Author: Megan Leo

After a series of negotiations, San Diego officials have reached an agreement with the city’s firefighters that will alter the way firefighters’ pensions work. The agreement is in alignment with Proposition B, a previous pension reform movement that was passed months ago.

ABC 10 News has more on the topic:

The latest agreement brings all the city’s recognized employee organizations under contracts that uphold Prop B pension reform, according to mayoral spokesman Craig Gustafson.

The agreement has been ratified by a majority vote of firefighters, represented by the International Association of Fire Fighters Local 145, and will go before the City Council next month for approval.

In addition to upholding pension reform, the new contract reforms overtime rules and vacation policies, provides increased health care funding and offers paid parental leave to firefighters for the first time.

Earlier this month, Faulconer announced new agreements with employee groups representing the city’s skilled trades workers, attorneys and lifeguards.

All changes are in effect through 2019 or 2020.

 

Federico Buenrostro, the former CEO of CalPERs, has been sentenced to four and a half years in prison for accepting bribery. Buenrostro pleaded guilty to helping Alfred Villalobos in business ventures in exchange for money, vacations, and even the price of his own wedding.

ABC News has more on the topic:

Senior U.S. District Court Judge Charles Breyer called the case against Federico Buenrostro, the former chief executive of the California Public Employees’ Retirement System, “seriously troubling” and said it reflected a “spectacular breach of trust for the most venal of purposes, which is self-enrichment.”

Buenrostro, 66, pleaded guilty to fraud and bribery charges two years ago, saying he started taking bribes around 2005 to try to get CalPERS staff members to make investment decisions that helped Alfred Villalobos, an investment manager and former board member of the pension fund.

Buenrostro said he accepted cash, a trip around the world and allowed Villalobos to pay for his wedding in Lake Tahoe, California. Villalobos killed himself last year, weeks before he was set to go on trial. He had pleaded not guilty to fraud charges.

“I take full responsibility and accept the consequences of the actions I took,” Buenrostro, in a blue jail outfit and leg irons, told the judge before he was sentenced. “I’m humiliated, embarrassed and deeply ashamed of my actions.”

Buenrostro’s guilty plea came out of a yearslong investigation into the role of money-management firm middlemen, called placement agents, in helping clients win investment business from the pension fund. The fund manages health and retirement benefits for state employees and has about $290 billion in assets.

[…]

As part of his plea deal, Buenrostro acknowledged giving Villalobos access to confidential investment information and forging letters that allowed firms connected with Villalobos to collect a $14 million commission on $3 billion worth of pension fund investments.

The former executive faced up to five years in prison, but the U.S. attorney’s office asked for a four-year term, citing Buenrostro’s cooperation in the case against Villalobos. He also has agreed to pay back $250,000 to the state, prosecutors said.

Buenrostro was recently jailed for breaking parole on a domestic violence charge.

 

The Pension Benefit Guaranty Corp. is significantly low on funds. The corporation, which was created to help bail out failing pension systems, has seen more use in the past few years than what was expected. This trend has brought PBGC’s financial status into the red.

The Washington Post has more on the topic:

The Pension Benefit Guaranty Corp., which insures private pensions, is dealing with long-standing financial woes with the fund that protects multi-employer pension plans. The program, which some experts say wasn’t really intended to be used, was set up more than four decades ago to serve as a backstop for private-sector pension plans. But it has been relied on more than expected by large plans on unsteady financial footing.

The fund’s deterioration could pose a threat to the 10 million people in multi-employer plans who could soon be left without a safety net for their pensions. Although most of those workers and retirees are in plans that are financially healthy, about 1.5 million people — including the Central States members — are in plans that are projected to run out of cash over the next 20 years.

[…]

Previous efforts to bolster the insurance program have failed, or so far fallen short. For instance, a 2014 law that made it possible for multi-employer pension plans to cut benefits for retirees was meant to alleviate the burden on the PBGC. But now that the Treasury Department has rejected the Central States proposal, which was the first test under the law, the insurance agency is back where it started.

With roughly $2 billion in assets, the fund for multi-employer plans does not have enough money to pay benefits for the plans that are expected to become insolvent over the next decade.

