Author: Megan Leo

The California Public Employees’ Retirement System (CalPERS) has managed to bring costs down in the past few years by investing in-house and cutting ties with hedge funds. CalPERS has also cut many of the company’s investment managers in an attempt to save money.

Chief Investment Officer has more on the topic:

The California Public Employees’ Retirement System (CalPERS) cut management fee expenses by $161 million over the last five years by bringing assets in-house, despite nearly doubling in assets under management over that time period.

At its May investment meeting Monday, the $302 billion pension fund said it spent $750 million on management fees from 2014 to 2015, compared to $911 million from 2009 to 2010.

Total portfolio costs, excluding performance fees, dropped from $1.02 billion to $888 million over the same period.

“The absolute costs of running the portfolio actually dropped while the portfolio almost doubled in size,” said Wylie Tollette, chief operating investment officer.

Cost savings were driven largely by the decision to cut hedge funds and fewer investments in real estate and private equity, according to an analysis by CEM Benchmarking. The pension instead favored passive and internal management.

CalPERS dropped $4 billion worth of hedge fund investments in 2014, citing fees as a primary reason. The following year, the fund announced its intention to reduce its manager count across the portfolio by 50%.

Tollette said CalPERS has so far decreased its number of external managers from 212 to 159, with the goal of getting down to 100.

CalPERS handles 68% of assets internally. On average, other American Public Funds manage about 10% of assets in-house.

 

The Chicago pension fund is now $11 billion short of what is required to finance pensions for the next ten years. The shortage is due to a set of new accounting rules and to the Illinois Supreme Court defeating Chicago Mayor Rahm Emmanuel’s retirement-fund overhaul. The city now finds itself with alarmingly low funds.

Crain’s Chicago Business has more on the situation:

Thanks to the defeat of the city’s retirement-fund overhaul by the Illinois Supreme Courtand new accounting rules, Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to an annual report presented to the fund’s board yesterday. The fund serves some 70,000 workers and retirees.

The new figure, a result of actuaries’ revised estimates for the value in today’s dollars of benefits due as long as decades from now, doesn’t change how much Chicago needs to contribute each year to make sure the promised checks arrive. But it highlights the long-term pressure on the city from shortchanging its retirement funds year after year — decisions that are now adding hundreds of millions of dollars to its annual bills and have left it with a lower credit rating than any big U.S. city but once-bankrupt Detroit.

“The longer they wait to get this fixed, the more expensive it’s going to get for the city’s taxpayers,” Richard Ciccarone, the Chicago-based president of Merritt Research Services LLC, which analyzes municipal finances.

The latest estimate for the municipal fund, one of Chicago’s four pensions, will add to what had been an unfunded liability estimated at $20 billion.

A key driver was the court ruling striking down Mayor Rahm Emanuel’s plan that cut benefits and boosted city and employee contributions. Without it in place, the fund is now set to run out of money within 10 years.

That triggered another change. New accounting rules, adopted to keep governments from using overly optimistic investment-return forecasts to mask the scale of their liabilities, require them to use more modest assumptions once pension plans go broke. As a result, the reported liabilities jump.

The Chicago fund is notable because there have been very few governments that have been affected by the change, according to Ciccarone. “The investment returns are not going to fix the problems themselves,” he said.

The pension fund is currently 32 percent funded.

Mark Wiseman, CEO of the Canada Pension Plan Investment Board, has announced that he will be leaving the company for a position at Blackrock. At the moment, there are no details as to when this move will be taking place, but it comes in stark contrast to his predecessor, who gave the company notice three years before he intended to leave.

The Financial Post has more on the topic:

The executive who oversees investments on behalf of Canada’s largest pension fund is leaving in a surprise move that is in marked contrast to the “orderly long-term succession plan” of his predecessor.

Sources told the National Post that Mark Wiseman is departing soon from the Canada Pension Plan Investment Board, where he has been chief executive for almost four years.

The CPPIB announced Thursday that Wiseman is leaving to take a “senior leadership” role at Blackrock next month.

