Author: Ted Ballantine

Arizona Senate Passes Public Safety Pension Overhaul

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A proposed overhaul to Arizona’s public safety pension system sped through the state Senate on Thursday and is now headed for the House.

Pension360 covered the proposal earlier this week.

Unlike most bills proposing pension changes, this one is newsworthy because it has a real chance at becoming law; talks around the bill have been going on for months, and numerous parties – lawmakers, state officials, labor groups – have all been involved.

The bill passed the Senate unanimously on Thursday by a 28-0 vote.

More from the Arizona Republic:

Besides changes to cost-of-living adjustments, major provisions include a new tier for newly hired police and firefighters that limits maximum pension payments and requires employers and employees to share equally in payments to retirement accounts. New hires also would be given a choice of opting for a 401(k) style retirement plan rather than a plan with a guaranteed pension.

Current employees pay about 11 percent of their pay into the retirement plan, but employer contributions aren’t capped.

[…]

If the House and Gov. Doug Ducey follow the Senate in approving the package, voters will be asked to approve the deal in May, because current retiree cost-of-living adjustments would be lowered under the plan from 4 percent a year to a maximum of 2 percent.

The issue is pressing because public agencies have seen contribution rates to the Arizona Public Safety Personnel Retirement System soar to make up for the underfunding.

Peoria Republican Sen. Debbie Lesko negotiated the deal with public safety unions and employers across the state, making good on a promise she made a year ago.

“I had told the governor and his staff a number of months ago my goal was to pass major pension reform and do it unanimously,” she said as she explained her vote. “And I got some laughs and I got some chuckles, but hey, I think we’re going to get it done.”

As noted in the article, voters would have to approve the measure at the ballot box.

 

Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons

Dep. of Labor Sues 5th Largest Multiemployer Plan Over Alleged Fiduciary Breach

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The Department of Labor this month announced it had filed suit against the International Order of Machinists National Pension Fund – the 5th largest multiemployer pension fund in the country – for multiple alleged ERISA violations.

[Read the official complaint here.]

Details from BenefitsPro:

According to DOL, the trustees […] breached their fiduciary duty by failing to prudently select fund service providers, including consultants and fund investment managers; ignoring required procedures included in the fund’s governing plan documents; creating conflicts of interest for the fund; unlawfully soliciting and accepting gratuities from plan service providers; and spending and permitting others to spend fund assets lavishly on unnecessary trips, parties and extravagant food, wine, and accommodations.

[…]

The DOL’s lawsuit seeks a court order requiring the defendants to restore any losses suffered by the fund due to the alleged violations and requiring the fund to implement reforms to prevent future ERISA violations.

“This case clearly shows how the fund and its trustees shirked fiduciary responsibilities to the detriment of pension fund participants,” Michael Schloss, acting director of EBSA’s Philadelphia region, said in a statement. He added, “The department will not tolerate when fiduciaries fall short of their legal obligations, and will take every necessary action to hold them accountable.”

The plan is 101 percent funded and manages nearly $11 billion in assets.

Canada’s Biggest Pension Funds Walking Away From Some Infrastructure Deals in “Overheated” Market

Credit: Reuters
Credit: Reuters

Canada’s big pension funds pioneered the process of directly investing in infrastructure; as the above chart shows, the country’s largest funds are some of the biggest infrastructure investors in the world.

But those pension funds are starting to pump the brakes on big infrastructure deals in what one official calls an “overheated” market, according to a Reuters report.

More from Reuters:

Canada’s biggest pension funds say they are walking away from more and more global infrastructure deals, citing concerns that intense competition for assets has driven valuations too far.

Some investors, particularly in private equity circles, complain that the Canadian funds – dubbed “maple revolutionaries” because of the strategy of direct equity investments they pioneered in the 1990s – have a tendency to overpay.

Senior executives at the leading Canadian funds defend the merits of past infrastructure deals, but say they are worried prices no longer reflect the illiquidity of the assets, which cannot be sold quickly like stocks or bonds.

