Author: Ted Ballantine

The New York State Teachers’ Retirement System (NYSTRS) was the lead plaintiff in a class-action suit against General Motors seeking reimbursement for investment losses as a result of the car company’s ignition switch recall controversy.

GM settled the suit this week for $300 million. It’s not known how much of that settlement will go to NYSTRS.

NYSTRS owns about $98 million in GM stock, according to BenefitsPro.

From BenefitsPro:

The claim alleged the teachers’ pension fund and anyone invested in GM stock between November 17, 2010 and July 24, 2014 lost millions, as a belated recall affecting millions of cars with defective ignition switches drove GM’s stock value down by more than $1 billion.

The company also made material misrepresentations and omissions about its liabilities, internal controls and commitment to safety, according to the initial complaint, which ran nearly 600 pages.

GM agreed to settle the claim before a U.S. District Court for the Eastern District of Michigan ruled on the company’s motion to dismiss the case. As a part of the settlement, GM denies any wrongdoing.

[…]

The complaint alleged that GM knew of some of the defects for as long as 10 years before some of the involved cars were recalled.

The New York State Teachers’ Retirement System pension fund was the lead plaintiff in the class.

Trustees claimed the fund lost more than $6 million in the value of its holdings during the class period.

NYSTRS is one of the 10 largest pension funds in the United States.

 

Photo by Joe Gratz via Flickr CC License

Alaska officials have been exploring the idea of a pension obligation bond sale since November; back then, the plan was to sell $1.6 billion worth of the bonds.

Now, the sale is likely to be even larger.

Governor Bill Walker doesn’t need the state legislature’s approval for the issuance, because their approval of a since-scrapped bond sale in 2008 still stands.

More from Bloomberg:

The pension obligation bond is part of a multi-step process to repair the state’s budget, including a potential personal income tax, something the state hasn’t seen in 35 years, Mitchell said. Even the state’s famous oil dividend checks to residents are being questioned, Mitchell said.

The state’s pension system was in bad shape long before oil prices fell. As of 2013, Alaska had the fourth-worst funded pension among U.S. states, reporting it had 52.3 percent of the money needed to pay retirees, better than only Illinois, Connecticut and Kentucky, data compiled by Bloomberg shows.

If Alaska goes ahead with the bond, the debt service would be an appropriation of the state, Mitchell said. Because that opens up the bond to non-payment risk, Governor Walker plans to ask for approval when the state legislature reconvenes in the third week of January even though the approval granted in 2008 is still valid, Mitchell said.

Standard & Poor’s downgraded the state’s credit rating on Tuesday.

 

Photo credit: “Flag map of Alaska” by 2002_Winter_Olympics_torch_relay_route.svg: User:Mangoman88, using Blank_US_Map.svg by User:Theshibboleth – 2002_Winter_Olympics_torch_relay_route.svgFlag_of_Alaska.svg. Licensed under Public Domain via Wikimedia Commons

The collective funding status of Canada’s pension plans fell slightly in 2015, according to Mercer.

Median plan funding was at 88 percent at the beginning of 2015, but now stands at 85 percent.

Poor equity performance – particularly Canadian equities, which returned -8.3 percent for the year – was one reason for the funding decline.

Details from BenefitsCanada:

According to Mercer, the decline in funded status was due to poor equity market performance, the continued decline in long-term bond yields and new mortality tables that reflect increased life expectancy, partially offset by the positive impact of the decline in the Canadian dollar on foreign asset returns.

“There was considerable variability in the financial performance of pension plans in 2015,” said Manuel Monteiro, leader of Mercer’s Financial Strategy Group. “Pension plans with significant Canadian equity holdings and those that hedge their foreign currency exposure experienced larger than average declines in their solvency ratio.”

From an investment perspective, Canadian equities were the poorest performing broad equity asset class in 2015, with a return of -8.3%, according to Brian Dayes, partner at Mercer Investments.

“Two factors that particularly affected the Canadian economy were falling commodity prices and a continued ramp up in oil production, to a near all-time high, bringing the price per barrel down to around US$37,” he added.

US equities fared a bit better, but far from stellar, returning 1.4% in USD; a Canadian investor would have done well though, at close to 22% for the year, in CAD terms, given the fall of the Canadian dollar. International equities also performed better than Canadian equities with the MSCI EAFE returning 5.8% in local currency terms.

A number of the country’s provincial governments – Quebec, British Columbia, Alberta – are weighing reforms that would lessen the burden of pension obligations on governments.

 

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Greece this week unveiled a pension reform plan containing sweeping changes, including benefit cuts and higher contributions from both employees and employers.

A reform initiative that delivers savings equal to 1 percent of the country’s GDP is required as part of Greece’s $93 billion bailout.

Details of the plan, from Reuters:

The proposed overhaul of the pension system, which has been a drag on the budget for years, sets a ceiling of 2,300 euros on the maximum monthly pension outlay and an upper limit of 3,000 euros for those getting more than one pension.

The plan calls for merging all six main pension funds into one and foresees cuts in future main pensions that could reach up to 30 percent. It sets a lower limit at 384 euros per month.

The plan includes higher social security contributions for employers and employees, by one percentage point for those paid by employers and by 0.5 percentage point for employees.

[…]

The government aims to submit the legislation to parliament by mid-January and have it voted into law by early February, a government official told Reuters, declining to be named.

Official lenders have warned that raising social security contributions may deter job creation and set back economic recovery, meaning negotiations before the final version of the sweeping reform gets to parliament will be tough.

The plan has gotten zero support from the opposition party.

 

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The Connecticut Retirement Security Board this week released a report endorsing a state-run savings plan for nongovernment workers who don’t have access to a retirement plan through their employer.

The Board’s report recommends a system that would require all employers with at least five employees to provide workers with an optional IRA.

