Ted Ballantine | Pension360

Chicago Suburb To Scrap Fire Department Due To Pension Costs

The town of North Riverside, a small suburb west of Chicago, is moving to terminate its contract with all village firefighters and hire new firefighters from a private service. The village claims it is facing a $2 million budget deficit and it cannot handle the costs of the salaries and benefits of the firefighters.

From A North Riverside press release:

Mayor Hubert Hermanek, Jr. of west suburban North Riverside, after yesterday announcing an impasse after six “good faith” negotiating sessions with Firefighters Union Local 2714, instructed the village’s attorneys to file suit today in Cook County Circuit Court asking that court to affirm North Riverside’s right to legally terminate the firefighters’ contract, which expired on April 30, 2014.

North Riverside, with a population of 6,672 in 2,827 households, derives most of its revenue from sales tax, thanks in large part to North Riverside Park Mall. However, the village is facing a proposed fiscal year 2014-2015 operating budget deficit of $1.9 million, with $1.8 million of this deficit being a direct result of the Village’s growing annual public pension obligation. All of this and more is evidence that supports the Village’s inability to sustain salary and benefits of over $200,000 per fireman and $230,000 per Lt. anymore.

Contracting firefighter services from Paramedic Services of Illinois (PSI), which has provided paramedic services to North Riverside for the past 28 years, would save the village more than $700,000 annually and vastly reduce the adverse impact of future pension obligations imposed by the state. All PSI paramedics are certified as firefighters, as well.

According to Hermanek, the village presented multiple compromise proposals to the union, including a progressive privatization plan based on an 11-year contract, during which 10 of North Riverside’s 14 current firefighters would reach retirement age and 25+ years of service. As they retired or normal attrition occurred, firefighters would be replaced with firefighters/paramedics from PSI. As a result, by the end of the 11-year contract, village fire and emergency protection services would be almost fully privatized, maintaining safe and reliable service, while achieving cost-savings necessary if North Riverside is to remain solvent.

As noted in the above paragraph, the village had previously tried to strike a deal with the firefighters’ union where the village would phase out the old firefighters and slowly phase in the private force.

The union (Firefighters Union Local 2714) then brought three of its own proposals to the table. Ultimately, however, the village and the union couldn’t agree on any deal.

Russia May Compensate For U.S. Sanctions By Pulling Money From Pension Fund

Russia’s Economy Minister said Friday that the country would consider pulling money from its national pension fund and using the money to aid firms damaged by Western sanctions.

Other options are on the table as well, including pulling money from Russia’s National Wealth Fund.

From Reuters:

Russia will support companies affected by Western sanctions and it may divert funds from its National Wealth Fund (NWF) or from pensions to do so, local news agencies cited Economy Minister Alexei Ulyukayev as saying on Friday.

“Of course we will show support to our companies hit by sanctions … There are different forms of support including various custom tariff regimes, possibly direct budget support (and) the possibility of using pension funds or the National Wealth Fund,” RIA quoted Ulyukayev as saying in Brussels.

The move wouldn’t be surprising; Pension360 has previously covered Russia’s willingness to take money from its pension fund to plug budget shortfalls elsewhere.

Since 2013, Russia has frozen more than $30 billion of its pension payments.

Photo credit: “Flag-map of Russia” by Aivazovskycommons. Licensed under Public domain via Wikimedia Commons

U.S. Anticipates Influx of Latin American Pension Investments

Latin America’s pension funds are looking to invest beyond their borders, and that means billions of dollars of pension investments flowing into the U.S., according to new projections from research firm Cerulli Associates.

Latin American countries have seen major growth in retirement assets in recent years as more workers are subject to mandatory retirement contributions. Such countries – Brazil, Peru, Chile, Columbia and others – are now looking to invest those assets abroad.

Union Files Ethics Complaint Over New Jersey Pension Investments

New Jersey’s largest union, New Jersey AFL-CIO, has filed an ethics complaint with the state regarding the entity that oversees the state’s pension investments – the State Investment Council – and the man that chairs the Council – Robert Grady.

The union alleges that politics have played a large role in the state’s pension investments, which have increasingly included hedge funds and other alternative investments.

