Author: Ted Ballantine

Chicago Mayor Rahm Emanuel is closing in on a set of proposals to raise revenue to fund its largest pension plan, the Municipal Employees Pension Fund.

There are several options on the table, according to the Chicago Sun-Times:

Mayor Rahm Emanuel is closing in on a deal to save the largest of Chicago’s four city employee pension funds that calls for a mix of cost cutting, employee tradeoffs and new revenue from beleaguered Chicago taxpayers.

The City Council’s Progressive Caucus last year served up a smorgasbord of revenue ideas that included a “stormwater stress tax” on big-box stores and other business giants that put pressure on the sewer system.

[…]

Other possibilities:

* A fee specifically for pensions that would be tacked on to water bills, same as Chicago’s new $9.50 a month fee for garbage collection.

* Yet another property tax increase on top of the $588 million increase approved last fall for police and fire pensions and school construction, and the $175 million increase Emanuel has offered to impose for teacher pensions.

* An increase in utility taxes and fees on electricity, natural gas and telecommunications that account for 12 percent of all corporate fund revenue or $441 million this year.

The Government Accountability office has agreed to probe the finances of the Central States Pension Fund, per the request last week of 51 Congressional Democrats.

Central States was the first multiemployer pension plan to submit a proposal to the Treasury to cut member benefits.

Lawmakers want to know if any wrongdoing was the cause of the fund’s insolvency.

From Bloomberg BNA:

The lawmakers asked the GAO to probe the fund’s investment decisions going back to 1982, when the fund came under the supervision of a court-ordered consent decree.

Charles Jeszeck, the GAO’s director of education, workforce, and income security, told Bloomberg BNA June 28 that his agency expects to make staff assignments and begin work on the project soon.

[…]

The GAO is already investigating the Labor Department’s supervision of the fund in response to a request by Sen. Charles Grassley (R-Iowa).Kaptur said in a news release announcing the request that she wanted the GAO to “get to the bottom of” allegations that the fund had questionable investments in “Iraqi banks in 2008, during a full-scale war” and in “unstable Russian banks, when the economy there is in shambles.” She also said she wants the GAO to look into the fund’s $1.4 billion investment in risky mortgage-backed bonds “in the middle of the housing meltdown.”

Thomas C. Nyhan, the executive director and general counsel of the Central States fund, told Bloomberg BNA at the time of the lawmakers’ request to the GAO that while he didn’t see any reason for an investigation of the fund, he welcomed it as means to end “all of the groundless speculation.”

https://youtu.be/D0cXkMjObG8

CalPERS released a video this week of Chief Investment Officer Ted Eliopoulos briefly discussing Britain’s vote to leave the EU – and what it means for the pension fund’s portfolio.

Credit: CalPERS Youtube

Paint and coating maker PPG Industries this week made a deal to transfer $1.6 billion worth of “pension risk” to MetLife and MassMutual.

The deal comes despite past comments from the MetLife CEO about the worrisome nature of pricing these deals.

From the Chicago Tribune:

The deal accounts for about 13,400 of PPG’s salaried and non-union hourly retirees or their survivors who began receiving benefit payments before April 2, Pittsburgh-based PPG said Monday in a statement that didn’t disclose terms. The insurers will assume the obligation to make all future annuity payments and administer the arrangements. Other participants will remain in PPG’s pension plan.

PPG joins companies including General Motors and Verizon Communications, which have been seeking to offload pension risks that are pressured by low interest rates and a growing possibility that beneficiaries may live longer than expected. Insurance companies, which are already focused on overseeing risks tied to life expectancies and huge bond portfolios, have been snapping up the deals, which give them more assets to manage in exchange for taking on liabilities.

“The agreement will transfer the payment administration and obligations to these high-rated insurance companies with a long history of efficiently providing group annuity benefits,” PPG said in the statement. “This transfer is consistent with previous PPG actions to better manage the company’s pension process.”

