basic pension in old age. It urged governments to move faster to extend pension coverage as their elderly populations swell.

Afghanistan ranked last.

Colorado Treasurer Candidates Differ On Pension Reform

Reforming Colorado’s largest pension plan, the Public Employees Retirement Association (PERA), is one of the looming issues in the state’s upcoming Treasurer election. And the candidates have very different takes on the situation.

Betsy Markey (D) is a former congresswoman who says she’ll fight for financial transparency but isn’t making pensions a central issue of her campaign. From the Durango Herald:

Markey is not overly concerned [about PERA], pointing out that legislative steps have been taken to put PERA on a sustainable path. She said the PERA board voted to lower the anticipated rate of return from 8 to 7.5 percent.

“When you’re looking into the future, the PERA board itself expects to close that unfunded liability gap within the next 30 years,” Markey said. “And they don’t expect that there will be a time in the next 30 years where they will ever not be able to fully meet their obligations to retirees.”

Incumbent Walker Stapleton (R), meanwhile, has made pension reform one of the central issues of his campaign and tenure as Treasurer. Still, he admits the state’s unfunded pension liabilities grew under his watch.

Walker responded to Markey’s position on pensions:

Stapleton said Markey’s position suggests an “alarming lack of knowledge for public-finance issues.

“PERA’s liability has only grown since I’ve been in office.” Stapleton said.

He added: “She said that PERA was fine, and I’m obsessed with it. … But she would also lower the rate of return for PERA? You can’t be for lowering the rate of return and not for additional work to be done.”

[…]

Stapleton has found himself at odds with the state employees’ union and those who manage retirement benefits.

He filed a lawsuit seeking to open the books of the Public Employees’ Retirement Association fund, and he has repeatedly fought to lower the projected rate of return on investments. He has also advocated for lowering cost-of-living raises and increasing the retirement age.

As of 2012, Colorado’s PERA was 63 percent funded and was shouldering $23 billion of unfunded liabilities.

Some Private Equity Firms Want More Opacity In Dealings With Pension Funds

Private equity firms are growing uncomfortable with the amount of information disclosed by pension funds about their private equity investments.

PE firms are cautioning their peers to make sure non-disclosure agreements are in place to prevent the public release of information that firms don’t want to be made public.

Stephen Hoey, chief financial and compliance officer at KPS Capital Partners, said this, according to COO Connect:

“We had correspondence with a municipal pension fund relating to the Limited Partner’s inquiry regarding the SEC’s findings from our presence exam. We objected to our correspondence with the LP of matters not relating to investment performance including notes taken by the LP representatives being submitted to reporters under the Freedom of Information Act (FOIA). It is our communications with LPs other than discussions about performance metrics that we object to being in the public domain.”

Pamela Hendrickson, chief operating officer at The Riverside Company, said PE firms should know exactly what pension funds are allowed disclose to journalists. From COO Connect:

“GPs should make sure their LP agreements and side letters are clear about what can be disclosed under a Freedom of information request. GPs must comply with any non-disclosure agreements they have with their portfolio companies and information provided under the Freedom of Information Act should be restricted to ensure that the GPs remain in compliance,” said Hendrickson.

It’s already very difficult for journalists to obtain details and data regarding the private equity investments made by pension funds.

But PE firms are worried that the SEC will crack down on fees and conflicts of interest:

The SEC has recently been questioning private equity managers about their deals and fees dating all the way back to 2007. There is speculation the US regulator could clamp down on private equity fees following its announcement back in 2013 that it would be reviewing the fees and expenses’ policies at hedge funds amid concerns that travel and entertainment costs, which should be borne by the 2% management fee, were in fact being charged to end investors.

“The SEC is taking a strong interest in fees, and this has become apparent in regulatory audits as they are heavily scrutinising the fees and expenses that we charge. Following the Bowden speech, we received a material number of calls from our Limited Partners whereby we explained our fee structure and how costs were expensed accordingly. We also pointed out that our allocation of expenses was in conformity with the LP agreements, which is the contract between the General Partner and a fund’s limited partners,” said Hoey.

COO Connect, a publication catering to investment managers, encourages PE firms to use non-disclosure agreements to prevent the public release of any information the firms want to remain confidential.

