Author: Ted Ballantine

A bill that would require greater transparency from Kentucky’s pension systems was approved by a House panel on Thursday.

The measure would completely overhaul the oversight of several of the pension systems’ actions, including the hiring of outside money managers.

Kentucky Retirement System officials have spoken out against the “drastic” changes.

More from the Courier-Journal:

Senate Bill 2 would require the pension systems to use open, competitive bidding procedures when hiring investment managers and to accurately disclose the millions of dollars in fees they pay those managers. Unlike most state agencies, the pension systems are presently free to hire investment managers based on their own discretion, withholding those contracts from outside review.

The bill also sets new standards for the boards overseeing the Kentucky Retirement Systems and the Kentucky Teachers’ Retirement System. For example, the Senate would have to confirm the governor’s six appointees to the KRS board, as well as the KRS executive director. Several lawmakers were upset last year when the KRS board awarded a 25 percent pay raise to its executive director, Bill Thielen, taking him to $215,000 a year.

Finally, the bill would force the Kentucky Judicial Form Retirement System — which provides pensions to legislators and judges — to create a website that provides the same financial and management information about itself that KRS and KTRS long have offered online, such as audits, investment returns and board meeting reports.

[…]

Thielen, the KRS executive director, spoke against what he called “drastic changes to the oversight of our system.” He said the KRS board currently approves the hiring of all investment managers following vetting by KRS staff. Forcing KRS to accept competitive bids for investment management would yield a large number of unqualified applications, making the process more cumbersome, he said.

The text of the bill can be read here.

 

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Earlier this year, an independent report commissioned by New York City Comptroller Scott Stringer found that “operational failure is likely” in the investment office of New York City’s pension funds due to lack of resources and under-staffing, among other things.

[Read the report here.]

At the investment meeting for the city’s pension funds on Wednesday, CIO Scott Evans – who manages the pension funds’ pooled portfolios – outlined the reforms he’s implementing to address the issues revealed in the report.

From ai-cio.com:

Miles Draycott has been brought on as the bureau’s first chief risk officer to tackle operational risks, while new Strategic Initiatives Director Cara Schnaper is focusing on areas including technological needs and reporting processes.

“Right now, our fund accounting processes are clunky to say the least,” Schnaper said during a presentation of the bureau’s roadmap for reforms. “If we don’t get out of all the noise we’ll never be able to look at what’s really on the table.”

Evans estimated that the technology alone needed to improve the bureau’s operations and reporting will cost more than $2 million—more than quadruple the $463,845 grant currently awarded to the bureau for non-personnel expenses.

“We were built to support a stocks and bonds portfolio,” Evans said. “You can’t manage a modern portfolio with an infrastructure that is not robust and that is not suited for the task.”

As for personnel expenses, Evans is requesting an additional $1.3 million to bring the total staff count up to 71. Currently, the bureau employs 48 staffers, with the authorization to hire 13 more.

The CIO is also seeking funding for training programs for bureau employees.

“We want to develop our people,” he said. “Right now we’re not spending any money on training.”

The report contained 240 recommendations in all.

 

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Former Canadian Prime Minister Stephen Harper had planned to raise the country’s retirement age to 67.

But current PM Justin Trudeau said this week that was a “simplistic solution […] to a complex problem”, and indicated the retirement age would stay at 65.

More from the Toronto Star:

Canada will keep its retirement age at 65, Prime Minister Justin Trudeau says.

The Stephen Harper Conservative government had planned to raise the retirement age to 67, but Trudeau said that this won’t be happening in next week’s budget.

“Tweaking the age like that is a very simplistic solution — that won’t work — to a complex problem,” Trudeau said on Thursday morning in a question and answer interview with Bloomberg News in New York.

Trudeau said he prefers a “nuanced and responsible discussion” about retirement, arguing that investment bankers and lawyers don’t put their bodies through the same physical strains as manual labourers.

He defended his plans to invest in the middle class and said he’s not worried about driving the wealthy out of the country.

“We have nothing against success in Canada,” Trudeau said.

He acknowledged that Canada is on the other side of the fiscal debate than Germany and the United Kingdom, and said that Canada is in a strong position to take advantage of low interest rates through investment.

 

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Canada’s largest pension funds are urging Prime Minister Justin Trudeau to think big when it comes to infrastructure – that is, if the country wants to attract private investors, like pension funds, to the projects.

Seven of Canada’s pension funds rank among the top 30 infrastructure investors globally.