From NJ.com:

In an 11-page letter to the ethics commission, New Jersey AFL-CIO President Charles Wowkanech said that the chair of the State Investment Council, Robert Grady, “has violated the Division’s own rules barring politics in the selection and retention of such funds and investments, and has further created an appearance of impropriety.”

At issue is the state’s investment of hundreds of millions of dollars of pension money with Wall Street firms, including hedge funds and other types of “alternative investments” that charge higher fees than more traditional types of investments — a practice that started before Christie was governor but has increased under him.

Some “key executives” of the firms donated to state and national Republican organizations that helped Christie, according to Wowkanech, who said those donations potentially broke state pay-to-play laws, and at the least violated the state officials’ code of ethics. Wowkanech wants an investigation.

The complaint is based on a series of reports on the websites Pando Daily and International Business Times, written by the reporter David Sirota, that explain the pension fund’s increase in alternative investments since Christie took office.

The complaint also takes issue with Grady’s involvement with Chrisite’s re-election campaign as an adviser, in close contact with Christie and top staffers, while he was leading the council.

“It should not be seen as mere coincidence that the reports show Robert Grady was listed as a required attendee on a series of regular weekly phone conference calls held by high-level staff on the Governor’s re-election committee in or around September 2013,” Wowkanech’s letter reads.

The Christie administration and the state treasury department have responded to the complaint, according to the Associated Press:

Christie spokesman Kevin Roberts calls the filing “a cheap political stunt based on shoddy, distorted reporting.”

Christopher Santarelli, a spokeswoman for the state treasury department, said it is state employees who decide who will manage pension fund money, not the investment council.

He also said that the state’s use of alternative investments including hedge funds and bank plans is in line with peers. He said the strategy helped minimize losses in 2008 and 2009, when stock prices fell sharply.

Grady did not immediately return a message from The Associated Press, but he previously said in an email to the International Business Times that he was cleared by the state treasury department’s ethics officer before he participated as a policy adviser to Christie’s re-election campaign. He says that no pension investment decisions were discussed with campaign officials.

The Associated Press wasn’t able to contact Grady. But Grady has previously stated that pension investment decisions had nothing to do with campaign politics.

Photo by Truthout.org via Flickr CC License

Kentucky Pension Board Approves $325 Million In New Alternative Investments

The Kentucky Retirement Systems’ Board of Trustees met Thursday, and the meeting produced several interesting news items.

One development, which Pension360 covered earlier today, involved increasing the transparency around the investment fees paid to outside firms that handle the System’s alternative investments.

The other item of interest had to do with alternatives, as well. The KRS Board approved $325 million in new alternative investments, to be placed with five different funds. The funds and allocations, as reported by the Kentucky Center for Investigative Reporting:

A $100 million investment in the Deutsche Bank Secondary Opportunities Fund III will go toward limited partnership.

A $65 million investment in Taurus Mining Finance Fund will go toward precious and industrial metal mining ventures globally.

A $60 million investment in Crestview Partners III will go toward leveraged buyouts.

A $50 million investment in BTG Pactual Timberland Fund I will go toward timberland.

A $50 million investment in Oberland Capital Healthcare will go toward prescription drug royalties.

Under KRS’ new transparency rules, the fee rates paid to those individual funds will be public information.

But the public still won’t be able to see the dollar amounts paid in fees to those individual funds. And, as is common practice, the specific make-up of the funds will remain confidential.

Kentucky To Disclose More Details About Alternative Investments, But Some Data Will Remain Secret

About 30 percent of the Kentucky Retirement System’s investment portfolio is allocated towards alternative investments. That kind of investment strategy leads to significant fees and expenses. But much of the data surrounding the fees the System paid to firms to manage those alternative investments were hidden under lock and key…until now.

Yesterday, the KRS Board of Trustees approved a measure designed to increase transparency surrounding the fees the System pays to individual firms to handle its investments. From WFPL:

Kentucky Retirement Systems, which runs the $16 billion pension and health care funds for state, city and county workers and retirees, will be providing more detail about the fees it pays to the managers of its so-called “alternative” investments.

[Interim investment director David Peden] said KRS’ investment committee and the full board warmed to the idea after articles by the Kentucky Center for Investigative Reporting and the Lexington Herald-Leader on the level of transparency about fees paid to hedge funds and private equity firms.

