Author: Ted Ballantine

Oregon Gov. Kate Brown was sworn in on Monday, and the state’s pension system was one of the topics touched on in her “State of the State” address.

Brown said she wants to look at ways to reduce the pension system’s investment costs, possibly by bringing more investment management in-house.

From Oregon Public Radio:

On the issue of pension reform, Brown said she is looking for creative ways to reduce costs and to ensure that employees don’t take advantage of the system.

“My office is working to identify what we can do now, such as bringing investment services in-house, to responsibly carry out our duty to retirees,” she said.

Meanwhile, Republicans in the state Senate and House have introduced bills to change pension benefit formulas and funding mechanisms.

They may not get far; but it signals that pension reform measures may again be a subject of debate in these chambers.

From OregonLive:

Sen. Tim Knopp, R-Bend, and Jeff Kruse, R-Roseburg, teed up what could be the most contentious debate of the upcoming legislative session by introducing two bills to make money-saving changes to Oregon’s public employee retirement system.

[…]

“I’m confident we’re going to have hearings on PERS, and I think it will happen fairly early,” Knopp said. “We’re going to have to deal with these fundamental structural issues.”

Knopp said he was going to be requesting hearings from both Senate President Peter Courtney, D-Salem, and Sen. Kathleen Taylor, a Democrat whose district stretches from Southeast Portland to Lake Oswego, who chairs the Senate Workforce Committee. Taylor could not be reached for comment.

[…]

The proposals in Senate Bills 559 and 560 include:

Redirecting employees’ required 6 percent retirement contributions to support the pension fund beginning Jan. 1, 2018.

Capping a members’ final average salary used in the calculation of their benefits at $100,000.

Finally, the bills would change the calculation of final average salary so it is the average of five years of wages instead of three years.

 

Following in the footsteps of its Canadian peers, the pension plan OPTrust said it plans to build a trading floor and bring more asset management in-house.

OPTrust started the process back in June; it has hired seven portfolio managers and plans to hire three more. In all, about half of the fund’s total AUM of $14 billion will be managed internally.

More from Bloomberg:

The move to internalize oversight of foreign-exchange, fixed-income and derivatives strategies is meant to improve the pension plan’s risk management by getting “closer to the coal face,” said James Davis, OPTrust’s chief investment officer, who’s handling the transition. The fund, ranked 18th by assets in Canada according to a research of pension funds by London-based Willis Towers Watson Plc, currently has external firms managing its market assets.

[…]

The fund is at the low end in terms of assets to move management in-house but it makes sense to internalize some of their activities, said Donald Raymond, chief investment officer and managing partner at Alignvest Management Corp., who built the public markets investments department at Canadian Pension more than a decade ago. “They’re looking at what other larger pension funds have done and they’re following in those proven footsteps.”

OPTrust has already hired seven of the 10 portfolio managers. They will be involved in both formulating trade ideas as well as executing the trades. Several more people will be employed to handle compliance and other roles such as the settlement of trades and custody, Davis said.

The pension fund’s larger peers generated double-digit returns last year as high as 16 percent; meanwhile, OPTrust returned 8 percent.

Asset management and espionage are both high stakes games. So when they come together, it simply must be written about.

Here’s the weird story out of Utah this week:

The Utah Retirement System is (maybe?) in the process selling a hotel in its portfolio to Chinese buyers.

But one California Congressman is urging the pension fund to nix the deal due to espionage concerns: the hotel is a frequent stop for U.S. officials, and sits next to several U.S. customs buildings.

The Salt Lake Tribune summarizes:

[The Congressman and union] say the pension fund for 200,000 public employees is considering selling the Westin Long Beach Hotel — which URS owns as an investment in California — to Chinese buyers. The critics further suggest that the Chinese might use the property to spy on next-door U.S. agencies at the busy port of Long Beach or on federal officials who have contracts with the hotel and use it often.

“The sale of the Westin Long Beach raises national security questions,” Rep. Alan Lowenthal, D-Calif., who represents the Long Beach area, wrote last month to Treasury Secretary Jacob Lew.

[…]

Lowenthal noted in his letter that the hotel is at the second-busiest port in America and next door to customs offices there that house sensitive information.

Also, “U.S. government clients with sensitive national security information” have contracts with the hotel and use it often, he said, including the Defense Department, Homeland Security, Justice Department and the Drug Enforcement Administration.

We’re treating this story a little flippantly, but it’s not an unreasonable request by the Congressman. The U.S. has a committee, comprised of members of various federal agencies, that reviews foreign investments in the U.S. for precisely this reason.

URS, as is standard practice, isn’t disclosing whether they are selling the hotel. It’s also possible the Chinese buyers have made an offer even as the hotel sits off the market.

Pension giant CalSTRS is already leading a lawsuit against Volkswagen in German court.

Back on U.S. soil, a judge has OK’d a lawsuit brought by investors, including a number of smaller pensions, accusing the car company of not informing the market soon enough about financial liabilities related to the emissions scandal.

From Reuters:

The plaintiffs, mostly U.S. municipal pension funds, have accused VW of not having informed the market in a timely fashion about the issue as well as understating possible financial liabilities, according to the 41-court document seen by Reuters.

[…]

The lawsuits said VW and its executives misled the investing public “assuring them to the contrary — namely, that the diesel vehicles met all applicable emissions standards” and it “understated the liabilities that it would suffer as a result of its known emissions non-compliance.”

[…]

U.S. District Judge Charles Breyer rejected a request by VW brand chief Herbert Diess to have the proposed securities fraud lawsuits tossed out of a California court.