[…]

Prudential Financial Inc. has won some of the largest agreements, reaching multi-billion dollar risk transfers with GM and Verizon. MetLife Chief Executive Officer Steve Kandarian has been wary of some of those massive deals, since the long-dated liabilities cannot be repriced, leaving little room for error on price negotiations.

Japan’s pension funds are turning to alternatives like hedge funds in the wake of market volatility, according to a new JP Morgan survey.

(The survey was conducted months before the Brexit vote.)

One in four pensions funds said they’d increase their allocation to alternative assets to avoid market volatility, according to the survey.

More from Bloomberg:

Average allocations to alternative assets increased to a record 14 per cent in the 12 months ended March, from 13 per cent a year earlier, based on the responses from 127 domestic pension funds surveyed by the unit of JPMorgan Chase & Co. For pensions that have invested in alternatives, such assets are now their second-biggest allocation, accounting for 19 per cent of the total, following a 27 per cent holding in Japanese bonds, the survey showed.

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Now, with the UK’s decision to leave the European Union rattling markets, sending global equities lower and triggering large swings of major currencies, pensions’ appetite for alternative assets is likely to continue. About one in four pension funds surveyed said they will boost allocations to alternatives, while one in five said they will reduce allocations to Japanese equities amid a surge in volatility.

Within alternative assets, hedge funds accounted for 8.3 per cent, while real estate investment trusts and property each represented about 1 per cent to 2 per cent, according to the survey.

Investments in Japanese stocks and bonds have declined steadily in the past five years, with equities falling to 8.4 per cent from 14 per cent in 2012, and bond holdings declining to 30 per cent from 38 per cent in the period, the survey showed.

Many companies in the U.S. are boycotting Israel as part of the “boycott, divestment, and sanctions” campaign. Now, state lawmakers are looking to boycott that boycott.

New Jersey House lawmakers are expected to pass legislation that would ban pension investment in companies currently boycotting Israel. If those investments have already been made, the pension fund will have to divest.

The bill passed the Senate unanimously last month. But certain groups, like the ACLU, are questioning the 1^st amendment implications of such a measure.

From the Philadelphia Inquirer:

Lawmakers on Monday are expected to pass legislation that would prohibit the state Treasury Department from investing public employee pension funds in companies that boycott Israel as part of the so-called “boycott, divestment, and sanctions” movement.

It would join about a dozen other states that have taken similar action, most recently New York, where Gov. Andrew Cuomo this month signed an executive order requiring divestment of public funds from companies that have engaged in the BDS campaign against Israel.

The legislation would give the director of the state Division of Investment four months to identify investments that violate the act. Following implementation of the law, the division would have two years to divest, sell, redeem, or withdraw such investments.

Under current law, Treasury is similarly banned from investing pension funds in companies with ties to Iran or Sudan.

The bill would not apply to companies providing humanitarian aid to the Palestinian people.

[…]

The ACLU of New Jersey contends that the legislation advancing in Trenton “punishes speech, political and otherwise” and builds “government blacklists targeting people who hold certain political viewpoints.”

In an attempt to ebb future liabilities, the Philadelphia Board of Pensions is considering offering a cash buyout to certain retirees, and then transferring them into a less costly, less lucrative retirement plan.

The name of the new plan is Plan 87, and more than 30,000 retirees will be eligible.

From the Philadelphia Inquirer:

Officials have said that the city’s oldest pension program, known as Plan 67, is too costly and one of the reasons the program is in such dire shape.

If everyone in Plan 67 were to convert to the city’s less costly plan, Plan 87, the city could reduce its unfunded liability by $1 billion, according to an actuary report presented to the Pensions Board on Thursday.

Controller Alan Butkovitz is suggesting that a onetime cash incentive be offered to any Plan 67 member who switches to Plan 87.

“In order to move forward with this proposal, I am requesting that the Pension Board conduct a survey of active and inactive members of the Plan 67 to gauge interest of how many would opt for the [Employee Pension Income Conversion] Plan,” Butkovitz said in a letter Wednesday to Fran Bielli, the Pensions Board’s executive director.

