Ted Ballantine | Pension360

NJ Newspaper: We Don’t Trust Christie’s Pension Panel

The Daily Record released a scathing editorial today denouncing the efficacy of New Jersey’s Pension and Benefit Study Commission and the motives behind its creation.

The editorial claims that Christie put the panel together to act as a political shield when he eventually cuts worker benefits – which Christie has said will be a major part of the reforms that will eventually be proposed.

From the editorial:

Union and Democratic leaders are already denouncing the commission’s report as a sham designed from the start to do little more than bolster Christie’s claims that benefit cuts are the only answer. We can’t blame them. Remember how eager Christie was to declare success when a reform agreement was reached in 2011? That supposedly set New Jersey’s pension system on the road to solvency.

But now we’re being told it’s not even close. What’s happened since then? New Jersey’s economy has continued to lag on Christie’s watch. The governor then reneged on one of the state’s pension payments into the system that was part of that original agreement. That only exacerbated the long-term financial burden and — not coincidentally — furthered Christie’s own argument that more benefit cuts are unavoidable.

This is yet another case of Christie putting his own presidential ambition over the interests of New Jerseyans as he bows to national conservatives. The right wing doesn’t like unions, and will applaud any effort by governors and other elected officials to gut union influence. Slashing and burning public-worker benefits is a means to that end, and Christie is carrying out that task with dedication.

[…]

…When the commission delivers its recommendations, expect Christie to repeatedly cite them as “bipartisan” evidence of his wisdom in support of whatever cutback plan he puts forth. Democrats will ridicule the entire process as merely serving Christie’s will. And we’ll be no closer to arriving at some important decisions, in large part because Christie isn’t much worried about what New Jerseyans think anymore. He’s got bigger plans.

Read the rest of the editorial here.

More Than 1 in 8 Seniors Targeted by Pension Scams in UK

New research by Fidelity has revealed that 13 percent of seniors in the UK have been targeted by scammers looking to steal pension benefits. From AOL Money:

[The scammers] promise their victims that they can free up money tied up in their pension before they hit the age of 55 – and get their hands on their 25% lump sum or more. Those who are taken in by this sort of scam will lose most – if not all – of their savings.

The way these fraudsters work is that they tell victims they can free up part of their pension, and then the rest will be invested for them – often with a guaranteed return. In order to get their hands on their cash they have to transfer their pension into the ownership of the business the scammers have established for this purpose.

Often they will receive some sort of lump sum, but then the fraudsters will disappear with the rest of it. To make matters worse, because the pension investor has accessed their pension earlier than is allowed, they will also be hit with punitive taxes from the taxman.

Pension360 has covered a similarly harmful, but mostly legal, scam that occurs in the United States. Businesses offer seniors pension “advances”, which work like payday loans. Missouri is the only state to ban the practice so far.

Photo by www.SeniorLiving.Org

Controversial San Diego Fund Could Fire CIO Thursday, But Vote Will Be Close

The San Diego County Employees Retirement Association (SDCERA) has made headlines across the country for having maybe the highest risk tolerance of any pension fund in the country.

Lee Partridge, the fund’s outsourced Chief Investment Officer, is permitted to use up to 500 percent leverage on portions of the portfolio.

But the fund will vote Thursday on whether to fire Partridge after retirees have said they fear for their pensions under the risky strategy. According to insiders who spoke to Chief Investment Officer Magazine, the vote is too close to call:

The nine trustees of the San Diego County Employees Retirement Association (SDCERA) are set to vote on Thursday whether to terminate its outsourcing contract with Lee Partridge’s Salient Partners—a deal they passed eight to one in June.

The outcome is too close to call, according to several sources familiar with the matter. Three trustees have consistently backed and defended the arrangement, including David Myers and David Moore, while three others adamantly oppose it. A September 18 motion by Dianne Jacob initiated the vote, seconded by new member Samantha Begovich. In June, Dan McAllister alone came out against the contract. The positions of the final three trustees remain unclear.

In the event of a majority vote to dismiss Salient, the board is expected to nominate consultant Wurts & Associates as interim portfolio manager. A partner from recruiting firm Korn/Ferry is also slated to present about its recent search for an internal CIO for the California Public Employees’ Retirement System. According to the agenda, the board may then vote on whether to solicit proposals from recruitment firms to undertake their own search.