“The market is overheated. We have stepped out of the bidding for a lot of assets over the last two or three years,” a senior executive at one of Canada’s biggest public pension funds, who declined to be named, told Reuters.

[…]

Canadian executives said their funds should avoid being drawn into bidding wars as part of competing consortia.

“You’ve got to try and avoid auctions because they can get crazy. If you’re just walking around with an open cheque book in these markets you’re going to pay too much,” said another executive with one of Canada’s three largest pension funds, who declined to be named because of the sensitivity of the issue.

The whole article is worth reading, and is filled with insights from anonymous pension officials, investment bankers and private equity insiders.

Study: California Teachers Better Off With DB Plans Than 401(k)s

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Defined-benefit pension plans provide better retirement security than 401(k)s for a vast majority of California teachers, according to a study out of UC Berkeley.

The study found that the effects of DB plans are two-fold: they encourage teachers to stay in the profession despite modest salaries, and they encourage older teachers to securely retire and make room for younger generations in the workforce.

From Berkeley News:

Study findings include:

– For six out of seven teachers, or 86 percent of CalSTRS active members, the defined benefit pension provides a greater, more secure retirement income than a 401(k)­-style plan.

– A typical classroom teacher today can expect to retire from their career at approximately age 61, and 49 percent of teachers will retire with 30 or more years of service.

– Three­-quarters of classroom teaching is performed by teachers who will have been covered by CalSTRS for at least 20 years by the time they retire.

– The defined benefit pension becomes more valuable than a 401(k) at age 51 for vested teachers hired before age 35, and earlier for those hired at older ages.

– Some 86 percent of active teachers in the state will stay in California schools until at least age.

– Forty percent of new hires leave before the five-­year vesting period and do not return to the education system covered by CalSTRS, and many leave the profession altogether. These early leavers account for just 6 percent of teaching positions.

“This study rebuts the myth put forward in several studies that seek to show that teachers will not benefit, or even vest, in a defined benefit retirement plan,” said CalSTRS chief executive officer Jack Ehnes. “Since California educators do not receive Social Security benefits for their CalSTRS­-covered employment, a modest but secure retirement income is essential for their future well-being.”

Read the full report here.

 

Photo by cybrarian77 via Flickr CC License

CalSTRS Board Votes to Exit U.S. Coal Holdings

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The CalSTRS board on Wednesday voted to divest from U.S. thermal coal holdings that account for about $40 million of its portfolio.

The vote comes after a state law, passed last year, required the pension fund to drop its coal holdings – as long as the fund didn’t violate its fiduciary duty in doing so.

More from Reuters:

Coal companies make up only about $40 million of the fund’s $186 billion portfolio, but lawmakers in Sacramento targeted those investments on the basis that burning coal significantly contributes to global climate change.

The four companies impacted by the decision are Cloud Peak Energy, Hallador Energy Company, Peabody Energy Corporation, and Westmoreland Coal Company, Calstrs said.

The U.S. coal industry is suffering from a glut of cheap natural gas, coal’s primary competitor for power generation, and oil. Weak demand helped push coal producer Arch Coal Inc into bankruptcy last month.

The law included language saying that the Calstrs and the California Public Employees’ Retirement System (Calpers) did not have to divest from coal if doing so would violate its “fiduciary duty” to members.

“We determined that given the financial state of the industry, the movement of the regulatory landscape and coal’s impact on the environment, its presence reflects a loss of value,” said Sharon Hendricks, chair of the investment committee.

The board will now consider whether to take similar action on its non-U.S. coal holdings.

 

Photo by  Paul Falardeau via Flickr CC License

Coalition in Congress Pushing Against Teamsters Pension Cuts

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The Multi-employer Pension Reform Act of 2014 allows some underfunded multi-employer plans to cut benefits in certain situations.

The Central States Pension Fund – which covers 400,000 truckers across the U.S. – started the process of enacting benefit cuts last summer.