Photo by Truthout.org via Flickr CC License

Hedge Funds Feel “Pressure” To Reduce Fees

Some major hedge fund managers are feeling “pressure” to reduce fees according to the Wall Street Journal:

Two titans of the hedge-fund and private-equity world say they are growing more open to reducing fees in the face of rising scrutiny of the compensation paid to managers of so-called alternative investments.

[…]

Mr. [John] Paulson [founder of hedge fund firm Paulson & Co.] said he feels “pressure” to act in the wake of “enormous numbers in compensation” for hedge fund managers. Mr. Paulson, 58, earned a reported $2.3 billion last year, counting both fees and the appreciation of his own personal investment in his funds.

“Institutions are becoming a little more demanding…they are putting pressure on the management fee and the incentive fee,” he said Monday during a panel discussion at New York University’s Stern School of Business.

Joseph Landy, co-CEO of $39 billion buyout shop Warburg Pincus, echoed Mr. Paulson’s experience.

“There are a lot of private-equity managers out there who can make a lot of money before they return a dime to investors,” Mr. Landy said. “Most of the pressure [to reduce fees] has been on the actual annual management fee.”

Neither he nor Mr. Paulson, however, were too concerned about any widespread threats to their businesses.

“We came out relatively unscathed from the crisis. We’re doing pretty much the same things we did as before [with] very little restrictions on how we invest the money,” Mr. Paulson said.

Paulson said he think more hedge funds will start using “hurdles”, a fee structure which prevents managers from collecting performance fees until they’ve met a certain benchmark return. From the WSJ:

John Paulson, founder of $22 billion hedge-fund firm Paulson & Co., said he predicted more use of instruments known as hurdles, which bar managers from collecting their traditional 20% performance fee until they have earned a minimum return over a benchmark.

Traditionally, hedge funds are paid for any positive performance whatsoever–even if it falls well short of targets—in addition to a flat annual fee in the range of 1-2% for operating expenses.

Corrupt Ex-Governor Will Keep Pension After Latest Felony Conviction

Former Connecticut Gov. John G. Rowland has been convicted of his second felony and is looking at up to 57 years in prison – but at least he has a pension to look forward to.

Rowland in 2004 resigned from the governor’s office in the midst of a criminal investigation where he eventually pled guilty to conspiracy to commit mail fraud and tax fraud.

Now, he has been convicted of violating several federal campaign financing laws.

But he’ll keep receiving his $53,000 public pension. From the Missoulian:

A spokeswoman for Attorney General George Jepsen says he has no legal basis to revoke or reduce the 57-year-old Rowland’s pension because he’s a private citizen.

State law in 2008 targeted public officials convicted of a crime by preventing them from collecting a pension. Rowland, whose first conviction was in 2004, was unaffected by the new law because it was not applied retroactively. He resigned.

Rowland was convicted on Sept. 19 in federal court on charges he conspired to be paid for work on political campaigns while disguising the payments in business deals.

He’s due to be sentenced Jan. 7.

More on the most recent conviction, from the New York Times:

Six of the seven counts Mr. Rowland was found guilty of involved obstructing justice, conspiracy, falsifying documents relied on by federal regulators and other violations of campaign finance laws in connection with services he provided Lisa Wilson-Foley, a Republican candidate for Congress in 2012, and her husband, Brian Foley, an operator of nursing homes.

The Foleys pleaded guilty this year to related crimes and await sentencing. Mr. Foley served as the government’s star witness in Mr. Rowland’s trial.

Another of the seven counts, an obstruction charge, involved a contract Mr. Rowland drafted and presented to Mark Greenberg, a Republican congressional candidate in the 2010 election. That contract was never executed and Mr. Greenberg testified at Mr. Rowland’s trial that he ripped it up for lack of interest.

Rowland had already served 10 months in jail after he was convicted of fraud charges in 2004.

Photo credit: CT State Library c/o Photographer – Calabrese, Anthony via Wikimedia Commons

Phoenix Politicians Weigh In On Pension Reform Measure

The Arizona Republic runs a great column every week where they ask a dozen major political players in Phoenix a question regarding an important issue.

