Ted Ballantine | Pension360

Pension Funds Stay Silent on Corporate Tax Avoidance

Pension funds are no strangers to using their clout to push for changes within the companies they invest in—in the last few years, dozens of funds have called for more sustainable business practices from fossil fuel-oriented companies and advocated new safety guidelines for gun manufacturers.

But on one issue, public pension funds are remaining silent. The issue: corporate tax avoidance. As reported by the New York Times:

In the outcry about the recent merger mania to take advantage of the tax avoidance transactions known as inversions, certain key players have been notably silent: public pension funds.

Many of the nation’s largest public pension funds — managing trillions of dollars on behalf of police and fire departments, teachers and others — have major stakes in American companies that are seeking to renounce their corporate citizenship in order to lower their tax bill.

While politicians have criticized these types of deals — President Obama has called them “wrong” and he is examining ways to end the practice — public pension funds don’t appear to be using their influence as major shareholders to encourage corporations to stay put.

Tax avoidance made headlines again last week when Burger King announced it was buying Tim Horton’s, a move which would make Burger King a “citizen” of Canada for tax purposes.

Pension funds didn’t speak up. But why? The NY Times speculates that investment performance has a lot to do with it:

Public pension funds may be so meek on the issue of inversions because they are conflicted. On one side, the funds say they care about the long term and the implications for their state. Calpers’s “Investment Beliefs” policy states that the pension system should “consider the impact of its actions on future generations of members and taxpayers,” yet most pension funds are underfunded and, frankly, desperate to show investment returns. Mergers for tax inversion can prop up share prices of the acquirers and clearly help pension funds, at least in the short term, show improved performance.

CalPERS is usually one of the first funds to use “activist investing” tactics to push for changes in the companies they invest in. But the fund has remained unusually quiet. The fund talked to the NY Times and gave an explanation:

The California Public Employees’ Retirement System, the nation’s largest public pension fund and typically one of the most vocal, has remained silent.

“We don’t have a view on this from an investor standpoint — we’re globally invested, as you know, and appreciate that tax reform is a government role,” Anne Simpson, Calpers’s senior portfolio manager and director of global governance, told me. “We do expect companies to act with integrity, whatever the issue at hand — that goes without saying. We also want to see a focus on the long term.”

When I pressed for more, her spokesman wrote to me, “We’re going to have to take a pass on this one.”

Mark Cuban recently stated that he would sell the stock of any company that moved out of the United States to avoid taxes.

Photo by TaxRebate.org.uk

Contribution Rates Down In Wake of New York Pension Fund’s “Solid” Investment Returns

Employers who pay into the New York State and Local Retirement System will soon find their pension contribution bills to be significantly smaller. The System has lowered the contribution rates required of state and local government entities, as reported by the Associated Press:

Comptroller Thomas DiNapoli says the average rate will decrease from 20.1 percent of salary for most public workers to 18.2 percent. For police and firefighters the employer rate will drop from 27.6 percent of payroll to 24.7 percent.

The rate reduction announcement comes as the state’s pension system hit a record high of $180.7 billion. DiNapoli says the fund’s “solid investment performance” means local taxpayers won’t have to contribute as high a percentage toward their employees’ retirement costs.

DiNapoli says that with recent investment gains the state’s pension fund is now 92.2 percent funded. That’s an increase from 88.7 percent.

New York City’s pension funds combined returned around 17 percent last fiscal year. Decreasing employer contributions had been on the table since July, after the returns were announced.

Pension Funds Attracted To India’s Infrastructure, Real Estate

Money is flowing into India as The Canada Pension Plan, along with a handful of other pension funds from around the globe, are increasingly investing in the country’s infrastructure and real estate. From the Financial Times:

CPPIB [Canada Pension Plan Investment Board] entered India in 2010 but has recently raised its profile with a series of deals involving long-term assets such as toll roads and residential property, creating a portfolio of planned investments worth $1.4bn that already ranks among the largest investments in the country by a foreign pension fund.

“Because it is a very small percentage [of the fund’s overall assets], clearly it is likely to grow, as India keeps growing and developing,” Mr [Mark] Machin, [international head of CPPIB] said.

“We will almost inevitably have more money focused on India. . . It is one of the most important markets for us in the region,” he added.