The actuary’s report gives numbers for various scenarios depending on percentage of participants and payout percentages ranging from 25 percent to 70 percent. Butkovitz’s office focused on giving retirees an up-front cash payment of 50 percent of the difference between what a retiree would get in Plan 67 and Plan 87.

For example, a city accountant with a final salary of $50,000 and 20 years of service could receive a $20,007 cash payment in exchange for reducing his or her lifetime pension from an annual $25,000 to $21,000.

The Pennsylvania Senate on Thursday voted down a pension overhaul proposal that had earlier cleared the House.

The bill was a bi-partisan pension reform bill and its scope was much smaller than past bills.

From the Philadelphia Inquirer:

Under the proposal the House approved this month, new hires would keep the traditional benefit plan for the first $50,000 of their annual salary, with a 401(k)-style plan targeted for anything above that.

Pension changes became a key sticking point during last year’s historic budget impasse between the legislature and Gov. Wolf. Corman and other Republicans have said the state cannot begin to address its fiscal problems without tackling rising pension costs.

[…]

The Democratic Wolf administration and the GOP-led legislature have been working to avoid another stalemate, but neither side has indicated that a deal will occur by next Friday’s deadline for a new state budget. Both have key differences to resolve, including how much to spend in the next fiscal year.

Lawmakers left the Capitol on Thursday and are not scheduled to reconvene until Monday – although the House Appropriations Committee is set to meet Sunday night, presumably to begin moving a budget bill.

 

New Jersey’s public pension system will go at least the first few months of the new fiscal year without an updated investment policy, as trustees are split over whether to cap hedge fund investments at 4 percent.

This doesn’t mean investments will stop being made and monitored; but it does mean that the fund will be using last year’s investment policy as guidance.

In-house investment staff recommended a 9 percent hedge fund allocation to the board, down from 12 percent last year.

But several union-affiliated trustees are pushing for a 4 percent cap.

From NJ Spotlight:

The disagreement over the hedge funds broke out in full force during the council’s public meeting in Trenton last month as the investment plan for the 2017 fiscal year came up for a discussion.

In-house managers from the state Division of Investment had recommended scaling back hedge-fund stakes from 12.5 percent to 9 percent of total investments. They said they were also readjusting the hedge-fund portfolio to favor those with far lower fees than the standard 2 percent charged for managing the investments and as much as 20 percent taken from all profits.

Adam Liebtag, an AFL-CIO labor-organization representative on the council, made a motion to instead cap hedge-fund investments at 4 percent during the next fiscal year. When his motion resulted in a tie vote among the 14 members in attendance, that stalled the overall advancement of the broader 2017 investment plan.

Although there was talk of setting up a special meeting to help resolve the differences before July 1, officials from the Department of Treasury confirmed yesterday that no meeting will occur and that the pension system will instead break from tradition and start the new fiscal year operating under the same asset-allocation plan that’s been in place for the 2016 fiscal year.

It’s unclear when the pension system last entered a new fiscal year without a new investment plan in effect, but Treasury spokesman Joseph Perone yesterday downplayed the impact it would have on the broader investment strategy. He said many other states set investment targets for more than just one year. “Therefore, whether we set the targets in June or August is not a big issue,” Perone said.

Japan’s Government Pension Investment Fund (GPIF) this week sued Toshiba for losses incurred due to the company’s accounting scandal last year.

Toshiba shares took a major hit during the scandal, and are still down significantly from where they were before the controversy.

From Reuters:

Japan’s public pension fund said it sued Toshiba Corp (6502.T) for 964 million yen (6 million pounds) through an asset manager for losses stemming from the technology and industrial conglomerate’s $1.3 billion accounting scandal last year.

A Government Pension Investment Fund (GPIF) official confirmed a Wall Street Journal report on Thursday which said a lawsuit by Japan Trustee Services Bank against Toshiba, filed on May 6 and previously reported by other media, had been on its behalf.

A hearing is set for June 21, the official said.

[…]

Toshiba was not immediately available for comment.

An investigation last year found widespread accounting errors throughout the laptops-to-nuclear conglomerate, and blamed a corporate culture in which employees found it difficult to question their superiors.