This week, pensions were the issue. Specifically Proposition 487, which would shift new hires into a 401(k)-style system as opposed to a defined benefit plan.

There has been much debate over whether the law would impact police and firefighters, who are supposed to be shielded from the law.

Here’s what some Phoenix politicians had to say about the ballot measure, from the Arizona Republic:

We asked: Do you think Prop. 487 will impact the retirement benefits of current or future police officers and firefighters? Why or why not?

“Whatever the long-term impact of the proposition, it’s likely that if it’s passed, it will take years in court to clarify its true intent. The losers will be Phoenix taxpayers, who will bear the costs of a prolonged legal debate.”

— Thelda Williams,District 1, northwest Phoenix

“No. I don’t believe that ‘preamble’ is an accurate term given voters will support or oppose the measure in its entirety, including this language from Page 1 in the ‘preamble:’ ‘This Act is not intended to affect individuals who are members of, or are eligible to join, any other public retirement system in the State of Arizona such as the Public Safety Employees’ Retirement System.’ While I understand those in the system are unhappy with this initiative, the alternative is to do nothing. That is not acceptable. Inaction by the council led to this citizen action in the first place.”

— Jim Waring,vice mayor (District 2), northeast Phoenix

“Prop. 487, as written, impacts the retirement benefits of current and future public-safety personnel and does not exclude these employees as stated in the preamble. According to city analysis, Section 2.2 (C) runs counter to the current Public Safety Personnel Retirement Plan that is required by state statute for current and future public-safety employees. Therefore, future contributions to this plan would not be warranted and current public-safety employees would have these benefits frozen. Prop. 487 also prevents contributions to additional plans such as the Medical Expense Reimbursement Plan, Post Employment Health Plan and Fire Employee Benefit Trust.”

— Michael Nowakowski,District 7, southwest Phoenix and parts of downtown

“Prop. 487 will absolutely impact police and firefighters. The only section of the measure that would have the force of law makes no special exemptions for public safety — whether that was the intent of who wrote it or not. Prop. 487 is the wrong reform. It is poorly written and will have devastating effects on taxpayers, police officers and firefighters alike. These brave men and women work every day to make sure that we are safe, and we owe it to them to protect their retirement. I urge Phoenix residents to vote no on Prop. 487.”

— Daniel Valenzuela,District 5, Maryvale and west Phoenix

“The proponents of Prop. 487 did a sloppy job drafting this initiative. Prop. 487’s backers claim any harm to public-safety personnel was a careless mistake. However, this doesn’t square away with what proponents are actually trying to put in our city charter. Prop. 487 amends our charter with poorly-written language that would cost millions, making it harder for us to fund infrastructure improvements. The best-case scenario for first responders under Prop. 487 is that their status will be in jeopardy, potentially for years, as the fate of their benefits is determined by the courts following expensive litigation.”

— Kate Gallego, District 8, southwest Phoenix and parts of downtown

“Voters can fix the broken pension system, saving $500 million, by voting yes on Prop. 487. The government unions have waged an all-out campaign of disinformation to stop pension reform. Prop. 487 does not impact public safety because: 1. Public-safety pensions are administered by the state, not the city. 2. State law doesn’t allow participants in PSPRS to opt out. 3. The initiative clearly states that it does notaffect public-safety personnel. Escalating pension costs means fewer services, less police and more taxes and fees. Prop. 487 brings financial accountability. Don’t believe the disinformation the government unions are propagating.”

— Sal DiCiccio, District 6, Ahwatukee and east Phoenix

“Fellow Phoenix residents, I call it the way I see it. Prop. 487 is confusing and poorly written. If it passes, it could end up in court with the potential for millions of dollars going to legal fees, instead of supporting vital programs and services for our community. In addition, Prop. 487 could have detrimental consequences for our public-safety personnel and other city employees. Specifically, Prop. 487 could end defined-benefit pensions for Phoenix police officers and firefighters, making the women and men of public safety the only public-safety personnel in Arizona who could not earn a defined-benefit pension. Our police officers and firefighters work hard to keep our community safe, and we as a community should protect our public safety personnel’s retirement. This proposition is not the way to reform our city’s pension plan.”