[…]

In June, CPPIB announced a $332m infrastructure investment partnership with a division of Larsen & Toubro, India’s largest engineering group by sales. That followed deals to invest in real estate with two family-owned conglomerates, the Piramal and Shapoorji Pallonji groups.

The fund has also built up large portfolios in Australia and China, with deals worth $5.9bn and $4.1bn respectively, in assets ranging from property development to logistics.

The Canada Pension Plan is one of many pension funds turning its focus to India. From FirstBiz:

Many sovereign and pension funds are pumping funds into the Indian real estate like All Pensions Group (APG Group), Abu Dhabi Investment Authority (ADIA), Qatar Investment Authority (QIA), Canada Pension Plan Investment Board (CPPIB), State General Reserve Fund of Oman (SGRF) and GIC of Singapore.

It’s no coincidence that investment interest has perked up following the election of Prime Minister Narendra Modi. Mr. Modi has said he’ll lift some restrictions on foreign investment and kick-start a new wave of infrastructure projects.

Does Knowledge Of Pension Reforms Affect Retirement Decisions?

If you knew your pension fund was in great shape, would it alter when you chose to retire? Conversely, if you knew your fund was in dire straits, would it increase the probably of working part-time during retirement?

Two Norwegian researchers set out to answer those questions. As published in the Journal of Pension Economics and Finance:

We present the results of a survey experiment where the treatment group was provided with an information brochure regarding recently implemented changes in the Norwegian pension system, whereas a control group was not. We find that those who received the information are more likely to respond correctly to questions regarding the new pension system. The information effect is larger for those with high education, but only for the most complex aspect of the reform. Despite greater knowledge of the reform in the treatment group, we find no differences between the treatment and control group in their preferences regarding when to retire or whether to combine work and pension uptake.

Read the entire paper here.

Photo by winnifredxoxo

Local New York Lawmaker Calls For Review of “Double-Dipping” Policy

A local New York lawmaker is calling for changes in the way Westchester County handles so-called “double-dipping”, the term commonly used to describe a worker who draws both a salary and a public pension concurrently.

Reported by Politics on the Hudson:

In the wake of the arrest of an aide to Westchester County Executive Rob Astorino on a DWI charge, Democratic Legislator Ken Jenkins is renewing his call for legislation to require to Board of Legislators to approve pension waiver requests.

Hugh Fox Jr., the aide, who is also the chairman of the Westchester Conservative Party, had secured two two-year waivers from the state to allow him to collect both his pension from years as a Yonkers firefighter and his county salary. The county was seeking a third waiver for him when Fox was arrested Monday night after a five-car chain-reaction crash. He resigned his county job the next day.

In a press release, Jenkins said it was time to end “automatic approvals for the County Executive’s political cronies to double dip.”

The lawmaker, Ken Jenkins, says he doesn’t want to deny outright workers’ chance to earn a salary and draw a pension. But he says those waivers should undergo more scrutiny before approval. From Politics on the Hudson:

“There are probably some rare instances when a retiree would make a good hire for the County, and it would make sense financially for the waiver to be granted,” said Jenkins. “But for the sake of good, open and transparent government that keeps the interests of our taxpayers at the forefront of decision making, we must take these automatic, unilateral approvals out of the purview of only the Administration and let the Board of Legislators also deliberate on each waiver, case by case, and make a decision up or down.”

Jenkins had introduced the legislation last January, but is bringing it up again in light of the recent events.

44 Municipal Workers Face Charges After Montreal Pension Protest

Dozens of municipal workers in Montreal are facing criminal charges after participating in a protest that left the city hall in shambles.

The protest stems from a proposed law, Bill 3, which would force workers to pay more into the pension system to cover funding shortfalls. From the Canadian Press:

Montreal’s police chief says 44 people will face criminal charges in connection with a rowdy pension protest inside city hall earlier this month.

Marc Parent says the charges will include participating in an illegal gathering, mischief and assault.

Around 250 unionized municipal workers stormed into city hall on Aug. 18, where they tossed paper all over the main chamber and plastered the building with protest stickers.

The demonstrators also unfurled a sign calling the mayor a thief, while one councilor alleges he was struck while others said they were sprayed with water.