Now, a coalition of Congressmen and women – 90 lawmakers in all – are asking the U.S. Treasury to reject the benefit-slashing proposal.

From the Detroit Free Press:

U.S. Rep. Debbie Dingell led a coalition of dozens of members of Congress is signing a letter to the U.S. Treasury asking that a proposal to make steep cuts to retiree benefits for truckers under the Central States Pension Fund be rejected.

“This is an issue of fundamental fairness,” Dingell said. “These employees worked a lifetime thinking they would have a pension to retire on, and now they don’t know what they will live on. These cuts would have a devastating impact on workers, retirees, families and whole communities.”

Treasury officials are holding a series of hearings around the nation to consider the proposal, including one set for next Monday, Feb. 8, at 4:30 p.m. at the Wayne State University General Lectures Building, Room 100, 5045 Anthony Wayne, in Detroit.

Nearly 90 members of Congress signed the letter, including U.S. Rep. John Conyers, D-Detroit, which was sent to Kenneth Feinberg, who was appointed in June by Treasury Secretary Jacob Lew to serve as special master to oversee the implementation of the Multi-employer Pension Reform Act of 2014.

The executive director of the Central States fund, Thomas Nyhan, argued over the summer that enacting benefit cuts was the only way to avoid the fund’s complete, eventual collapse.

In 2015, Lowest Returns for Public Pensions Since 2008

Graph With Stacks Of Coins

2015 was a difficult year for the portfolios of public pension funds; the median plan returned just 0.36 percent, according to the Wilshire Trust Universe Comparison Service.

But public pensions still beat out corporate plans and endowments. Those institutions posted negative returns of -0.37 percent and -.045 percent, respectively, according to the Wilshire data.

More from Bloomberg:

Public pensions with more than $5 billion of assets invest less in U.S. stocks and more in alternatives like private-equity and hedge funds, with a median allocation of 16.1 percent to “alternative investments.” Those retirement systems had a median return of 0.54 percent in 2015, little more than the others.

“This is another year where it’s been difficult to sing the praises of diversification — when one of the top asset classes is the one you’re diversifying out of, which is U.S. equities,” said Waid.

“When you start to look at the other asset classes that you diversify into, you didn’t do well,” he said, referring to international and emerging-market stocks and commodities.

[…]

States and cities are slowly lowering their investment-return assumptions. New York Comptroller Thomas DiNapoli lowered the state pension fund’s assumed rate to 7 percent in September. California’s Public Employees’ Retirement System, the largest U.S. pension, is also slowly cutting its investment target, now 7.5 percent.

Public pensions returned a median 7.93 percent for the three years ending in December, 7.37 percent over five years and 5.99 percent over 10 years, according to Wilshire TUCS.

The median plan had a 44 percent allocation in U.S. stocks, according to Wilshire.

 

Photo by www.SeniorLiving.Org via Flickr CC License

Emanuel Looks to Raise Property Taxes for Teacher Pensions, Sooner Than Later

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Chicago Mayor Rahm Emanuel is promising to raise the city’s property taxes – possibly by $170 million annually – to help fund teacher pensions.

The plan has been in the works for months, but there was an added twist this week: now, Emanuel plans to move forward with the tax hike even before state government decides whether to get involved in the school system’s finances.

The proposed hike comes just months after another big property tax increase.

From the Chicago Sun-Times:

[Emanuel is] promising to forge ahead with the school property tax increase even before Springfield does its part.

And he’s vowing to deliver the 26 votes needed for City Council approval of that increase, even though aldermen voted four months ago to raise property taxes by $588 million for police and fire pensions and school construction.

[…]

A top mayoral aide said Tuesday that a City Council vote may not be required after all. It all depends on how state legislation reinstating the teacher pension levy is worded.

If the language is the same as it was before the teacher pension levy was abolished in 1995, the City Council would be off the hook. The appointed Chicago Board of Education could wear the jacket.