One trustee who will likely vote to fire the CIO, Samantha Begovich, said this at a board meeting earlier this month:

“It is well documented that we’re paying exorbitant, outlier-type fees with no incentives except to grow the fund…a contract with no ties to performance is something that I cannot support. And so I will be voting ‘no’ on that when the time comes.”

Another trustee who supports the current CIO said he was “flabbergasted” that the board is considering firing Partridge. From Chief Investment Officer:

“All of our board members were fully aware of the investment portfolio structure and how it would perform in an equity bull market,” wrote Trustee Myers, a Salient supporter, in response to the conflict. Likewise, “all understood, or at least I thought they understood, that it is the long term sustainability and performance of the retirement fund is what matters.”

Myers continued to say he was “flabbergasted” at the proposal to fire Salient and exit its investment strategy “without thinking through all of the implications and any form of a backup plan or approach. There are many terms to describe such proposals, but I would not describe them as ‘measured,’ ‘well thought out’ or even ‘analytical.’”

The vote will be held on Thursday, October 2.

North Carolina Pension To Stick With Hedge Funds As Major Union Calls For Divestment

A few days after CalPERS pulled out of hedge funds, the State Employees Association of North Carolina (SEANC) called on North Carolina’s pension fund to do the same.

The pension fund, however, has shown no willingness to follow in CalPERS’ path, and recently doubled down on its support of hedge funds as part of its portfolio.

Originally, SEANC released this statement:

“Other institutional investors around the world could potentially follow CalPERS’ lead and finally dump these high-risk funds,” said SEANC Executive Director Dana Cope. “Those who wait to cash in may find the money’s gone. That’s not a risk state workers are willing to take. It’s time to pull out of these investments now before the cart starts going downhill too fast for us to jump off.”

Hedge funds are notorious for high fees. Pension funds and investors pay these fees in hopes that the payoff will be higher, but for the past decade, hedge fund performance has been lacking. Cowell has the power to invest of 35 percent of the $90 billion state retirement system in “alternative investments,” a term that includes hedge funds.

But North Carolina hasn’t budged, and pension officials have supported their hedge fund allocation. From the News & Observer:

Kevin SigRist, chief investment officer of North Carolina’s $90 billion fund, said that the state is by and large pleased with the performance of its hedge fund investments and plans to stay the course.

North Carolina’s hedge fund investments generated an 11.48 percent return for the fiscal year that ended June 30, as well as a three-year return of 6.86 percent and a five-year return of 7.59 percent. That 11.48 percent return bests the 7.1 percent return that CalPERS reported from its hedge fund portfolio and compares to the state’s 15.88 percent overall return for its latest fiscal year.

“We would expect to continue to evaluate (hedge funds) and use them where appropriate and where we think there are benefits to the trust fund,” SigRist said.

[…]

SigRist said that the fact that hedge fund investments cut across asset classes is at the heart of why North Carolina doesn’t disclose how much of its pension fund is allocated to hedge funds – a practice that has drawn SEANC’s ire. Although the pension fund has stipulated the allocation to hedge fund strategies, he added, that’s only a piece of the pie because it’s based on an antiquated concept of what a hedge fund is.

Currently, North Carolina’s pension system has $3.9 billion in hedge funds, or 4.3 percent of total assets. They paid $91 million in fees to those funds in 2013.

Anonymous Money Floods Phoenix Pension Vote

A Phoenix ballot initiative – titled Proposition 487 – would block off the city’s traditional pension system from all new hires, and instead shift those employees into a new, 401(k)-style plan.

Unions have made no secret of their disdain for the initiative and have raised over $100,000, mostly from firefighters, to fund ads opposing the potential law.

But support for Proposition 487 is strong as well – $428,200 has been raised in support of the measure. The only problem: no one knows where that money is coming from. From the Arizona Republic:

Conservative advocacy groups with secretive funding sources are pouring money into a ballot-initiative effort to end the city pension system in Phoenix.

While it’s clear unions are bankrolling the opposition to Proposition 487, the sources of the pro side’s campaign war chest are unknown. Most of its cash has come from anonymous “dark money” groups — and the state is investigating its largest corporate backer over a complaint alleging campaign-finance violations.

So far, Citizens for Phoenix Pension Reform has received 98.5 percent of its money from corporate groups that don’t have to disclose their funding sources.

Campaign-finance reports filed late last week show the group has overwhelmingly outraised government-worker unions, raking in $428,200 through the Sept. 15 reporting period.

[…]

Most of the pro-reform group’s money — $335,750 — has come from the Arizona Free Enterprise Club, a non-profit corporation that’s not required to reveal its funding sources.