More details on the controversial Bill 3, from the Montreal Gazzette:

Here is what Bill 3 would do:

— Ensure that as of Jan. 1, 2014, all municipal employees would, retroactively, begin to contribute half the cost of their pensions, while municipalities pay the other half. (Some unions have negotiated better pension deals, where the employer pays 70 per cent and the employee pays 30 per cent, for example);

— Ensure that employees and municipalities share the cost evenly of any pension plan deficits accumulated before Jan. 1, 2014;

— Forbid pension plan costs from exceeding 18 per cent of payroll costs;

— Allow cities to freeze cost-of-living increases in pension payouts to municipal retirees;

— Allow the province to appoint an arbitrator who could impose a settlement if negotiations fail to result in an agreement within 18 months. The arbitrator would then have an additional six months to impose a settlement.

Retirement Confidence Climbing (For Most) As Workers Become More Engaged With Their Plan

A recent survey reveals that more workers are confident in their retirement income in 2013 than in 2009, but most are still worried about their long-term prospects–especially those 50 and older. From Pension Benefits:

Retirement confidence climbed between 2009 and 2013, and nearly one-quarter of employees are now Very confident’ of having enough income for the first 15 years of retirement. This reflects improving financial conditions over the past four years as employees have rebuilt their savings. When asked to assess their prospects 25 years after retiring, however, only 8% remain confident of a financially comfortable retirement.

Since the start of the financial crisis, confidence levels for workers age 50 and older have declined by 10 percentage points. In 2007, 34% were very confident of their ability to afford the first 15 years of retirement, compared with only 24% in 2013.

Workers with defined-benefit plans are more confident than those with defined-contribution plans. On the flip side, the prospect of benefit cuts worry workers in DB plans. From Pension Benefits:

Participants in defined benefit plans (DB) are 35% more likely to be satisfied with their finances than those with only a defined contribution (DC) plan.

Roughly half of DB plan participants (45%) are afraid their retirement plan might be cut and about one-third (36%) fear having to bear more investment risk in the future. And for DB plan participants who have recently undergone a cut to their retirement program, 70% fear more curtailments are on the horizon.

Another interesting trend: Workers are becoming more engaged with their retirement plans. From Pension Benefits:

Since 2010, employees have become more involved and interested in retirement planning. Slightly more than half of all employees review their retirement plans frequently. Sixty-three percent of DB plan participants track their savings carefully compared with 48% of DC-plan-only participants. Older and midcareer workers report greater engagement with retirement than younger workers and saving for retirement is their number one financial priority.

You can read the full survey results by clicking here (subscribers only).

The article is published in Pension Benefits.

Photo by www.SeniorLiving.Org

Pennsylvania Auditor General Calls For “State-Wide Solution” After Audit Reveals Scranton Pension System Could Be Broke Within 3 Years

[iframe src=”<iframe id=”viddler-252836bf” src=”//www.viddler.com/embed/252836bf/?f=1&offset=0&autoplay=0&player=full&secret=70372667&disablebranding=0&view_secret=70372667″ width=”545″ height=”451″ frameborder=”0″ mozallowfullscreen=”true” webkitallowfullscreen=”true”></iframe>”]

After a two year audit, Pennsylvania’s Auditor General announced today that Scranton’s pension system could become broke in 3 to 5 years—and forcefully indicated that Scranton was symbolic of larger, state-wide pension funding issues.

On Scranton, the Times-Tribune reports:

That dire prediction [3-5 years] could be optimistic, as the pension funds face paying out as much as $10.5 million owed to retired police and firefighters because of the $21 million back pay court award to active members. The auditor general’s office did not evaluate the impact of the award in its audit released Wednesday.

With a funding ratio of just 16.7 percent, the city’s firefighters fund is in the worst condition of any plan in the state, Mr. DePasquale said, and will be unable to pay benefits in less than 2½ years. The non-uniform fund isn’t much better, projected to be insolvent in 2.6 years, while the police fund has less than five years.

The sobering news, presented at a press conference at City Hall, is contained in an audit Mr. DePasquale’s office conducted of the funds’ condition from January 2011 to January 2013.

The Auditor General said the only fiscally sustainable way forward was to reform the state’s pension system. From the Times-Tribune:

He’s called for several measures, including consolidating plans into a statewide system and increasing funding to municipalities with distressed plans.

