Author: Ted Ballantine

A new survey says that 64 percent of pensioners in the U.S. want their pension fund portfolio’s focus to be only on maximizing returns, and 55 percent don’t want the portfolios to be politicized.

The survey was notably sponsored by the Independent Petroleum Association of America – an oil and natural gas trade group who clearly has a stake in the issue.

Keeping that conflict in mind, more results:

As a general proposition, nearly two out of three (64 percent) pensioners say they want their pension fund manager to invest in a way that is solely focused on “maximizing returns” on the money they’ve invested. Interestingly, support for this position is even higher among respondents from energy ‐ producing states, such as Texas (86 percent), Pennsylvania (74 percent), and Colorado (71 percent). Among this group, strong majorities say they don’t want their investments to be “politicized” (55 percent) and that they’ve rightfully earned those higher returns based on their careers in the public ‐ sector (53 percent).

As a follow ‐ up, respondents were asked if they’d be willing to divest from any company or industry for political or personal reasons if it meant the possibility of lower returns. Nationally, 64 percent of respondents told us they would not be willing to do that, and opposition numbers were even more significant in energy producing states. In Texas, 83 percent of respondents rejected the idea out of hand, 74 percent of Pennsylvania residents did as well, and even in New York ‐‐ which ranks as a large consumer of oil and natural gas, but not quite as large a producer of it ‐‐ 69 percent of respondents agreed that divestment wasn’t for them.

Asked as an open ‐ ended question about which companies and/or industries pensioners might be comfortable divesting from based on political beliefs, only nine percent identified firms or industries related to oil and gas. In Texas, 88 percent of respondents told us they would actively oppose divesting from oil and gas companies, and large majorities appear to hold the same position in Pennsylvania (77 percent), Ohio (71 percent) and New York (72 percent) as well, among other states.

Read the full brief here.

On May 19^th, Kentucky Governor Matt Bevin sent police to a Kentucky Retirement Systems board meeting to prevent the board chairman – whom Bevin wants off the board – from participating in the meeting.

The state’s attorney general on Tuesday released an opinion stating Bevin violated Kentucky’s Open Meetings law in the process.

More from the Herald-Leader:

Bevin sent police with his chief of staff, Blake Brickman, and Personnel Secretary Thomas Stephens to threaten to arrest Thomas K. Elliott, whom Bevin has been trying to remove from the board, and to interfere with board leadership elections scheduled for that day, [state AG] Beshear said. Several armed troopers stood in the KRS board room during the day’s meeting.

[…]

Public agencies must be allowed to conduct open meetings free from harassment, Beshear said in his opinion.

“A behind-closed-door indication of arrest if a board member attempts to participate, or of an investigation of a board member who potentially may seek election as chair, made with the intent to alter decisions or behavior related to a public meeting for public business, violates the mandate that public business not be conducted in secret,” Beshear said.

“Moreover, the presence of multiple law enforcement officers, who can effectuate an arrest, at the request of someone other than the agency head or a quorum of the board, equates to conducting public business through force. Neither scenario has a place in a democratic government that must be open,” he said.

A bipartisan plan to alter Pennsylvania pensions passed the state House easily on Monday, by a vote of 150-41.

The plan keeps the state’s defined benefit system for public workers, but introduces a 401(k) component to the plan. Unions are “neutral” on the bill.

Republicans had been pushing for two years to overhaul the state’s pension system to an entirely 401(k)-style system; but it has been a non-starter.

More on the plan, from PennLive:

It would, for Republicans, introduce a 401(k)-style benefit component into the major state retirement plans for state and school employees, which will on some level shift the costs of future recessions away from taxpayers.

For public sector unions and their mostly-Democrat allies, it preserves a guaranteed base pension built on a workers’ years of service and salary.

State Employees Retirement System projections for many of the state’s blue-collar or clerical workers show benefits for a 30-year employee would be virtually unchanged. That was an important enough concession for the largest of the state workers’ unions to take a “neutral” position Monday.

For taxpayers, the plan introduced by Rep. Mike Tobash, R-Schuylkill County, is projected to save an estimated $5 billion in future pension costs over the next 30 years.

[…]

That vote inserted a plan negotiated by House leaders into Senate Bill 1071 with significant bipartisan support. Forty-six Democrats voted for the plan, setting the stage for final House passage later this week.