Because of its non-profit status, it does not have to disclose donors and therefore is considered a dark-money group. But it is required to spend more than half of its money on social-welfare causes. However, the Arizona Secretary of State’s Office concluded in August that there was “reasonable cause” to believe the Free Enterprise Club has violated elections laws and investigated its activities. Elections officials believe the club operates more like a political committee, which must disclose donors, than a non-profit.

Union groups are none too happy about the secretive funding sources. From the Arizona Republic:

Labor leaders against the initiative have made the shadow money a centerpiece of their campaign, posting hundreds of “Dark Money” arrows pointing to “YES on 487″ signs across the city. They assert the outside groups are propped up by right-wing billionaires and Wall Street bankers, who would benefit from axing pensions.

“If you have nothing to fear, say where your money is coming from,” said Frank Piccioli, president of the American Federation of State, County and Municipal Employees Local 2960, which includes about 2,145 office workers and 911 operators.

“Most of them do have ulterior interests. They have to be benefiting somebody,” he said. “What do you have to hide?”

Unions have raised $106,600 to fight Prop. 487, with the bulk of the money coming from Valley firefighter unions. The opposition campaign reported contributions from firefighters in Phoenix, Chandler, Tempe, Glendale and Peoria. The anti-Prop. 487 campaign also isn’t required to disclose individual donors, though labor leaders said the money comes from membership dues.

Phoenix residents will vote on the measure on November 4.

Video: Discussing Investment Fees, Assumed Rates of Return and the Outlook of Public Pensions

The above video is a panel discussion from the Bloomberg Markets Most Influential Summit, which was held in New York on September 22.

The discussion is moderated by Bloomberg editor-at-large Tom Keene, and features Clifford Asness, managing and founding principal of AQR Capital Management, and John C. Bogle, founder of Vanguard Group Inc.

The pension discussions begin at around the 2:35 mark of the video.

Topics include investment fees, assumed rates of return, and the panelists “gloomy” outlook for public pensions.

A New Era of Pension Transparency In Boston? Not So Fast.

Last week, the Massachusetts Bay Transportation Authority (MBTA) agreed to disclose its member’s pension benefits and to beef up its previously inadequate annual financial reports.

The retirement fund, called the “T” Fund, is among the most tight-lipped in the country because it is not required to follow public records laws.

But a Boston Herald editorial warns us not to cheer for this measure quite yet. The newspaper calls the agreement a “half-measure” that could easily be reversed. From the Boston Herald:

A deal struck between the MBTA and a union representing 3,000 of its workers to disclose more information about employee pensions is a disappointing half-measure. A mere contractual agreement, it could easily be revised in the future. To ensure public access to this vital financial information the disclosure agreement needs the force of law.

Data on T pensions has long been shrouded in secrecy. The MBTA retirement fund was originally formed as a “private” trust, and state courts have upheld that status. That means neither MBTA fare-payers nor state taxpayers have the legal right to data on the pensions that they subsidize.

Amid public pressure over the fund’s secret operations — the board’s investment decisions are private, too, and its meetings aren’t open to the public — Beacon Hill last year passed a law intended to subject the T’s pension fund to state public records and open meeting laws.

But opponents of the new requirement resisted the effort, and actually succeeded in convincing the state’s supervisor of public records that the fund still wasn’t required to open its books.

So much energy wasted, all to keep the public from examining data that should be available for anyone who’s ever swiped a Charlie Card to examine.

The deal struck last week requires the union to turn over data on employee pensions to the T monthly, and the T will then post it on the state’s Open Checkbook website. We are supposed to greet this development with cheers.

But we’d be curious to know what T management had to give up during negotiations to secure the agreement. And we’d note once again that a provision like this negotiated into a labor contract could easily be negotiated out in the future.

The “T” fund is still refusing to disclose documents related to investment losses associated with certain hedge funds.

Photo by Truthout.org via Flickr CC License

Oregon PERS Chooses Next Executive Director

Paul Cleary, who for ten years has sat at the helm of the Oregon Public Employees Retirement System, announced this summer that he would retire in December.

Since then, the Oregon PERS has searched for its next executive director. They’ve now announced their decision to promote from within: the next executive director will be Steve Rodeman, who currently serves as the fund’s deputy director.

The move comes on the heels of a push to move more of the fund’s investments in-house. From Chief Investment Officer:

Steve Rodeman, the deputy director of Oregon’s Public Employees Retirement System (PERS), has been chosen as the pension’s new executive director.