[…]

The Pension Benefit Guaranty Corp., which insures private pensions, was created as part of the 1974 Employee Retirement Income Security Act (ERISA) to provide another level of security for the millions of Americans counting on pensions in retirement. The agency has separate programs for single-employer plans, through which one company is paying completely for the costs of financing a pension, and multi-employer plans, which allow businesses to share the costs of providing pension benefits to their workers. The insurance fund for single-employer plans is financially stable, but the fund for multi-employer plans is woefully underfunded.

That’s because when the multi-employer plan insurance fund was created, it was expected that the fund would not be needed much, said Josh Gotbaum, former director of the Pension Benefit Guaranty Corp. and a guest scholar at the Brookings Institution.

The thinking was that multi-employer plans would be able to turn to the other companies in the pension fund if one employer fell short in contributions or went out of business, he said. Because of that, multi-employer plans pay smaller premiums than single-employer plans and receive smaller payments from the PBGC when their funds run out of cash.

But over the past several years, multi-employer plans have faced financial challenges similar to those of the Central States fund, he said. Two severe market downturns over roughly 10 years left the plan without enough money to pay expected benefits. At the same time, many companies went out of business, leaving the plan with a smaller number of employers available to pitch in and cover that shortfall.

“What they didn’t think of was, suppose if most of the companies go away and only a few employers are left holding the bag?” Gotbaum said.

With that shortfall in mind, many of the workers and retirees covered by the Central States plan are rallying behind a bill introduced by Democratic presidential candidate Bernie Sanders and Kaptur that would repeal the 2014 law that made it legal to cut pension benefits and instead lead to government assistance for the PBGC. Over the past two weeks, senators including Sherrod Brown (D-Ohio), Claire McCaskill (D-Mo.) and Ron Wyden (D-Ore.) wrote to Senate Majority Leader Mitch McConnell (R-Ky.) asking him to address the pension crisis before the Senate breaks for the summer.

If Congress does not step in to help, PBGC’s only option is to increase premiums by six times what they currently are. Even raising premiums, though, may not save PBGC.

The Illinois Congress has overridden Governor Bruce Rauner’s veto on a bill that would help to fully fund public service officials’ pensions. The override passed with a large majority, much to Rauner’s displeasure.

Reuters has more on the topic:

The Senate voted 39-19 and the House voted 72-43 to undo Republican Governor Bruce Rauner’s veto on Friday that the city claimed would lead to a $300 million property tax hike.

The bill gives Chicago short-term budget relief but will add to the city’s big pension funding gap.

The override bolsters Democrats, who control the legislature, as they battle with Rauner over state assistance for Chicago and its public school system, which is seeking state money for its teachers’ pensions. The political impasse had left Illinois without a complete budget 11 months into fiscal 2016.

Rauner called the bill “terrible policy,” while Chicago Mayor Rahm Emanuel accused him of using the city as a political pawn.

Rauner’s spokeswoman Catherine Kelly released a statement reiterating the governor’s contention that the measure would end up costing Chicago taxpayers $18.6 billion over time.

The measure alters a 2010 state law that boosted Chicago’s payments to its public safety workers’ pensions in order to reach a 90 percent funded level by 2040. Under that law, Chicago’s contribution will jump to nearly $834 million this year from $290.4 million in 2015, according to city figures.

The new law reduces the payment to $619 million and allows for smaller increases through 2020 than under the 2010 law. It also gives the police and fire funds until 2055 to become 90 percent funded. The police system is 26 percent funded and the fire system 23 percent funded.

Chicago planned the 2016 budget with the assumption that the bill would pass.

The Irish pension system is experiencing extreme difficulties. A recent study, the first since 2009, shows that the retirement age has risen dramatically and that many younger workers have small pensions or do not have their own pensions at all.

The Irish Times covers the issue in more depth:

Ireland’s pension crisis continues to deepen, with figures published on Monday showing that private pension provision is declining as the numbers set to depend on a state pension jump from 26 per cent in 2009 to 36 per cent in 2015. The decline in private pensions is most marked for millenials, with just a little over third having their own pension, while the self-employed are now likely to work for longer as their pension cover drops.