Read the bill here.

CalPERS CIO Ted Eliopoulos said during a Monday board meeting that he expects his portfolio’s return to be flat in FY 15-16; and that the next few years will be challenging for the country’s largest pension fund.

More from Reuters:

California Public Employees’ Retirement System Chief Investment Officer Ted Eliopoulos on Monday described the pension fund’s current fiscal year performance as “likely to be flat, which is a nice way of saying zero.”

[…]

On Monday, Eliopoulos warned CalPERS Investment Committee that the coming three to five years will be “a challenging market environment for us.”

“It is going to test us,” he said at the board meeting.

CalPERS lowered its performance expectations in each major asset class.

The fund’s primary pension consultant, Wilshire Associates, predicted that the total fund, estimated to be worth $293.6 billion, will return 6.4 percent annually over the next decade, reduced from a 2013 forecast of 7.1 percent.

[…]

Wilshire’s largest cuts to forecasts for CalPERS’ annual returns were in global equity, reduced to 6.7 percent from 7.75 percent, and private equity, which it cut to 9.4 percent from 10.45 percent.

CalPERS returned 2.4 percent in FY 14-15, following several years of double-digit returns.

Back in 2014, the Central States Pension Fund was the first multiemployer pension fund to submit a rescue proposal to the U.S. Treasury.

The pension-slashing measure was rejected last month; but Bloomberg took a look at which pensioners would have been most affected by the plan.

Some pensioners famously claimed they would be better of if the fund went insolvent. Is that true?

Bloomberg analyzed the data:

When they learned of the fund’s proposal to cut their pensions, some of the fund’s retirees said they didn’t expect to live long enough to benefit if the fund managed to avoid insolvency 10 years down the road, as projected by the fund. Instead, they said they preferred to get their full benefits now and worry about the fund’s collapse later.

[…]

Examination of the numbers reveals that retirees between the ages of 60 and 79 who were slated to have their benefits slashed by 30 percent or more stood to gain the least under the fund’s ill-fated proposal. It would logically follow that members of this group mounted the greatest opposition to the rescue proposal.

More specifically, nearly 42,000 retirees, a little more than 10 percent of the fund’s 400,000 participants, were better off financially by getting full payments until the fund’s projected insolvency in 10 years than if they had received reduced benefits under the rescue plan until their projected life expectancy.

[…]

In total, it appears that nearly 42,000 retirees knew what they were talking about when they said they preferred to get their full benefits now even if the fund became insolvent in 10 years.

For the full analysis, including scores of charts, check out the full piece here.

Sitting in the U.S. Senate is a Puerto Rico rescue bill that would allow the territory to restructure its debts, and to cease making payments to its bondholders for now.

Details are still vague; but if the bill passes, does it mean anything for pensioners living in distressed states like Illinois?

Ike Brannon of the Cato Institute, writing in the Hill, thinks it might:

Right now, states cannot declare bankruptcy, which is one reason why states have traditionally been able to borrow at such low rates of interest. However, financial markets have come to realize, belatedly, that Illinois (along with other states) is making promises to its lenders that it will have trouble keeping.

Puerto Rico was not supposed to be eligible for bankruptcy either, but the legislation before Congress will allow the territory to reduce its debt, both general-obligation and non-general-obligation debt.

[…]

If the bill does become law, the island will promptly cease making payments to its bondholders for the indefinite future: The proposed 2017 Puerto Rican budget — which assumes as much — sets aside no money to pay general obligation bondholders. Since the legislation also stays creditor lawsuits, the island can proceed to use the funds freed up by stiffing the creditors to hire more workers, build infrastructure and put money into its nearly bankrupt pension fund.

Any money that does gets stashed in the pension fund will be well-nigh impossible to disgorge when the stay is lifted. The Puerto Rican government can pull out its pockets and plead poverty and any creditor that lost money during the stay will likely be out of luck.

This is the blueprint Illinois will almost surely follow. It will request that Congress extend it some sort of bankruptcy protection and it will present Congress with a facile choice: Does it want to protect the evil vulture funds from Wall Street that lent it money or the hardworking state employees who just want the pension promised to them? Congress may want to pretend otherwise, but the current legislation before it favors one set of pensioners ahead of other pensioners whose money happens to be invested in Puerto Rican debt.