More from Bloomberg:

Canada’s largest pension funds have advice for Justin Trudeau’s government as it prepares to double its infrastructure investments over the next decade: follow the Australian model and think big.

“What are we looking for? We’re looking for projects of scale,” said Mark Wiseman, chief executive officer of Canada Pension Plan Investment Board, the country’s largest pension fund with C$283 billion in assets.

The Canadian government isn’t expected to provide extensive details of its infrastructure plan in the March 22 budget because it’s still developing a long-term strategy. Federal officials have said an extra C$10 billion will be made available over the next two years while it crafts a broader strategy to deploy an additional C$20 billion to each of three silos over the next decade: public transit, green infrastructure, and social infrastructure.

[…]

The challenge for larger funds to invest in traditional public-private-partnerships is that the equity stake — and in turn the reward — is often too small for them to pursue, said Andrew Claerhout, head of the infrastructure group for Ontario Teachers’.

Canada’s largest pension funds collectively manage more than $560 billion in assets.

 

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Numerous surveys in recent months have found that more than ever, pension funds are figuring environmental, social, and governance (ESG) risks into their investment analysis.

There’s good reason for that: as a new study commissioned by CalSTRS demonstrates, climate change will likely expose pension funds to equity losses.

Mercer studied the potential effect of climate change policies on CalSTRS portfolio. Details from ai-cio.com:

The California State Teachers’ Retirement System (CalSTRS) could lose as much as $123 billion by 2050 as a result of climate change policies necessitated by the Paris Agreement, according to Mercer.

In particular, Mercer said US and developed-market equities—which make up up nearly half of CalSTRS’ total exposures—would be negatively impacted by policies aimed at preventing a temperature increase above 2 degrees, as companies would have to significantly reduce their emissions in short time span. When private equity is also taken into account, exposures with significant negative impacts over 35- and 10-year horizons “would account for more than 60% of CalSTRS total fund,” Mercer said.

While the $179.4 billion pension fund is “reasonably well insulated” against scenarios in which temperatures rise above 2 degrees Celsius, a Mercer assessment found that the “strength and scale of response” required to keep global warming below that benchmark would expose CalSTRS to significant equity losses.

To address these risks, the consultant recommended that CalSTRS reallocate some passive exposures toward lower-carbon indexes, allocate a larger portion of active equities to managers focused on sustainability, and increase its exposures to emerging market equity.

Read the full study here.

 

Photo by Stephen Curtin via Flickr CC License

CalPERS has joined CalSTRS and other institutional investors in a $3.57 billion lawsuit against German automaker Volkswagen.

Shareholders have suffered since a 2015 scandal that led to the company’s shares plummeting by 33 percent in five months.

More from the Associated Press:

Institutional investors are suing automaker Volkswagen in a German court, seeking 3.25 billion euros ($3.57 billion) in damages over the company’s diesel emissions scandal.

Attorney Andreas Tilp said Tuesday in a statement that the suit was joined by investors from 14 countries, including the U.S., Australia, Germany, Canada, the Netherlands, and the U.K. Among the plaintiffs is CalPERS, the giant pension fund for government employees in California.

Tilp has already filed a suit on behalf of individual investors, claiming Volkswagen didn’t inform investors in a timely way about the troubles with diesel cars.

Volkswagen is being sued by U.S. authorities over 600,000 cars equipped with software that defeated diesel emissions tests. The company has apologized and said it will fix the cars. Some 11 million cars worldwide are affected.

CalPERS is fresh off a settlement with Moody’s over negligent bond ratings.

 

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Russia is weighing whether to abolish its mandatory pension savings program, in which workers contribute portions of each paycheck to a retirement savings fund, according to Reuters.

The country’s State Pension Fund is in funding trouble because Russia has re-directed billions in contributions over the last few years; the program was also hurt by Western sanctions and the state of oil prices.

More from Reuters:

Russia’s economic policy makers are in talks to abolish compulsory contributions to employees’ managed pension funds that had been aimed at sustaining the long-term health of the system, three sources close to the government said.

The finance ministry and the central bank, who for years had resisted the pressure to scrap the mandatory payments because of worries about the future fiscal burden of pensions, have now conceded the point and are crafting ideas instead on how to encourage voluntary retirement savings, the sources said.

[…]

While the move would ease the burden on the state budget, it could potentially reduce funds for long-term investment in capital markets if officials fail to ensure that Russians save for retirement on their own.