“We don’t see any way this can be fixed by Scranton alone,” Mr. DePasquale said. “I believe strongly that a statewide solution is needed.”

While Gov. Tom Corbett and the state Legislature debated state pension system reform this summer, it has yet to address the pension crisis some municipalities face. When Mr. Corbett visited Scranton earlier this month and a reporter asked about the city’s pension crisis, he declined to weigh in.

But that reform doesn’t seem likely to come.

Pension360 covered this week Corbett’s futile efforts to kickstart pension reform. Polls have indicated the voters aren’t as engaged by pension issues as they are other issues.

States Move To Give Private-Sector Workers Access to State-Run Retirement Plans…But Not Everyone Thinks It’s A Good Idea

There are millions of private-sector workers in the United States without retirement plans, but the past year has been an active one for state and federal lawmakers trying to make sure these workers can gain access to a state-run plan if they want one—nearly a third of states in the US are drafting legislation for such systems.

But Dale E. Brown, president and chief executive of the Financial Services Institute Inc, published a piece this week in Investment News advocating against such state-run systems. One reason, he says, is the skewing of small business incentives:

State-run retirement plans for private sector workers would immediately undermine the incentives for small businesses that do not currently offer employer-sponsored plans to establish their own plans in the future…

As more employers came to “offload” their retirement plan offerings to the respective states (or simply neglect to develop them in the first place), many experienced financial advisers in each area — who have been ethically advising plan sponsors for years — would simply be forced to leave the market. The result would be a reduction in access to professional financial advice, rather than the expansion of access that American workers so badly need.

Brown also spends time decrying the cost associated with the systems:

These proposals would also create substantial new costs for states and taxpayers, and would open states to potential liability to the IRS and to the Department of Labor under ERISA. While many of the bills’ sponsors envision these plans as low-cost solutions, the true expenses of running a large and robust retirement plan — including ensuring that the plans are properly managed; that investment options are appropriate and are adjusted as necessary; and that plan activities are closely monitored to prevent prohibited transactions, among many others — could easily and quickly derail these expectations.

In addition to the ongoing expenses mentioned above, taxpayers would be on the hook for substantial costs just to get the plans off the ground. When start-up outlays for plan research and design, legal and tax expenses associated with obtaining IRS approval, and many other expenses are factored in, it becomes clear that these states would be incurring significant costs to provide a service that is already broadly available in the private market.

But federal lawmakers say there are too many workers without access to retirement plans. One lawmaker told Pensions & Investments:

“With 75 million Americans without a retirement plan, there is no question that our country has a retirement security crisis,” said Sen. Tom Harkin, D-Iowa, in an e-mail. “I am encouraged to see states taking steps to improve retirement outcomes for Americans.” Mr. Harkin has proposed privately run retirement funds on the national level.

Sixteen states are considering legislation that would set up state-run retirement plans for private-sector workers.

Missouri Law Bans Pension Advances, Helps Retirees Recoup Losses

Pension360 covered last week the rising business of pension advances—businesses that apply the concept of a payday advance to retirement benefits by giving retirees an option to receive their pension as a lump sum.

But Missouri recently passed a bill that outlaws the practice and gives retirees a chance to take legal action against the business that gave them their pension advance.

Today, the State Treasurer announced that the law goes into effect immediately. Reported by KFVS:

Missouri State Treasurer Clint Zweifel announced House Bill 1217 goes into effect on Thursday – meaning public retirees in Missouri are now protected from the predatory lending practice known as pension advances.

Zweifel says retired public employees who are drawn into these misleading agreements can now take legal action against the businesses offering them.

“Pension advances prey on the financially vulnerable, offering an up-front lump sum in exchange for part or all of a public pension, and they are generally accompanied by exorbitant fees and interest rates,” Treasurer Zweifel said.

“Pension advances are essentially payday loans on steroids in that the individuals taking them are borrowing against a pension instead of a paycheck. They put the individual’s retirement in jeopardy and cost them more money in the long run. Today marks a big win for consumer protection in Missouri, and I am proud of the bipartisan coalition of lawmakers who helped me make our state the first in the nation to ban this practice.”

Missouri is so far the only state to pass a law addressing pension advances.

Photo by RambergMediaImages via Flickr CC License

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712