Read the full piece here.

The Ontario Teachers’ Pension Plan, along with the Canada Pension Plan Investment Board (CPPIB), are making a $1.35 billion bet on Latin American infrastructure.

The two pension funds are partnering with an infrastructure development company to acquire a 49 percent stake in one of Mexico’s largest toll roads.

More from the Financial Post:

CPPIB and Teachers are kicking in a combined $1.35 billion to the partnership to acquire a 49 per cent stake in a new company formed by the partners to house one of the largest toll road concessions in Mexico, the group said Thursday.

[…]

The toll road is CPPIB’s first infrastructure investment in Mexico, but there are others in South America including two in Chile, and a gas pipeline in Peru.

Hogg said the infrastructure team in CPPIB’s Brazil office, opened in Sao Paolo in 2014, played an integral role in the Mexican toll road transaction.

“Members of our Sao Paolo office were heavily involved in this deal and bringing it to a successful conclusion,” she said.

Arco Norte is one of the largest federal toll road concessions in Mexico, with more than 30 years remaining on the concession. The 233-kilometre toll road bypass surrounds Mexico City in the north, northeast, and northwest region, “providing a critical link with major trade corridors,” according to the news release.

This week, the New Jersey Supreme Court ruled that the state acted legally when it suspended pension cost-of-living-adjustments in 2011 because state employees had no contractual right to those increases.

Over at CapitolFax.com, Eric Madiar – former Chief Legal Counsel to Illinois Senate President John J. Cullerton, now a lobbyist and consultant – weighed in on whether the ruling would affect Illinois.

His thoughts:

Here’s Eric’s summary:

The New Jersey court held that because of the New Jersey Constitution the legislature lacked the power to create a binding contractually enforceable pension right. The creation of such a right was tantamount to taking on state debt in violation of the state constitution. The court stated that the legislature can only take on state debt and commit itself to the needed appropriations to fund that debt with voter approval. Since that did not occur when the pension right was passed, it was not a binding promise when the legislature enacted it.

Eric re-read the opinion this morning and offers this addendum noting that the New Jersey court looked at what the Illinois court had done and drew a distinction between the two constitutions.

The New Jersey Supreme Court held that COLAs are not protected pension benefits and are distinct from the pension annuity that a retiree is entitled to receive under New Jersey pension law. The New Jersey court focused on the lack of clear and unmistakable statutory language conferring COLA increases as a protected pension benefit. This is unlike what occurred in Illinois where the Illinois Supreme Court found that COLAs are part of the protected benefits that cannot be unilaterally changed. Indeed, in footnote 7 of the decision, the New Jersey Supreme Court notes how the statutory system regarding COLAs in Illinois is different from New Jersey.

The president of New York’s correctional officers union was arrested on Wednesday for steering pension money into a hedge fund in exchange for a percentage of the profit – all while circumventing the other trustees.

His partner in crime, a Platinum Partners hedge fund manager, was also arrested.

More from ai-cio.com:

Seabrook controlled an $81 million member retirement fund, according to the complaint. Despite board opposition, Seabrook allegedly signed over $20 million to Platinum in exchange for a 2% profit share—roughly $100,00 to $150,000 per year.

He is accused of receiving one payment in a luxury bag, along with extensive free travel.

“For a Ferragamo bag stuffed with $60,000 in cash, Seabrook allegedly sold himself and his duty to safeguard the retirement funds of his fellow correction officers,” said Manhattan US Attorney Preet Bharara at a press conference Wednesday.

[…]

Platinum reportedly specializes in assets others won’t touch: Payday loans, insurance products targeting the terminally ill, oil companies facing criminal charges, and—twice—Ponzi schemes.

The strategy has delivered substantial alpha for years, according to figures obtained by Reuters. One of Platinum’s two funds returned an average 17% annually since 2003, and the flagship 13.4% since 2005.

Platinum co-founder Murray Huberfeld offered Seabrook additional payouts if he could lead fellow institutions into the fund, the complaint stated.

Federal agents arrested Huberfeld at his home Wednesday.

Both men face up to 40 years in prison on fraud charges, the Department of Justice said.