He will be succeeded atop the pension giant on June 13 by Mark Machin, CPPIB’s senior managing director and head of international.

Wiseman, 45, took over from David Denison in June of 2012, a handover that had been planned for months.

[…]

[A] source suggested Wiseman is leaving for another position, but declined to say where he is headed, or who will replace him at the fund, which had $282.6 billion under management at the end of December.

Another source later suggested Wiseman could remain at the pension for a period of time after announcing his planned departure. Wiseman could not be reached for comment, and company officials did not respond to a request for comment.

While the two sources characterized his departure as amicable, and said there was no suggestion of concern in Wiseman’s leadership, another familiar with CPPIB’s inner workings said there was friction on issues including his leadership style and travel.

Wiseman’s extensive travel outside Canada might be explained by the rapid expansion of the fund’s overseas operations on his watch — offices were opened in Sao Paulo, Mumbai and New York. But the source said some questioned whether it was only the CPP’s interests that were being promoted.

Mark Wiseman joined CPPIB in 2005.

After a victory at a special election held on Tuesday, Arizona’s Proposition 124 will be taking effect on January 1, 2017. The proposition will cut public service pension benefits in order to hopefully bolster the public service pension trust, which has about half as much money as it currently needs.

AZ Central has more on the proposition:

Starting Jan. 1, the measure will change the way permanent pension-benefit increases are paid to retirees. Supporters say Prop. 124 over the next 30 years will save $1.5 billion for the retirement trust for first responders. However, an Arizona Supreme Court ruling could throw a wrench in Tuesday’s electoral decision.

Prop. 124 will link retirees’ pension cost-of-living adjustments to the regional Consumer Price Index, with an annual cap of 2 percent. An annual 4 percent compounded increase has been paid out to retirees for the past two decades, significantly cutting into the amount of money remaining to pay future retirement benefits.

Although the measure will reduce pension benefits, first responders urged voters to back the plan in order to provide sustainability to a trust that has about half of the money needed to fund current and future pensions. The rising cost for public employers contributing to the PSPRS has caused some communities to curtail the hiring of additional police officers and firefighters.

The proposition was seen as a compromise after Lesko spent a year working with members and employers in the PSPRS. Opponents such as the Arizona Tax Research Association and the Goldwater Institute, which opposed having the proposition placed before voters, said the measure provides no short-term financial relief for taxpayers. Savings may occur only years down the road, they said.

The ruling on a pension-reform case currently before the Supreme Court will likely alter exactly how Proposition 124 is implemented. The case handles legislation passed in 2011, and could be the difference between tens of millions of dollars for Arizona. For more information about the case, read the full article here.

Queen Elizabeth II’s Queen’s Speech promised a reform for the British pension system. The reform focuses on how to keep pension collectors from being victims of large-scale scams, and other protective measures for people of pension-collecting age.

Mirror has more about the speech:

Savers into workplace pensions will get more protection under measures announced in the Queen’s Speech.

The Government has tightened the rules for master trusts – the pension schemes holding millions of pounds from workplace pension schemes.

Nine million Brits are expected to be saving into a pension for the first time or saving significantly more by 2017.

But MPs had raised concerns that master trusts were not carefully vetted , and that workers’ hard-earned savings could be at risk if one went bust.

The Work and Pensions Committee warned: “Should one of these trusts collapse, there is a very real danger that ordinary scheme members could lose retirement savings.”

[…]

The Government is introducing tighter rules to make sure only the most responsible master trusts win approval.

It is capping early exit charges, meaning savers old enough to cash in can do so without getting stung by high fees. At present, nearly 700,000 savers could be forced to pay a fee.

And it is creating a new pensions guidance service designed to help savers make decisions about how to use their pension.

Critics of the new measures say that despite the proposed guidance service, British citizens who are saving for pensions may not have enough information to make fully informed decisions.

 

Arizona held a special election on Tuesday, and included on the ballot were various Propositions. Among those was Proposition 124, which aims to change the pension system in Arizona for public officials. The proposition would change the contributions, timing, and payout of Arizona pensions for fire fighters and police officers.