— Laura Pastor,District 4, central and parts of west Phoenix

“Yes. Prop. 487 will hurt our current police officers and fire fighters, and could even end death and disability benefits for our first responders. It is one of the many reasons why I oppose this initiative. The plain language prevents the City from making contributions to the state public safety pension system. Those behind the effort have not had this intent, but this initiative was so poorly written – so badly constructed – that it will have devastating consequences for Phoenix. On top of that, it will cost taxpayers $350 million. It’s the wrong reform, and we can’t afford it.”

— Greg Stanton, mayor

Money has flooded into Phoenix in recent weeks to fund both opponents and proponents of the law. But the source of much of that money is shrouded in secrecy, as Pension360 wrote on Monday.

Controversy Follows New Oregon PERS Director

The Oregon Public Employees Retirement System (PERS) has informed current deputy director Steve Rodeman that he will move into the fund’s top job when executive director Paul Cleary retires in December.

Rodeman has been the fund’s second-in-command since 2008. But his tenure hasn’t been without controversy – last year, there were complaints of harassment and discrimination in the workplace under Rodeman’s watch.

Reported by the Oregonian:

In July 2013, the former director of Human Resources at PERS, Helen Bamford, asked the Department of Justice to investigate employee complaints of discrimination, harassment and a hostile work environment against a group of managers, principally Rodeman, after her efforts to address the complaints internally were unsuccessful.

The DOJ investigation was resolved without a finding, but Bamford subsequently filed a whistleblower and discrimination complaint with the state Employee Relations Board and a tort claim against the state after being forced out of PERS “for the good of the agency.”

Bamford is currently working for the Oregon State Board of Nursing but still officially a PERS employee. She signed a settlement agreement last week with the state, which will pay her $30,000. Neither side admitted fault.

Board members said Friday they were aware of the complaints, but didn’t deal with them directly or discuss them as a board.

“Personnel matters don’t come before the board,” said Pat West, a retired Salem firefighter who sits on the board. “It’s not an issue we would deal with.”

Rodeman did not respond to a request for comment.

Rodeman will be paid an annual salary of $168,000 in his new position.

Patriot News: Are Hedge Funds Right For Pennsylvania?

Last week Pennsylvania’s auditor general publicly wondered whether hedge funds were a sound investment for the state’s “already stressed” pension systems.

The crux of the auditor’s concern was the millions in fees paid by the system. In an editorial Monday, the Patriot News also questioned the fees incurred by hedge fund investments – including the fees that the public doesn’t know about. From the Patriot News:

The Pennsylvania State Employees’ Retirement System (PSERS) paid about $149 million in fees to hedge funds in fiscal year 2013, according to WITF, the public broadcasting station.

The Philadelphia Inquirer has noted that “It’s hard to know how much Pennsylvania SERS paid, since some SERS hedge fund fees aren’t included in the agency’s annual report.”

WITF also noted that it’s not clear what the pension fund got after paying all that money, which is the point raised by Auditor General DePasquale.

[…]

Pennsylvania has been one of the most aggressive states investing in “alternative” vehicles like hedge funds. In 2012, The New York Times reported that Pennsylvania’s state employees pension fund had “more than 46 percent of its assets in riskier alternatives, including nearly 400 private equity, venture capital and real estate funds.”

Those investments cost Pennsylvania $1.35 billion in management fees in the previous five years, according to the Times report.

The editorial wondered whether the state was really getting what it paid for performance-wise. From the Patriot News:

During that time, it appears Pennsylvania paid more and got less than other states did.

Over the five-year period, Pennsylvania’s annual returns were 3.6 percent. During that time, the New York Times report said the typical public pension fund earned 4.9 percent a year. And Georgia, which was barred by law from investing in high-fee alternative funds, earned 5.3 percent a year.

Georgia’s fees were a lot lower, too. For a pension fund about half the size of Pennsylvania’s, it paid just $54 million in fees over the five years. Pennsylvania paid 25 times as much for results that were significantly worse.

Pennsylvania’s two big pension funds are tens of billions of dollars short of being able to pay all the money they’ll owe to retirees.

One has to wonder whether one reason is that the funds are spending too much money on supposedly sophisticated investments that aren’t worth the cost.

It’s a question the Legislature needs to answer.

