Author: Ted Ballantine

On Monday, the U.S. Supreme Court declined to review a case between accounting firm PricewaterhouseCoopers and a number of employees who claim the firm violated federal benefit law.

The employees in question took lump-sum retirement payments but didn’t receive the full value of their accounts. An appeals court previously ruled in favor of the employees.

More from Reuters:

PricewaterhouseCoopers may face increased pressure to settle a decade-old lawsuit with a class of employees who took lump-sum retirement payments between 2000 and 2006 after coming up short on Monday in its bid for U.S. Supreme Court review.

PricewaterhouseCoopers has been fighting claims that its plan deprived certain workers of “whipsaw payments,” which guarantee that participants who take lump-sum payments once they retire receive the full value of their accounts. The U.S. Congress eliminated mandatory whipsaw payments in 2006.

The accounting firm’s pension plan required workers to achieve five years of service prior to vesting. The Employment Retirement Income Security Act mandates that employees be fully vested in pension plans once they reach “normal retirement age,” though companies have latitude to define that term and it does not have to be the same age for every employee.

The workers suing PricewaterhouseCoopers had more than five years of service and say they were short-changed because they received lump-sum payments of only the cash balance of their retirement accounts without the additional amount from proper actuarial calculations.

The 2nd U.S. Circuit Court of Appeals in Manhattan ruled in 2015 that the company’s plan ran afoul of ERISA’s requirement that employers set vesting ages that have reasonable relationships to a normal retirement age for the industry, from 65 for office workers to 35 for baseball players.

PwC claims that the appeals court ruling conflicts with previous rulings, thus requiring the Supreme Court to step in and clarify.

Photo by Joe Gratz via Flickr CC License

The San Diego City Council on Monday is considering a proposal, made by the Mayor’s office, which would establish a $20 million reserve account for use when the city’s pension payments are higher than expected.

From KPBS:

The mayor’s office has proposed establishing a pension payment stabilization reserve account, equal to 8 percent of the average of the last three years of city contributions to the San Diego City Employees Retirement System. That would equate to about $20.8 million.

Several members of the City Council, however, have balked about tying up the money for one use. Councilman Todd Gloria proposes to increase a general fund reserve account instead.

Most of the city’s contribution to the pension system comes from the general fund, which pays for basic services like public safety and libraries.

The amount the city pays into SDCERS in a given year depends on a variety of factors, including the performance of the pension system’s investment portfolio and the discount rate — a determination of expected risk- free future returns.

The SDCERS board recently lowered its discount rate, so the city will have to pay more into the system in the next fiscal year than was originally expected, leaving less money available for city services.

The city’s average pension payment over the last three years has been about $260 million.

Photo by 401kcalculator.org

Mark Wiseman, the chief executive officer of Canada Pension Plan Investment Board, spoke about long-term investing at the World Economic Forum this week.

Wiseman said he sees the current market as a “buying opportunity”. More from Bloomberg:

The sell-off roiling stock markets from Shanghai to New York offers an opportunity to buy assets as long-term prospects for economic growth remain favorable, the head of Canada’s largest pension fund said.

“Absolutely it’s a buying opportunity, when the world is panicking and you have a quintessentially long-term view,” Mark Wiseman, the chief executive officer of Canada Pension Plan Investment Board, said in an interview at the World Economic Forum. “Whatever negative market sentiment there is, I don’t believe is supported by the facts that are coming out.”

[…]

Rather than change its strategy, CPPIB is buying equities to maintain the balance of its portfolio between stocks, bonds and other assets. The Toronto-based fund manages about C$273 billion ($188.6 billion) on behalf of 18 million Canadian savers.

Separately, CPPIB on Thursday joined five other large institutional investors, including the New Zealand Superannuation Fund and Ontario Teachers’ Pension Plan, to announce the creation of a stock index focused on long-term performance. The Standard & Poor’s Long Term Value Creation Index is designed to track companies that meet criteria on corporate governance and environmental sustainability, among other measures.

CPPIB manages $188 billion in assets.

Photo by Andreas Poike via Flickr CC License

In the near future, the New Jersey Supreme Court will rule on a pension case that Moody’s says has big implications for the state’s credit rating.

The lawsuit in question challenges the constitutionality of a 2011 pension reform law that froze cost-of-living-adjustments on retirees’ pensions.

An appellate court ruled in favor of retirees; if the Supreme Court does the same, the state will owe retirees backpay to 2011.

Here’s what Moody’s says about the case, from NJ.com:

Moody’s Investors Service again sent up a warning flare that a possible New Jersey Supreme Court ruling striking down cuts to public retirees’ pension benefits would soak the struggling retirement system with new pension liabilities.

But in its latest report released Wednesday on the “extraordinary decisions and challenges” the Garden State faces, the Wall Street ratings agency estimated the public pension system’s $55 billion unfunded liability ($113 billion if measured under different accounting standards) would increase by a third if state and local governments are forced to restore retirees’ cost-of-living increases.