Until now, KRS had disclosed the total amount of fees paid to investment firms — $53.6 million in the year that ended June 30, 2013 — but did not report the fee rates charged by individual firms. That practice will change in coming weeks, Peden said, as KRS staff posts fees for all current holdings on the agency’s website.

So, interested observers will be able to find the fee rates that KRS pays to individual firms.

But KRS still isn’t going to tell the public everything.

Among the information that will still be inaccessible to the public: the total dollar amount of fees paid to individual firms; the fee rates paid to “fund of funds”; and the specific make-up of the alternative funds, which are protected by confidentiality agreements between KRS and the fund managers.

Judge: San Bernardino Can Cut Firefighter Benefits

A judge ruled on Thursday that the bankrupt city of San Bernardino, California, could cut firefighter pension benefits as part of its bankruptcy plan.

The cuts would be in the form of higher pension contributions from firefighters and fewer hours of overtime. From Reuters:

In a tentative ruling, federal U.S. Bankruptcy Judge Meredith Jury said San Bernardino was entitled to unilaterally impose benefit cuts on the city’s firefighters, something their union had fiercely opposed.

Jury conceded that the cuts, which involve greater pension contributions by firefighters and reduction in overtime, were a hardship on the firefighters.

But she said the city had also been persuasive in showing that what it had been paying in terms of benefits to the firefighters was a financial burden, and being able to reject the firefighters’ collective bargaining agreement was a key step to forming a bankruptcy exit plan.

[…]

Last month the city reached an undisclosed deal with its police union. In June, it also reached a deal – subject to a judicial gag order – with its largest creditor, the California Public Employees’ Retirement System (Calpers).

The city only began face-to-face negotiations with some of its other large creditors – bondholders and insurers including Ambac Assurance Corp – last month.

The judge has made clear that it will not be before next year that she expects the city to produce a bankruptcy exit plan, known as a plan of adjustment.

San Bernardino filed for bankruptcy in 2012. It’s 2012 budget deficit was $45 million.

Canada Pension Funds Invest $700 Million in XPO Logistics

Canada’s Public Sector Pension Investment Board (PSP Investments) and the Ontario Teachers’ Pension Plan have joined together with one other firm (GIC, Singapore’s sovereign wealth fund) to invest a combined $700 million in XPO Logistics, a transportation logistics firm.

More details from Market Watch:

The transaction, which is complete and scheduled to settle on September 17, 2014, provides for the sale of newly issued common stock and preferred stock to the Investors. Upon approval by the company’s shareholders, the preferred stock will be converted into common stock and the Investors will hold approximately 22% of XPO’s common stock on a fully diluted basis. The $30.66 price per share of common stock issuable to the Investors represents a 5% discount to the trailing 20-day volume weighted average price. Bradley Jacobs and Jacobs Private Equity, LLC intend to vote in favor of the stock issuance. Jacobs Private Equity, LLC will remain the company’s largest shareholder.

Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “We’re delighted to welcome PSP Investments, GIC and Ontario Teachers’ Pension Plan as significant shareholders in XPO. This strategic investment by three blue chip institutions is a strong endorsement of our plan for value creation. With the benefit of $700 million of additional equity to accelerate our growth, we can capitalize on an acquisition pipeline that’s livelier than expected. We’re now targeting approximately $9 billion of revenue and $575 million of EBITDA for 2017.”

The vice-presidents of PSP and the OTPP both released statement regarding the investment. From Market Watch:

Daniel Garant, senior vice-president, public markets for PSP Investments, said, “We are pleased to become a meaningful shareholder of XPO and support its board and management as it pursues its growth strategy. This investment in XPO is consistent with our Value Opportunities Portfolio’s mandate, which includes making strategic investments in publicly-listed companies that we believe have the capability of generating above average risk-adjusted returns over time and where PSP Investments can leverage its permanent and growing capital base over a long-term investment horizon.”

[…]

Michael Wissell, senior vice-president, public equities for Ontario Teachers’ Pension Plan, said, “Teachers’ believes in partnering with world-class entrepreneurs. We are pleased to invest alongside Brad Jacobs and his team. Their plans for XPO align with our approach to long-term value creation.”