SERS allocates 7 percent of its assets, or $1.9 billion, towards hedge funds. PSERS, meanwhile, allocates 12.5 percent of its assets, or $5.7 billion, towards hedge funds.

Milwaukee Proposes Pay Raises To Offset Employee Pension Contributions

Milwaukee’s mayor, Tom Barrett, is planning to give city workers a pay raise to make up for the increased percentage of their paychecks that must be contributed to the pension system.

The increased pension contributions are a part of Wisconsin Gov. Scott Walker’s Act 10, which lowered pension costs for the state but shifted more expenses to employees.

From the Milwaukee Journal Sentinel:

The City of Milwaukee’s proposed 2015 budget would give pay raises of 3.9% to 2,331 workers next year to compensate them for state-mandated pension contributions, Mayor Tom Barrett said Monday.

The pay increases would cost the city $4.8 million, according to figures released Monday. The city also will eliminate the practice of mandatory furlough days as a budget-saving measure for all non-uniformed employees, at an additional cost of $2.7 million.

Those funds come from the $8 million in savings the city gained from not paying the employee pension contribution in 2015 for the 2,331 workers, according to Budget and Management Director Mark Nicolini.

Barrett said the employees deserve the boost in pay as compensation for the pension contributions after going without wage increases in 2011 and 2012 and contributing more toward health care costs in recent years.

Gov. Scott Walker’s signature change in public employee labor law, known as Act 10, bars municipalities from paying the employee share of pension contributions. So all local government employees — except firefighters and most law enforcement officers — are required to contribute half the cost of their pensions, under the law.

In Milwaukee, that amounts to 5.5% of a city worker’s pay for those employees hired before Jan. 1 of this year, Nicolini said.

The city council president agreed with the budgeted raises. From the Journal Sentinel:

Common Council President Michael Murphy said Monday he agreed with the mayor’s proposal. Non-uniformed employees have steadily lost income in the last several years when you consider the lack of raises and higher health care contributions, Murphy said.

“To attract and keep good employees, you can’t, year after year, tell them they are going to be making less money,” he said. “We have to compete with the private marketplace” for new hires.

The Wisconsin Supreme Court upheld the legality of Act 10 in a July ruling.

Photo By WisPolitics.com via Wikimedia Commons

Ohio Auditor: New Pension Accounting Rules Could “Distort” State’s Financial Condition

Ohio’s top auditor, Dave Yost, publicly stated earlier this month that new GASB accounting rules – ones that change the way pension liabilities are reported – would hurt Ohio and its local governments.

In an op-ed on the Heartland Institute website, he explains why. From the piece:

Ohio is one of six states treating pensions as a “simple property right.” By Ohio statute, the amount a public employer must contribute to its pension obligation is capped. If a portion of the pension liabilities of the state’s five systems continues to be unfunded, the impact could be shouldered by a combination of the local government, individual employees, reforms from current contributors, or capital shifts from non-mandated benefits (such as health insurance).

The concern in Ohio is that the GASB 68 requirement for local governments to report this liability could dramatically distort the financial condition of a local government. It is important to keep in mind that this new standard creates an accounting liability, rather than a legal liability.

In Ohio, there are no legal means to enforce the unfunded liability of the pension system as against the public employer.

Upon receiving this new standard and recognizing the challenges that GASB 68 poses, my office got to work to determine how Ohio’s local governments can accurately report their financial positions while also following accounting standards.

To comply with GASB 68, our office suggests Ohio governments report the proportionate share of the unfunded pension liability, as a separate line item on the entity’s Statement of Net Position, with the detail of multiple pension systems’ participation in the footnotes, as necessary.

Governments should also include language in their Management Discussion & Analysis (MD&A), explaining Ohio’s legal environment and the limitations on enforcement of the unfunded pension liability as against the local government.

Yost also claims that ratings agencies, including Moody’s and Fitch, could downgrade the state’s bond ratings due to the new way liabilities are reported. But the downgrades wouldn’t be fair, Yost argues, because the financial health of the state is the same even if the numbers look different.

Yost testified earlier this month in front of the GASB regarding the negative impact the rules could have on the state.

Photo by www.SeniorLiving.Org

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