Under the current system, the state divides the funds paid by employers for each employee into two parts, with the larger portion going straight to current state pension payments and a smaller part to the employee’s individual pension saving account.

The second part, known as the mandatory accumulative pension, is usually invested in financial instruments by the state or privately-managed funds.

Russia is set to contribute $42.63 billion to its pension system in 2016, a 33% increase over 2015.

A high-profile pension lawsuit begins on Monday in the halls of the New Jersey Supreme Court.

The suit, brought by state retirees, argues the state unlawfully froze pension cost-of-living adjustments in 2011 as part of a sweeping reform law. As part of the deal, the state promised to stick to a strict pension contribution schedule. But it quickly reneged on its side of the bargain.

More from NJ.com:

Berg v. Christie, or the COLA case as it’s known, again pits public workers against the administration, though this time for allegedly violating their contractual right to cost-of-living increases.

[…]

Public workers will argue before the New Jersey Supreme Court on Monday morning that the state unlawfully froze their increases as part of a 2011 pension reform law that reduced workers’ benefits to save money. The state contends they are not a protected part of the benefits package.

The appellate court in 2014 ruled that retired workers were guaranteed COLAs by contract.

Retirees had lost at the trial court level, where a judge found that, based on a clause that gives lawmakers and the governor discretion over annual state spending, the state couldn’t be forced to pay cost-of-living increases. The three–person appellate panel disagreed, saying that clause was irrelevant, because “pensions are neither funded by appropriations on a pay-as-you-go basis… nor is their payment contingent on the making of a current appropriation.”

[…]

The state’s high court has been asked to determine whether COLAs are part of workers’ nonforfeitable right to pension benefits that lawmakers granted in 1997.

If the court sides with retirees and COLAs are re-instated, the pension system would see its unfunded liabilities jump by over 20 percent, from $40 billion to about $53 billion, according to Moody’s.

 

Photo by  Lee Haywood via Flickr CC License

The top executive from OPTrust – the entity which administers the Ontario Public Service Employees Union Pension Plan – said on Monday he sees opportunity in volatile markets around the world.

The pension fund had a strong showing in 2015, returning 8 percent.

More from Reuters:

Chief Executive Hugh O’Reilly said he expected market conditions to remain difficult in 2016, but noted that could present opportunities for long-term investors.

“We expect that we’ll continue to see volatility on stock markets worldwide and the low interest rate environment will continue,” he said in an interview with Reuters. “We may use our liquidity to take advantage of market distortions as they arise later in the year.”

OPTrust, which administers the Ontario Public Service Employees Union Pension Plan, said its net assets had grown to C$18.4 billion at the end of 2015, compared with C$17.5 billion a year earlier, helping it maintain the net surplus position it has had since 2009.

OPTrust tweaked its investment strategy in 2015 to focus on maintaining its fully funded status against the backdrop of ongoing market volatility, economic uncertainty and persistent low interest rates.

The average Canadian public pension plan returned 5.4 percent in 2015, according to RBC Investor & Treasury Services.

 

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A Florida bill, which is headed to the desk of Gov. Rick Scott, would allow Jacksonville to extend the timeline over which it is required to pay down its unfunded pension liabilities.

Florida municipalities have 30 years to pay off their pension debt; the bill would let Jacksonville go beyond that period.

The result would be less burdensome pension payments in the near-term. But the plan is more costly in the long-term.

More from the Florida Times-Union:

State law says local pension plans can spread out the payoff of their unfunded pension liabilities over a 30-year period. The bill approved by the Legislature would grant Jacksonville the ability to go “beyond the 30-year maximum period,” according to an analysis of the bill by the Department of Management Service.

In a Feb. 5 analysis of the pension bill, the department says provisions in the legislation might run counter to state law’s goal of preventing the transfer of pension costs to “future taxpayers that should reasonably be borne by current taxpayers.”

The bill gives Jacksonville two options for gaining financial benefits before the sales tax money actually starts flowing:

■ The city could take the projected sales tax revenue from 2030 through 2060 and convert into a present-day value, which would count on paper as a financial asset. As a result, the city’s required contribution to the pension plan would be less.

■ The city could borrow money and use it to help pay a portion of the annual pension cost. The city would repay the borrowed money when the pension tax begins.

In addition, Jacksonville would gain some immediate financial relief on pension costs by being able to spread the payoff beyond the 30-year maximum period that applies to pension plans in the state. Jacksonville would only be able to get the financial breathing space if voters approved the half-cent sales tax.

 

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