The Daily Miner has more on the election:

Meanwhile, Proposition 124 changing the state’s pension plan for emergency workers was winning with 70 percent of the early ballots cast, and the head of the state’s largest firefighters union called it a landslide victory. The proposal would ratify a major part of an overhaul of the police and firefighter pension system that was enacted by the Arizona Legislature earlier this year.

[…]

The pension plan changes voters must ratify include lower cost-of-living increases for current and future retirees and are designed to help fix the system’s finances. The funding level has sunk to just 50 percent of its expected liabilities while employers have seen their contribution rates soar.

The larger overhaul of the pension system establishes a new tier for newly hired officers, limiting maximum pension payments and equalizing employer and employee contribution rates.

“This measure means firefighters and police officers will need to work longer before retirement, contribute more and accept lower cost of living increases down the line, but we agreed to these sacrifices because we understood the seriousness of this emergency,” said Bryan Jeffries, president of the Professional Fire Fighters of Arizona. “We saw a crisis and we took action to fix it.”

Ann Ridenour, 80, said she supported Proposition 124, but wished that new public safety employees could receive the same benefits as their more experienced colleagues.

“It doesn’t seem quite fair,” she said.

This election went smoothly due to the opening of almost 60 more polling places in Maricopa County. Voters did not have to wait in long lines, unlike during the March presidential primary.

Federal Judge Louis Guirola is attempting to find a solution for the Singing River Health System pension plan. The SRHS stopped pension payments in 2009. The new plan aims to pay back all of the money owed over a 35 year period.

WDAM has more on the topic:

The $150 million settlement, paid over 35 years, would give retirees 100% of the money they’re owed and shore up the plan moving forward.

In 2014 it was revealed that SRHS stopped contributing to the fund in 2009.

Guirola stressed that this is a fairness hearing. “I’m here to decide if the settlement is reasonable, adequate and fair.” he said.

The courtroom was filled with concerned retirees, many of whom support the plan. Others are expressing uncertainty.

“It’s not that I don’t approve the settlement, it’s just the repayment schedule. No one has been able to tell me what the schedule will do to retirees. I agree the hospital owes money, but 35 years from now what does that mean for me?,” said David Gress.

Plaintiffs attorney Jim Reeves, who helped engineer the deal, said the settlement provides safeguards.

“No one can change the plan unless three things happen. A Chancery Court has to approve any change. The Special Fiduciary has to approve of any changes and all members will be given 60 days written notice and given a chance to appear and reject the change,” said Reeves.

Attorney Harvey Barton represents some of the retirees who don’t support the settlement. Barton questioned Singing River Health System Chief Financial Officer Lee Bond about the health systems ability to meet its obligations.

Under oath, Bond said he believes SRHS is capable of making the payments over the 35 year time frame.

Guirola stated multiple times during the case that the goal was to achieve fairness, and not to point out past wrongdoings.

A recent study performed by researchers at Standford University revealed that California’s pension debt is markedly higher than once thought. The researchers calculated the deficit using two different sets of data, and came up with equally staggering amount.

The Sacramento Bee has more on the research:

California’s state and local governments face billions of dollars in debt – the official term is “unfunded liabilities” – for employee pensions not now covered by pension fund assets.

But how many billions?

It could be about $300 billion, according to new calculations by Stanford University researchers, but that assumes that projections of future investment earnings used by pension trust funds, around 7.5 percent a year, are accurate.

Or the debt could be three-plus times as much, close to $1 trillion, if the earnings assumptions track federal treasury notes, according to Pension Tracker, a research project headed by former Democratic Assemblyman Joe Nation.

If nothing else, the newly released Pension Tracker data demonstrate that an earnings assumption – the “discount rate” – is the most important factor in judging whether pension debt can be reasonably managed, or a crisis that could drive government agencies into insolvency.

Three cities have been forced into bankruptcy, largely due to soaring pension costs, and others are feeling the pinch as costs rise.

The tendency among California politicians, both state and local, is to acknowledge that there is debt, but accept the optimistic earnings

[…]

If, in fact, California’s pension debt is closer to $1 trillion than $200 billion, the real-world impact on taxpayers and other public spending will be massive and unsustainable.