As for Emanuel’s promise to forge ahead with the school property tax increase even before the state holds up its end of the so-called “grand bargain,” City Hall pointed to the commitment made by Senate President John Cullerton (D-Chicago) to revise the state school aid formula in a way that delivers $200 million in “pension parity” to Chicago Public Schools. In his State of the State address, Rauner promised to work with Cullerton.

“The state is working on it. The governor is working on it. The speaker is not opposed. The pieces don’t line up in order the way you want them to. But it’s part of an agreement being negotiated with the teachers,” the Emanuel aide said.

Several alderman quotes by the Sun-Times were starkly opposed to approving another property tax increase.

 

Photo by bitsorf via Flickr CC License

Pennsylvania Gov. Looks to Shutter Pension Commission

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Pennsylvania Gov. Tom Wolf is looking to dismantle the state’s Public Employee Retirement Commission (PERC), a state-run group that provided review and analysis of municipal pension systems and pension-related legislation.

The Commission’s fate was all but sealed back in December, when Wolf cut its funding out of the state budget.

Wolf believes the Commission – which has 4 full-time employees – is not worth the cost because its work is redundant.

More from the Pittsburgh Post-Gazette:

“We are moving forward with the process of shutting down PERC,” Jeffrey Sheridan, spokesman for Mr. Wolf, said in an email Monday.

In a phone interview, Mr. Sheridan said the administration believes the State Employees’ Retirement System and Public School Employees’ Retirement System already provide thorough and independent analysis of pension legislation.

“The actuarial analysis provided by PERC is redundant and unnecessary and an expense the commonwealth does not need,” he said.

The commission has four employees and one temporary employee, said executive director James McAneny.

Mr. Sheridan said the Office of Administration is working to help employees who want to continue working for the state find other jobs.

Mr. McAneny said he had not been advised of a plan to close the commission, but noting the line-item veto, he said such a move did not come as a surprise. He said he would be concerned about the work the commission does in reviewing the thousands of municipal pension plans in the state.

Mr. Sheridan said the administration believes those functions can be performed by the Pennsylvania Municipal Retirement System.

The Commission’s website can be viewed here.

 

Photo by jypsygen via Flickr CC License

Arizona Senate Considers Big Overhaul of Public Safety Pensions

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A proposed overhaul of public safety pensions was introduced in the Arizona Senate on Monday.

The proposal is newsworthy because talks have been going on for months, unions have been involved in the process, and at least 25 senators have signed on as co-sponsors – although passage of the plan is far from guaranteed, as voters will have to approve a portion of the bill.

More details from the Associated Press:

That part of the proposal changes the way yearly benefit increases that are sapping the trust fund are calculated. The way the plan is now set up, excess earnings from the pension trust are put into a fund that doles out automatic increases in most years. The problem is that when the fund sees losses, as it did during the Great Recession, excess cash in flush years can’t make up the difference because it is sent to the cost-of-living-adjustment fund.

The new proposal would change the payout to just actual cost-of-living increases or two percent a year, whichever is greater. Currently, boosts can be as much as 4 percent. That should help stabilize the current fund, which has sunk to just 50 percent of its expected liabilities, with $6.2 billion in assets and $12.7 billion in liabilities.

New hires to police and fire departments statewide would be placed in a new retirement fund with higher employee contributions, minimum age and years of service before full pensions are payable and caps on maximum payouts.

New hires also would be given a choice of opting for a 401(k) style retirement plan rather than a plan with a guaranteed pension. New employees in cities and town agencies that don’t participate in the Social Security system will be given a new 3 percent match to put into a 401(k)-style account.

The bill’s backers are aiming to place the measure on the May 17 ballot. That would require smooth sailing through the Senate and then the House, which isn’t a guarantee.

 

Photo by: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Entering_Arizona_on_I-10_Westbound.jpg#mediaviewer/File:Entering_Arizona_on_I-10_Westbound.jpg


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