The OTPP is the largest single-profession retirement fund in Canada and manages over $140 billion in assets.

PSP Investments manages $93 billion of assets.

Urban Institute Endorses Bill That Would Turn Over Pension Assets To Insurance Companies

A bill that’s spend the last year gathering dust in Congress has been given new life this week after the Urban Institute gave the bill it’s top grade, saying the proposal “really addresses the retirement security issue”.

The bill, authored by Sen. Orrin Hatch (R-Utah), would let local governments turn over the assets of their pension plans to insurance companies. The insurance companies would then make payments to retirees. More details from Wonkblog:

On Wednesday, Hatch’s proposal, aimed at getting local governments and states off the hook for future pension liabilities, got a big thumbs-up from the non-partisan Urban Institute.

After reviewing the plan, the research organization gave the idea its top grade, saying it eliminates a troublesome financial risk for state and local governments, protects workers who change jobs frequently, and rewards young workers–all while providing a steady stream of income for retirees.

“Unlike any other plan I have seen, it really addresses the retirement security issue, the funding problem, and it provides incentives to allow employers to attract and retain a productive workforce,” said Richard Johnson, director of the Urban Institute’s Retirement Policy Center. “It is hard to balance those three objectives.”

The Hatch bill is similar to a financial maneuver taken by several big corporations, from General Motors and Ford to Heinz and Verizon, which have moved to shed pension liabilities in recent years. For local governments and states, the unfunded liabilities are huge, ranging anywhere from $1.4 trillion to more than $4 trillion, depending on the assumptions plugged in by actuaries.

As it stands, a study of 150 plans by the Center for Retirement Research at Boston College found that the plans have just 72 percent of the assets on hand needed to cover future liabilities, a figure that drops to just under 65 percent if new accounting standards are used.

Insurance companies love the bill. But not everyone thinks it’s a good idea, writes Michael Fletcher:

It has been panned by municipal employee unions and their allies, who worry that payments will not be as generous as current pension schemes, particularly for long-tenured workers. Johnson noted, however, that many pension plans tend to shortchange workers who stay on the job fewer than 20 years, and he said Hatch’s plan would address that, although workers who stayed on the job longer would get smaller payments than their predecessors.

Still, some critics have called it “a solution in search of a problem,” a characterization that has left Hatch incredulous.

“My bill is not a solution in search of a problem, and it is certainly not meant to be an attack on anyone or anything,” Hatch said during a Capitol Hill event Wednesday. “It is meant to offer and alternative path to employers who want to continue delivering lifetime retirement income for their workers in a world where that is becoming increasingly difficult.”

The bill wouldn’t force the hand of state and local funds; governments would have the choice of handing over their assets to insurance companies, but it would be voluntary.

Photo by: “US Capitol dome Jan 2006″ by Diliff. Licensed under Creative Commons Attribution 2.5 via Wikimedia Commons

Louisiana Fund Gives First Cost-of-Living Increase in 12 Years

The Municipal Police Employees Retirement System of Louisiana this week approved the first permanent cost-of-living increase for its members since January of 2002.

Members of the system will get a 3 percent COLA starting November 1, 2014. More details from KATC:

Retirees, surviving spouses and disabled employees will receive a three percent increase beginning November 1, 2014. Eligible members will receive a minimum increase of $20 per month.

The Board of Trustees voted unanimously to approve the increase at its monthly meeting. Members include Commissioner of Administration Kristy Nichols, Treasurer John Kennedy, and elected members of the municipal police community.

“It’s important that we continue to support the men and women who spent their careers protecting the people of Louisiana,” said Commissioner Nichols. “A permanent increase means they can better plan for the future.”

The last permanent cost of living adjustment (COLA) was a 2.7 percent increase in January 2002.

Act 113 of the 2008 Regular Session gave the board the authority to grant a three percent COLA to eligible retirees, survivors (widows and widowers), and beneficiaries. The Act was effective on July 1, 2008 and is a one-time only COLA.

According to the Act, the board cannot give another COLA until 2018.

Photo credit: “2002 LA Proof” by United States Mint. Licensed under Public domain via Wikimedia Commons

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