Author: Ted Ballantine

Three years ago, workers at the now-bankrupt R.G. Steel – a company owned by multibillionaire Ira Rennert – saw their pensions cut as the company cut ties with its pension fund.

But in a settlement announced Friday, those pension cuts have been reversed – something which has happened only in exceptionally rare instances.

More from the New York Times:

The retirees’ victory is only the second time in 42 years that the federal Pension Benefit Guaranty Corporation has required a company to unwind a pension “termination” — a dreaded deal in which a bankrupt company cuts off a pension fund and leaves it for the government to take over. The government insures company pensions, but its insurance is limited, so retirees can face sharp losses.

In a settlement announced Friday, Mr. Rennert’s sprawling conglomerate, the Renco Group, will be required to pay — in full — the pensions of about 1,350 retirees who worked at a subsidiary, R.G. Steel, which went bankrupt in 2012 and is being liquidated. That means reversing pension cuts that were made in their plan’s termination.

Tom Reeder, executive director of the pension insurer, called the settlement “an extraordinary outcome for plan participants” because it is so rare for pensions to be cut and then restored to their original value.

The settlement dates the restoration to November 2012, the termination date and is meant eventually to make the retirees whole for the money they missed in the period when their benefits had been reduced. Mr. Reeder also said Renco had agreed to reimburse the pension agency for its outlays.

Part of the reason the cuts were reversed is because, although R.G. Steel was bankrupt, its parent company was still flush.

 

Photo by Joe Gratz via Flickr CC License

Pew recently released a report on ways to improve transparency at state pension funds.

The report called for all pension funds to report their investment performance both gross of fees and net of fees – something which many, but not all, funds do.

See the map above for a breakdown of which state pensions report their performance net of fees.

From the report:

Clear information that accounts for the costs of managing assets is needed to fully understand investment performance. Still, more than one-third of plans examined do not disclose detailed returns minus the fees paid to managers, or “net of fees.” For 10-year results, 27 of 73 plans studied, or 37 percent, reported returns “gross of fees”—without deducting manager fees.

Reporting performance both gross and net of fees gives stakeholders information on both the cost and bottom-line results of pension funds’ investment strategies. A direct comparison of returns on a net and gross basis is a clear and easy method for examining the impact of fees on fund performance.

Read the full report here.

Low interest rates are driving European pension funds to increasingly shift into property investments – commercial and residential – both directly and through investment funds, according to a report.

One EU regulator, the European Insurance and Occupational Pensions Authority, is keeping a close watch on the trend.

More from Reuters:

Traditionally conservative European insurers and pension funds are turning increasingly to risky property bets on everything from new homes in provincial Britain to car parks at Brussels airport, as they feel the pinch from rock-bottom interest rates.

While much is in the form of equity stakes, they are also providing loans secured against property, moving into territory where banks have retreated since the global financial crisis.

“The banks have taken a couple of steps back and are not providing the same amount of credit,” said Johan Held of AFA, a Swedish insurer which has spent one in seven euros of a 20 billion euro ($22 billion) fund on property. “Many of the insurance companies are stepping in to fill the gap.”

At the moment, property, at least in many northern European cities, offers far better returns than conventional investments such as bonds, where yields have been dismal since central banks flooded the financial system with cheap money to revive their economies.

[…]

In a recent report on financial stability, the European Insurance and Occupational Pensions Authority signalled it is closely watching developments, noting “an increased risk appetite” since 2008 to preserve investment returns.

The report pointed to insurers turning to investments “previously dominated by the banking industry” – mortgages, infrastructure loans and mortgage backed securities.

Click here for a graphic detailing home loans over time in key EU countries.

 

Photo by  Horia Varlan via Flickr CC License

When it comes to alternative investments and management fees, public pension funds in the U.S. could improve their level of transparency, according to a new report from Pew.

The report makes several recommendations for improving transparency, including making investment policy statements more accessible and implementing comprehensive fee reporting standards.

More on the report, from BenefitsPro:

Researchers looked at the fee disclosure policies of the 73 largest funds, which collectively account for $2.9 trillion, or 95 percent of all public pension assets.