Legislation will likely be written this year, as several lawmakers are already on board.

More from the Wall Street Journal:

The Connecticut Retirement Security Board, created in 2014 to study how such a retirement system could work, plans to write legislation to be introduced in 2016 that would create the retirement system.

The state’s Democrats have advocated the concept for years. Democratic Senate President Martin Looney said Monday the concept was one of his legislative priorities for the coming year.

In Connecticut, the retirement security board recommended requiring employers with at least five employees that don’t offer retirement plans to provide a payroll-deposit option to enroll workers in Individual Retirement Accounts, or IRAs.

The report found that the system would be sustainable by the end of its second year if it attracts about $1 billion in investments and roughly 252,000 participants.

[…]

Republican Senate Minority Leader Len Fasano said the idea had merit, but his support hinges on the details of the final plan.

Mr. Fasano said that program should be completely optional for employees. The board, however, has recommended a system where employees would have to opt-out if they didn’t want an IRA, which Mr. Fasano said he opposes. “If this is optional for the employee, then let them opt-in,” he said.

Similar savings plans have been established in California, Illinois, Oregon, and several other states.

 

Photo by TaxCredits.net

Going into 2016, the collective funding status of the U.S.’ largest corporate DB plans remains largely the same as at the beginning of 2015, according to a new analysis by Towers Watson.

From a release:

Results indicate that the aggregate pension funded status is estimated to be 82% at the end of 2015, which is the same as it was at the end of 2014. The analysis also found that the pension deficit narrowed modestly by $28 billion to $291 billion at the end of 2015, compared to a $319 billion deficit at the end of 2014.

“An increase in corporate bond rates in advance of the Fed’s recent interest rate decision, combined with a flat global stock market, contributed to keeping pension plans in roughly the same financial shape as the previous year,” said Alan Glickstein, a senior retirement consultant at Towers Watson. “While pension obligations declined last year, so did assets. There was a lot of movement in the funded status throughout the year, but at the end of the year, essentially nothing changed overall. In contrast, the preceding two years were more volatile, one up and one down.”

According to the analysis, pension plan assets fell by an estimated 6% in 2015, from $1.41 trillion at the end of 2014 to an estimated $1.33 trillion at the end of last year.

The report uses data from 413 Fortune 1000 companies with defined-benefit pension plans.

 

Photo by Sarath Kuchi via Flickr CC License

The Canada Pension Plan Investment Board on Monday made its first foray into the U.S. student housing market.

The CPPIB will own a 47.5% stake in a $1.6 billion portfolio of university student housing, which the pension fund has committed to buy along with two other investors.

More details from the Wall Street Journal:

Canada Pension Plan Investment Board and Singapore’s sovereign-wealth fund have teamed with Scion Group LLC to buy a U.S. university student-housing portfolio for about $1.4 billion, the group said Monday.

CPPIB, Singapore’s GIC Private Ltd. and student-housing operator Scion agreed to buy University House Communities Group Inc., which has a portfolio of 18 established U.S. student-housing communities and four in development, from InvenTrust Properties Corp.

The Canadian fund and GIC will each own a 47.5% stake in a newly formed joint venture that will purchase the portfolio, while Scion will own the remaining 5%. Scion will operate the properties, the group said.

“This transaction enables us to gain immediate scale in the attractive U.S. student housing market,” Peter Ballon, CPPIB’s head of real-estate investments for the Americas, said in a news release.

The group said it plans to pursue other opportunities to purchase student housing in the U.S.

CPPIB manages about $197 billion in assets.

 

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A report this month from the Employee Benefit Research Institute found that older generations tend to value workplace benefits more than younger ones.

See the above chart for a glimpse at the findings. The full report can be viewed here.

Further insights into the generational gap regarding workplace benefits, from EBRI:

– Millennials are less likely than Baby Boomers and Gen Xers to report health insurance as the most important benefit they receive at work. Millennials are more likely than Baby Boomers or Gen Xers to report that they value life insurance and paid time off as the most important benefit.

– Millennials are less likely than Baby Boomers and Gen Xers to report that the benefits a potential employer offers are extremely important in their decision to accept or reject a job. Millennials are also more likely than Baby Boomers and Gen Xers to be open to non-traditional ways of obtaining benefits.

– Millennials are more likely than other workers to respond that they do not know about their benefits. Participation in various employee benefit programs is generally lower among Millennials than among Baby Boomers and Gen Xers.

In 2012, San Diego voters approved Proposition B, a measure that funneled most new city hires into a 401(k)-style retirement plan, as opposed to the defined-benefit system previously available to everyone.

But a California labor board on Tuesday overturned the pension overhaul, and ordered the city to begin paying back lost benefits to those in the 401(k) plan.

From the San Diego Union Tribune:

City Attorney Jan Goldsmith said he hopes to quickly get City Council approval to appeal Tuesday’s ruling by the Public Employment Relations Board.

[…]

Many city budget projections and proposals rely on future pension savings creating by Proposition B, so any softening or elimination of the measure could have a significant effect.

Zucchet said the city has hired roughly 2,000 employees without pensions since the cutbacks took effect in July 2012, noting that Tuesday’s ruling requires the city to backfill pensions for those workers, pay them 7 percent interest as a penalty, and cover their attorney’s fees.

“I don’t know whether it’s $5 million or $500 million, but if I had to guess I’d say it’s somewhere in the $100 million range,” Zucchet said.

Goldsmith called the ruling unsurprising and said he was confident it would be overturned based on past defeats of PERB by the city. PERB unsuccessfully tried to keep Proposition B from going to voters, and was rejected when it tried to block implementation of the measure after voter approval.

Labor leaders, on the other hand, urged the city to cut its losses and accept the ruling, rather than spend money on future appeals.

 

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