Volkswagen argued that German courts were the proper place for investor lawsuits.

Breyer said in his ruling that “because the United States has an interest in protecting domestic investors against securities fraud” the lawsuits should go forward in a U.S. court.

 

 

CalSTRS Chief Investment Officer Chris Ailman appeared on CNBC on Wednesday to talk about interest rates and the markets reaction to Trump’s win.

He said this about markets currently:

“Wall Street’s gotten very excited about a change in government, but we haven’t seen anything yet,” he said. “I think the markets have gotten a bit ahead of themselves. I like the trend, but I think we’re going to see more of a flat market once we get past January.”

Video credit: CNBC

Members of the Iron Workers Local 17 Pension Fund will vote this month whether to cut the average pension benefit by roughly 20 percent. If the cuts are voted down, fund officials say they could run out of money in less than 10 years.

The Iron Workers pension fund last month was the first fund whose proposal for pension cuts was given the go-ahead by the Treasury Department.

Now, the cuts go to a vote among members.

More from the Washington Post:

The cuts proposed by his pension plan, a small Cleveland-based fund with about 2,000 members, were approved by the Treasury Department on Dec. 16. It is the first time the agency has given the green light for a private pension plan to cut benefits for its members.

The leaders of the Iron Workers Local 17 Pension Fund say the cuts are necessary to keep the fund afloat. If no changes are made, the fund is expected to run out of money by 2024. At that point, the pension plan would need to rely on a federal insurance program that is supposed to back up struggling pension plans.

By then, however, there may be no backup plan in place. The multi-employer pension fund for the Pension Benefit Guaranty Corporation, which is meant to back up plans like the Iron Workers fund or the Central States fund, is also running out of money. The program is on track to become insolvent by 2025, if not sooner.

Some retirement advocates worry that the Iron Workers fund cuts will usher in more cuts to private plans:

Critics of the pension law worry that the cuts may open the door for other troubled pension plans to shrink retirees’ benefits. At least five other pension plans are currently waiting for the Treasury Department to review their applications to scale back benefits. The proposals could affect tens of thousands of employees and retirees who earned pensions as bricklayers, furniture workers and autoworkers.

“This could just open the flood gates for approval for all of them,” said Karen Ferguson, director of the Pension Rights Center, a nonprofit that focuses on retirement issues.

Shortly before the New Year, Dallas Mayor Mike Rawlings requested a criminal investigation into the past administration of the city’s Police and Fire Pension fund, which has become one of the most underfunded pension funds in the country after years of investment flops.

The poor investments were made by previous administrations, but still haunt the pension fund.

The Texas Rangers will be investigating the fund.

Details from KERA:

In a press release, Rawlings says the past administration of the troubled pension fund “committed a grave breach of trust with our first responders with serious ramifications impacting current and former police and fire personnel and their families, as well as Dallas taxpayers.”

The mayor also says he has been “in close cooperation” with the FBI on the matter. A FBI spokesperson didn’t immediately respond to a KERA request for comment; the FBI typically doesn’t comment on investigations.

The pension board released a statement this afternoon: “The Dallas Police and Fire Pension Board and staff have been working with and fully cooperating with the FBI for more than a year on its ongoing investigation of previous activities. Meanwhile, we remain focused on working with city and state officials to find long-term solutions that will safeguard previously earned and future retirement funds for Dallas first responders.”

 

New Jersey Senate President Steve Sweeney has sponsored a bill, currently sitting in the state legislature with some bipartisan support, that would allow the state’s pension funds to buy bonds from New Jersey Transportation Trust Fund.

The bill would also eliminate a regulation that prohibits the pension funds from buying more than 10 percent of any bond offering.

From F-A Mag:

Senate President Steve Sweeney, sponsor of the bill that has bipartisan support, says the creative approach is a win-win situation that gets double duty out of the state’s money.

[…]

Transportation Trust Fund bonds guarantee a 5 percent return, therefore allowing the pension fund to buy the bonds at no risk to the pension fund, Sweeney says.

The bill also lifts the cap that prohibits the pension fund from buying more than 10 percent of any bond offering.

“Some legislators wanted to put a new cap of 20 percent on the pension fund, but the state Investment Council should be allowed to make the decision on how much the pension fund can invest in Transportation Trust Fund bonds,” Sweeney says.

“This would offer an investment strategy that is mutually beneficial for New Jersey’s underfunded pension system and the Transportation Trust Fund,” Sweeney says.

The Chairman of Korea’s National Pension Service (NPS) — the third largest pension fund in the world — was placed under emergency arrest on Wednesday as part of a corruption probe that has already ensnared the country’s president.

Prosecutors are looking into whether NPS Chairman, Moon Hyung-pyo, coerced the fund to vote in favor of a merger of two companies.

More details from Reuters:

The special prosecutor has been looking into whether Moon pressured the pension fund to support the $8 billion merger last year of two Samsung Group [SAGR.UL] affiliates while he was head of the Ministry of Health and Welfare, which runs the NPS.

Investigators are also examining whether Samsung’s support for a business and foundations backed by the president’s friend, Choi Soon-sil, who is at the center of the influence-peddling scandal, may have been connected to NPS support for the merger, a prosecution official told Reuters last week.

The NPS voted in favor of the merger without calling in an external committee that sometimes advises it on difficult votes.

[…]

 

At a parliamentary hearing this month, Samsung Group scion Jay Y. Lee denied allegations from lawmakers that Samsung lobbied to get the NPS to vote in favor of the merger, or that it made contributions seeking something in return.