While all of those plans receive disclosure guidance from the Government Accounting Standards Boards, states are left to their own devices when it comes to interpreting and implementing that guidance.

In 2013, state pensions allocated 25 percent of assets to alternative investments like private equity and hedge funds, or more than twice the 11 percent that was invested in alternatives in 2006.

[…]

The Pew brief calls for comprehensive reporting standards that would include all the costs of alternative investments, including carried interest earned by private equity managers.

It also recommends all pensions make investment policy statements available online, and disclose funds’ returns both net and gross of fees. Of the funds it reviewed, 37 percent reported returns gross of fees, meaning they did not deduct management costs.

Pew’s brief also recommends reporting performance by asset class, and expanding performance history to 20 years.

Read the report here.

 

Photo by thinkpanama via Flickr CC License

The Government Accountability Office (GAO) will launch an examination of whether the U.S. Department of Labor could have prevented the funding crisis currently swallowing the Central States Pension Fund.

The Central States Pension Fund, the retirement fund of the Teamsters labor union, announced plans last year to significantly cut member benefits.

More from the Minneapolis Star Tribune:

The nonpartisan Government Accountability Office will review the U.S. Department of Labor’s oversight of the fund, the office wrote in a Feb. 12 letter to Sen. Chuck Grassley, R-Iowa. Grassley requested the probe Feb. 1.

“Plan beneficiaries deserve to have a better understanding of what led to the financial failings of Central States and ultimately put their retirement at risk,” Grassley said Tuesday.

“Congress needs to have a better understanding of what happened with the Department of Labor’s oversight of this pension plan so that any corrective actions, if necessary, can be taken.”

The Labor Department has monitored the giant ­Teamsters union retirement fund for more than three decades. Labor obtained a federal court-ordered consent decree ­following its own investigation of gross mismanagement of the fund and self-dealing by fund managers. Grassley said the consent decree gave Labor considerable oversight authority in choosing independent fund managers and changing investment strategies.

Yet the fund slid into crisis under Labor’s watch and is now more than $16 billion in the red. To the fury of retirees and workers, the fund is seeking to slash retirement benefits under the controversial Multiemployer Pension Reform Act of 2014.

The proposed cuts would affect over 250,000 Teamsters members.

 

Photo by  Bob Jagendorf via Flickr CC License

Last month, Bloomberg reported that Japan’s Government Pension Investment Fund (GPIF) would have to buy $54 billion worth of stocks to meet its allocation target of 25 percent.

Now, a report from a brokerage firm suggests the pension fund has room to add billions worth of local stocks to its portfolio in the near future.

From Bloomberg:

The world’s biggest retirement fund has scope to buy $47 billion in Japanese shares after they tumbled this year, according to Daiwa Securities Group Inc.

The 139.8 trillion yen ($1.2 trillion) Government Pension Investment Fund’s domestic equities probably fell to about 21 percent of assets at the end of February, short of the 25 percent goal for such investments, the brokerage wrote in a report published Tuesday. That means the Japanese fund could purchase as much as 5.3 trillion yen in shares, it said. GPIF may cut domestic bonds by 11.2 billion yen as holdings probably exceed their target, according to Bank of America Corp.’s Merrill Lynch unit.

[…]

“GPIF investment in Japanese stocks might well underpin prices even as stocks feel downward pressure due to concern about the global economy,” Merrill Lynch strategists led by Shuichi Ohsaki wrote in a report Tuesday. If equities continue to weaken, GPIF “will probably have to further rebalance its portfolio.”

There are signs Japan’s public retirement managers have already been adding to holdings. Trust banks, whose clients include pension funds, purchased a record 500 billion yen in local stocks in the week ended Feb. 19, a 13th straight week of net buying.

GPIF manages $1.3 trillion in assets.

 

Photo by Ville Miettinen via Flickr CC License

Japan’s Government Pension Investment Fund (GPIF) posted a 3.6 percent return in the 4^th quarter of 2015, making it the fund’s best quarter of the year.

The boon is welcome after a 3^rd quarter in which the fund posted its worst return since 2008.