The figures, which were published on Monday as part of the Central Statistics Office Quarterly National Household Survey, give the first official update on pension provision since 2009. The survey was carried out among workers aged aged 20 to 69 years in the fourth quarter of 2015, and shows a significant decline in private pension provision, and an associated sharp rise in dependence on the state pension. The increase in reliance on the state pension will be of particular concern given the peak in funding costs of the payment as a result of demographics and the aging population.

[…]

Most worrying perhaps, is the low level of pension coverage among so-called “millenials”, with just 14.1 per cent of workers aged 20-24 years having a pension and just over one third (36%) of workers aged 25 to 34 years having one, down from 49 per cent in 2009. Pension coverage was greatest among workers aged 35-44 years, where total pension coverage was 55.3 per cent.

Self-employed people are less likely to have a private pension, at just 30 per cent, and of concern also, is that this figure is falling, down from 36 per cent in 2009 and 46 per cent in 2008.

Affordability (39%) and apathy (22%) were the two most common reasons for workers not having a pension, while some 70 per cent of workers with no occupational pension coverage stated that their employer does not offer a pension scheme. The most common sectors where the employer did not offer a pension scheme for employees were the construction (84%) and accommodation and food service activities (77%) sectors.

For more on the topic and for graphs of the study, visit the full article here.

 

Legislators in Kansas can work a few months out of the summer for a very small salary while still receiving massive pension contributions. Since the pensions these legislators gain do not necessarily reflect their usual salary, the state needs to chip in more and more to keep the program running.

The Kansas City Star has more on the topic:

“Legislators,” notes an employee benefit sheet explaining the pension plan to new lawmakers, “have a special deal here.”

They get a modest salary for the roughly four months they spend each year in Topeka, but their pensions grow as if the state paid them for a year-round gig.

All told, a salary shy of $15,000 makes a lawmaker eligible for a pension that any teacher, road worker, prison employee or Kansas bureaucrat could qualify for only if their actual pay ran north of $90,000.

“It’s not fair or appropriate,” said Rebecca Proctor, the executive director of the Kansas Organization of State Employees, a union representing 8,000 workers.

She was a member of a Kansas Public Employees Retirement System study commission that in 2011 suggested changing the system for legislators. The Legislature never acted on that recommendation.

Instead, she said, lawmakers have attempted to shore up KPERS by increasing contributions required of regular state employees. In addition, some legislators have floated proposals limiting whether those workers could count unused vacation and sick time toward their pension benefits.

“It’s hypocritical,” Proctor said.

To be sure, members of the House and Senate must pay into the kitty, 6 percent of the supposed salary on which their pensions are calculated. But it’s such a good deal that few pass it up.

Taxpayers typically pay about twice an employee’s contribution toward the pension. So the more legislators sign up for, the more the state also must chip in.

For more about the policy,­ read the full article here.

 

 

OPTrust, a Canadian pension firm, sent executives to Washington to meet with experts in an effort to promote and explain the Canadian pension model. In a time when many American pension systems are beginning to feel financial weight, OPTrust saw it fit to send in experts to hopefully help alleviate some American pension issues.

Benefits Canada has more on the topic:

“We’ve come here for two main reasons: to build and deepen relationships in the U.S. over the long term and to talk about the benefits of the Canadian model of pension plans,” said Hugh O’Reilly, […] president and chief executive officer of OPTrust.

“As U.S. policymakers begin to focus more on pensions and retirement security, there seems to be significant interest in learning about the Canadian approach, including on Capitol Hill,” O’Reilly added, after meeting with Senate officials.

On Tuesday OPTrust met with pension experts at the Brookings Institute as well as senior officials at the Inter-American Development Bank, the World Bank and International Monetary Fund. On Thursday, they met with Ontario’s representative in Washington, The American Federation of Labor and Congress of Industrial Organizations, in addition to Senate briefings of the finance and the health, education, labour and pensions committees.

OPTrust hopes that the visit will not only help to promote the Canadian pension model, but that it will also strengthen relationships between the two countries.

 

Orange County Employee Retirement System (OCERS) has traded in NEPC and has hired Meketa as its general consultant for the next five years. The decision follows what some call the “RPF from hell” issued by OCERS earlier this year.