The state portion of the unfunded liability would increase from $40 billion to about $53 billion and the system would fall from 51 percent funded to 44 percent if the court strikes the freeze down.

“The heightened burden, combined with an increase in benefit costs, would hurt New Jersey’s pension fund cash flows and funded status and the state’s ability to reach structural budget balance,” Moody’s said.

Retirees are angry because, as part of the 2011 reform law, they made a deal: they’d accept the freezing of their COLAs, and in exchange the state promised to make its full actuarially-required contributions to the pension system.

It took the state two years to renege on its side of the bargain.

Photo by Joe Gratz via Flickr CC License

Ten percent of the average teacher’s earnings go toward paying down pension liabilities accrued by their older counterparts, according to a recent paper from the Center for Analysis of Longitudinal Data in Education Research.

More on the research, from U.S. News & World Report:

In a recent paper for the Center for Analysis of Longitudinal Data in Education Research, a team of economists calculated that 10 percent of the earnings for an average public school teacher goes toward paying for pension liabilities accrued on the behalf of prior cohorts of teachers. That’s money they could be taking home in salary.

The contribution made by younger teachers is so high in part because their more experienced counterparts shoulder very little of the burden. States have increased vesting periods and employee contribution amounts for new teachers while leaving the plans for current retirees constant. A recent report by Bellwether Education Partners showed that these and other changes disproportionately affect younger and future teachers compared to those who have already worked for several years.

Reductions in compensation for young teachers are only making a longstanding problem worse. Teacher pension systems already transferred money from younger to more experienced teachers before these systems became underfunded.

Read the full paper here.

Photo by cybrarian77 via Flickr CC License

A British pension fund – identity currently unknown – is suing Volkswagen over its emissions scandal, which caused the car company’s shares to plunge.

A German law firm, representing the pension fund, broke the news on Wednesday.

From Yahoo:

Law firm Nieding + Barth said in a statement that together with another fim, Mueller Seidel Vos, it had filed a suit on behalf of the pension fund at the regional court in Brunswick.

“The basis for our claim is (VW’s) violation of its capital market information obligations,” said law firm chief Klaus Nieding.

“Because VW concealed its manipulation of the software in diesel vehicles for many years, shareholders have suffered substantial losses on their investment. And VW must be held responsible for that,” said Daniel Vos of Mueller Seidel Vos.

[…]

The scandal has hit VW hard. It lost nearly 40 percent in market capitalisation since September, when the scandal broke, even if its shares have come back off their lows since then.

The German law firms accused VW chief executive Matthias Mueller of deliberately playing down the affair on his recent visit to the United States.

“That testifies to a lack of will (within VW) to clear up the matter,” Nieding said.

The car manufacturer could soon face lawsuits from more institutional investors, car owners, and penalties from governments.

Photo by Long Road Photography (formerly Aff) via Flickr CC License

Jonathan Grabel is the Chief Investment Officer at New Mexico PERA.

In this clip, above, he talks about why his fund isn’t pulling money out of the markets, and how to keep a long-term view even as stocks are falling.

New Mexico PERA manages $14 billion in assets.

Credit: CNBC

Photo by www.SeniorLiving.Org 

A week after a Greek official said further pension cuts were a “non-starter” in negotiations with creditors, it appears the country may have to cross that “red line” if it wants to move forward with its bailout.

Greece released a reform plan this month that delivers savings of about 1 percent of the country’s GDP.

But an EU official on Wednesday said the plan needs to be “fleshed out” and improved if Greece wants to move ahead with its bailout.

More from Bloomberg:

Greece must improve its pension proposals in order to move ahead with its bailout program and start discussions on easing its debt burden, European Union Economic Affairs Commissioner Pierre Moscovici said.

Greek Prime Minister Alexis Tsipras needs to offer “more precise parameters” on his nation’s plan to overhaul the pension system, Moscovici said in an interview at the World Economic Forum in Davos, Switzerland. So far, Greece has a “comprehensive and positive” first draft that needs to be fleshed out, he said.

“We need first to have that pension reform — I want that to happen as fast as possible,” Moscovici said. That would pave the way for finishing the bailout program’s first overall review and “after that, we might discuss about re-profiling of the Greek debt” by lowering the debt service burden, he said.

[…]

Moscovici said he plans to meet Tsipras and International Monetary Fund Managing Director Christine Lagarde during the Davos meetings. He welcomed Greece’s renewed pledges to continue talks toward a new IMF program and said there has been a “constructive” climate around recent negotiations.

Creditors disliked the reform plan because much of the savings to Greece came in the form of higher contributions from workers, which creditors believe could harm the country’s economic growth.

Photo credit: “Flag-map of Greece” by en.wiki: Aivazovskycommons: Aivazovskybased on a map by User:Morwen – Own work. Licensed under Public Domain via Wikimedia Commons – https://commons.wikimedia.org/wiki/File:Flag-map_of_Greece.svg#/media/File:Flag-map_of_Greece.svg