But, one might wonder, how does California compare to other states? That’s also covered in the research. It reveals that on the official “actuarial” basis, California’s pension debt is the ninth highest at about $5,100 per Californian, but using the lower discount rate tied to treasury notes, the “market” basis, it’s fourth highest at $25,325 per capita.

For more about where California’s debt stands, read the full article here.

 

 

 

Henrique Meirelles, Brazil’s new finance minister, explained his intention to overhaul the country’s pension system in order to combat the national deficit. Meirelles stepped into his office after the suspension and possible impeachment of President Dilma Rousseff.

Nasdaq has more on the topic:

Brazil’s new finance minister, Henrique Meirelles, said Friday the government needs to reduce spending and overhaul the country’s pension system and labor laws.

Mr. Meirelles said during a news conference that he will name his economic team and the heads of the central bank and state-controlled banks on Monday, and will reveal economic measures as they are ready. He added that the heads of the state banks won’t be chosen based on their political affiliation.

“We need to have concrete measures to turn things around,” he said. “Even if those measures won’t have immediate effects, they will have an effect in the future.”

Mr. Meirelles was appointed finance minister on Thursday by acting President Michel Temer, who is sitting in for President Dilma Rousseff.

Ms. Rousseff was temporarily suspended on Thursday to face an impeachment trial in the Senate. She accused Mr. Temer of plotting her dismissal.

[…]

The minister will also be charged with fixing the country’s broke public pension system. For decades Brazilians have been able to retire after up to 35 years of work, resulting in a relatively low retirement age, now averaging 54 years.

Mr. Meirelles said Brazil should move toward a minimum retirement age, without giving specifics. Pension payments amount to almost half of the national budget and fixing the system is key to restoring confidence in Brazil’s future, he said.

If Rousseff is impeached, Brazil’s voters are expected to allow Meirelles to enact the reforms he proposes with little resistance.

Chicago Public Schools are facing a major deficit after relying on Springfield to help pay the $676 million payment for teacher pensions due in June. With little word back from the capital, CPS is struggling to function under added financial stress.

The Chicago Sun-Times has more on the subject:

Summer school for 17,450 Chicago Public School students could be scaled back dramatically if the Illinois General Assembly adjourns its spring session without providing pension relief to the nearly bankrupt school system.

The doomsday plan may also require central office administrators and network staffers who normally work through the month of July to take pay cuts or unpaid days off.

“Because of the budget crisis driven by the state’s discriminatory funding, CPS is being forced to seriously contemplate difficult reductions to summer school,” CPS spokeswoman Emily Bittner was quoted as saying in an emailed statement in response to questions from the Chicago Sun-Times.

[…]

Mayor Rahm Emanuel signed off on a school budget that assumes $480 million in pension help from Springfield. CPS has managed to make it through the school year, only after borrowing $775 million at sky-high interest rates and making several rounds of painful budget cuts.

A school funding bill approved by the state Senate this week would provide roughly $375 million in additional help for CPS.

But, the bill Downstate Democratic state Sen. Andy Manar claims will “attack poverty in the classroom” faces an uncertain future, both in the House and, more importantly, with Republican Gov. Bruce Rauner.

At issue is the $676 million payment to the Chicago Teachers Pension Fund due on June 30.

CPS has no choice but to make that payment in full, whether or not Springfield rides to the rescue.

To do otherwise would probably mean losing future access to the credit markets and slipping dangerously further into junk bond status — possibly dragging the city’s bond rating down with it.

But, after making that payment in full, CPS will have just $24 million left in the bank. That’s enough to cover just 1.5 days of payroll.

Since property tax revenues won’t start rolling in until early to mid-August, that means CPS would essentially be forced to operate “bone-dry” through the month of July.

That’s why summer school and summer staffing are being targeted.

Furlough days and pay cuts could also be in store for the roughly 1,000 central and network office staffers who normally work through the month of July.

CPS’s pension payment is due by June 30.