On Friday, the PERS board voted unanimously to elect the 13-year veteran to the post, local news website oregonlive.com reported.

In March, state lawmakers and public pension representatives pushed for legislative reform to align fiduciary responsibility and bring risk and portfolio management in-house.

Under current governance policy, the treasurer has authority over investment and personnel oversight and cash management via the Oregon Investment Council (OIC). As a result of this structure, the state has had to outsource much of its risk and portfolio management to Wall Street money managers.

Although Rodeman has been with PERS for more than a decade, his role has been on the operational rather than investment side of the organisation.

No official comment had been made by Oregon PERS at the time of going to press.

PERS considered 30 applicants for the job.

Rodeman will be paid an annual salary of $168,000.

Photo by Nathan Stephens via Flickr CC License

Time For New Jersey To Face the “Bitter Truth”, Says Pension Panel Chairman

The chairman of the New Jersey Pension and Health Benefit Study Commission, the panel assembled by Chris Christie to address the state’s pension problems, has published a column today in the New Jersey Star-Ledger.

In it, Thomas J. Healy writes about the “bitter truth” about pensions that people will have to swallow: that Christie’s previous reforms “did not come close” to fixing the problem and now the options for fixing the state’s pension system “are uninviting”.

From the column in the Star-Ledger:

It’s time for New Jerseyans to swallow some bitter truth about our state’s public employee pension and health benefit systems.

The commitment of elected officials over two decades to offer benefits that were unaffordable, coupled with the failure of the state to make required pension contributions when they were due, has landed New Jersey on the edge of a gaping fiscal cliff. Unless the crisis is dealt with firmly and comprehensively, it is certain to become more dire in the period ahead.

[…]

Concerted efforts have been made during the past 10 years to fix the problem. However, significant pension plan reforms in 2010 and 2011 have not come close to correcting two decades of underfunding by both Democratic and Republican administrations in Trenton.

Fortunately, awareness of the need to actively address the problem cuts across both parties. Former Gov. Jon Corzine has acknowledged that “current benefits are financially unsustainable.” And, in the course of naming a 10-member bipartisan commission on Aug. 1 to study the problem and recommend possible long-term solutions, Gov. Christie warned that “if we don’t do more, and we don’t do it now, the state will be forced to make harder choices in the future.”

While this bipartisan understanding is helpful, it doesn’t diminish the complexity of the job ahead, as outlined in the just-released status report of the New Jersey Pension and Health Benefit Study Commission. Indeed, the options for making the public employee pension and health benefits systems fiscally viable are uninviting. Employees have already made concessions, and a tax increase of the size necessary to fund the escalating cost of benefits (in a state which already has one of the highest tax burdens in the nation) is unrealistic. So is any effort to divert revenues from an already tight state budget.

The commission’s second report will propose specific recommendations for reforming New Jersey’s pension system.

The first report, which came out last week, presented an overview of the fiscal situation surrounding pensions but didn’t provide ideas for reform.

Missouri Auditor Offers First Glimpse of Upcoming Pension Report

Missouri Auditor Tom Schweich gave an interview to KSMU radio over the weekend, and in it he offered a sneak preview of his office’s audit of Missouri’s 90 public pension funds.

It’s the first wide-reaching audit of Missouri’s pension systems in 30 years. From the KSMU interview:

He says the good news is a majority of those pensions are “pretty solvent,” but noted that roughly five of the smaller ones in the state are in “serious trouble” and will require further review. Schweich declined to name those pensions ahead of the published audit.

“People wanna know ‘are our pensions solvent? Will we have to bail those pensions out? Will the people who are entitled to that pension money get the money?’ So I initiated a very lengthy and detailed study over a year ago of our 89 pension systems and in a few days we’ll release the results of that.”

Schweich says this will be the first comprehensive study that has been done on pensions in Missouri in over 30 years. He says sometimes pensions come down to a tax, or just good financial management.

“Sometimes they really have the money they’re just not investing it well, or they’re not handling it right or they have too much in the way of administrative costs. So we look at all those things. Our objective is to help pension become solvent if they’re not solvent, and make sure they remain solvent if they are.”

In April, voters in Springfield renewed the city’s ¾-cent police-fire pension sales tax. It was first brought before citizens in 2009, when the pension plan was estimated to be underfunded by $200 million. The plan is now projected to be brought into full funding within five years.

The report won’t be released until sometime in October, but it can eventually be found here.

Photo by Paul Sableman

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