The Chief Investment Officer has more on the decision:

Meketa will begin its five-year relationship with the $12 billion plan pending final contract negotiations. Orange County Employees Retirement System (OCERS) also tapped Pension Consulting Alliance as a backup finalist.

NEPC has served as OCERS’ general consultant since 2011 and will finish up its obligations through 2016, the board said.

In a memo obtained by CIO, investment chief Girard Miller praised Meketa’s “broad organizational depth in a conventional consultant business model, with a larger overall staff, more research personnel, and capacity to assist the staff with bullpen managers.”

[…]

In its pitch to OCERS’ board, Meketa presented a number of strategies that could save $8 million in fees per year and increase expected gains by $12 million per year.

The firm recommended OCERS reducing allocations to unconstrained fixed income and tactical asset allocation products and increasing private equity exposures over a five-year period.

Meketa has quoted a budget of $475,000 for their first year of service.

The New Jersey State Investment Council refused to adopt a plan that would cut back on hedge fund investments by over eight percent. The notion, which was pushed by public labor leaders, was split by a tie vote on whether or not to adopt the new investment proportions. Members of the board threatened to resign if the vote went one way or the other.

NJ.com has more on the topic:

Public labor leaders who have been pressuring the state to reduce its controversial pension investments in hedge funds on Wednesday failed in their attempt to force a drastic cutback in such alternative investments.

The State Investment Council that manages the public pension fund investments split 7-7 on a move to slash the stake in hedge funds from about 12 percent of the total investment portfolio to less than 4 percent.

The board is comprised of public employee union and gubernatorial appointees, and all but one labor representative voted for the rollback.

So contentious was the action that Guy Haselmann, managing director at OpenDoor Trading and a member of the investment council, threatened to resign if the council slashed these investments, which he said would violate his responsibility to the fund.

New Jersey’s public pension fund supports the retirement of hundreds of thousands of retired and active workers and has been on the decline, falling from $79 billion at the end of June to $70.9 billion at the end of March.

The investments have lost 2.14 percent in the current fiscal year that began in June and returned 0.88 percent this calendar year.

Alternative investments, and hedge funds specifically, have been a matter of disagreement between union leaders who say the assets don’t pull their weight or warrant the high fees charged by managers, and investment representatives, who argue they provide a safety net in market downturns.

The fund paid out $400 million in management fees and $328.4 million in performance bonuses for its alternative investments, which make up about a third of the total portfolio.

Some board members believe that the current notion is not enough of a reduction for hedge fund investments, and that a more drastic cut is needed to make a difference.

According to a recent study by the Pew Charitable Trusts, the state of Wyoming is promising up to $2 billion in pension benefits that the state cannot afford. While this does not change pension payments currently, future payments may be greatly affected by the lack of funding.

The Star Tribune has more on the topic:

Wyoming has promised public employees almost $2 billion more than it possesses in retirement funds, a new study found.

That number, which was based on 2013 data, represents about 6.4 percent of Wyomingites’ total personal income, according tofigures compiled by the Pew Charitable Trusts. The gap increased by 4.4 percent from 2003 to 2013.

“The unfunded portion doesn’t affect the checks going out today,” said Pew’s Barb Rosewicz. “It’s more of an issue for the checks going out decades from now.”

The nonpartisan group’s researchers looked at long-term obligations in all the states. In addition to unfunded pension costs, they examined unfunded retiree health care costs and state debt.

The group used figures from 2013, the most current data available.

“I see two takeaways here for Wyoming,” Rosewicz said. “One is of the three things we’ve already measured, unfunded pension costs are the greatest. They’re a lot more than unfunded retiree health care and debt. That’s not unusual. That’s the true of a majority of the states. It’s true in 36 states.”

[…]

Wyoming is noteworthy for the amount it owes through general obligation bonds — borrowing for roads, buildings or other infrastructure projects. It is the second-lowest nationally as a proportion to personal income, trailing only North Dakota.

Wyoming has $31.2 million in debt, representing 0.1 percent of residents’ personal income, Pew researchers found.

The state ranks as one of three with the largest decreases in debt, behind Florida and Kansas.

For more about Wyoming’s financial state, read the full article here.