More from Bloomberg:

The results provide some respite for Prime Minister Shinzo Abe, who oversaw the fund’s doubling of its allocation to stocks, after GPIF had its worst loss in comparable data starting from April 2008 in the previous three months. They came as Japanese and global equities rebounded at the end of last year from a slump following China’s shock currency devaluation. Still, the gains will probably prove fleeting as share markets resumed their downturn in 2016, an election year in Tokyo.

“The return from Japanese stocks was a little bigger than expected. They must have been adding to holdings,” said Shingo Ide, chief equity strategist at NLI Research Institute in Tokyo. Still, “Japan’s investing environment is getting worse. GPIF is quickly blamed for losses and they might find it hard to take risk.”

GPIF held 38 percent of assets in Japanese debt as of Dec. 31 and 23 percent in the nation’s equities, according to the statement. The fund had 14 percent of holdings in foreign bonds and 23 percent in overseas stocks. Alternative investments made up 0.04 percent. GPIF targets 25 percent each for shares at home and abroad, 35 percent for local bonds and 15 percent for overseas debt.

Most of GPIF’s equity holdings are passive, which means performance tends to track benchmark gauges. The Topix index of Japanese stocks had a total return of 9.8 percent in the quarter ended December, including reinvested dividends, while GPIF posted a 9.9 percent gain on local shares.

GPIF oversees $1.3 trillion in assets and is the world’s largest pension fund by AUM.

 

Photo by Ville Miettinen via FLickr CC License

An Illinois House committee on Monday weighed two proposals that would allow state workers, at their time of retirement, to “buy out” of their pension and take a lump sum.

The sponsors of the proposals argue that they would pass constitutional muster because benefits aren’t reduced.

From the Pantagraph:

The House Personnel and Pensions Committee held its first hearing Monday on proposals from Republican state Reps. Mike Fortner of West Chicago and Mark Batinick of Plainfield. Both plans would allow workers to choose at retirement whether they want to take their money out of one of the state pension systems with the goal of giving the retiree more control over their money while helping to cut down the state’s $111 billion in unfunded pension liabilities.

[…]

At retirement, a worker would be able to take 75 percent of the “net present value” of his or her pension, not just amount he or she put in. Currently, the average value is about $700,000, Batinick said.

The retiree would then be out of the state pension plan, thus reducing the unfunded liability in the system.

Retirees would benefit from having more control over how their money is invested and taxed, and they would be able to will it to their families, which isn’t possible with pensions, Batinick said.

Representatives from the major state retirement systems attended the hearing, and, according to the Pantagraph, didn’t express outright opposition to the proposals.

 

Photo credit: “Gfp-illinois-springfield-capitol-and-sky” by Yinan Chen – www.goodfreephotos.com (gallery, image). Via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Gfp-illinois-springfield-capitol-and-sky.jpg#mediaviewer/File:Gfp-illinois-springfield-capitol-and-sky.jpg

A U.S. Senate hearing, scheduled for Tuesday at 9 a.m. CST, will focus on recent reforms aimed at multiemployer pension plans.

A 2014 federal law allows multiemployer plans to cut benefits in order to “right ship”.

More from the Kansas City Star:

The Senate Finance Committee will take up “The Multi-employer Pension Plan System: Recent Reforms and Current Challenges” at 9 a.m. Central.

Central States, which covers 400,000 workers and retirees, has said it needs $11 billion to avoid collapse in the next 10 years. It has proposed cutting the benefits of current retirees, many by half or more, under a controversial 2014 law.

[…]

Presenters scheduled for the Washington hearing include Rita Lewis, an Ohio woman who receives benefits from Central States as the widow of a driver who died late last year.

The U.S. Treasury has tapped mediator Kenneth Feinberg to decide whether the Central States proposal meets the requirements of the 2014 law.

Others scheduled Tuesady are Joshua Gotbaum at the Brookings Institute, Andrew G. Biggs at the American Enterprise Institute and Cecil E. Roberts Jr. with the United Mine Workers of America.

Watch the hearing live here.

 

Photo by  Bob Jagendorf via Flickr CC License