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Unions Rev Up New Appeal In New Jersey Pension Case – Read the Full Complaint Here

Unions lost the first round in the pension case playing out in New Jersey, when a judge ruled last week that New Jersey was too cash-strapped to make its full contribution to the pension system. The state instead diverted that money, totaling over $800 million, towards balancing the state budget.

Unions were hoping, and still are, for a court ruling that would reverse state Gov. Chris Christie’s decision to divert that money.

To that end, attorneys for the labor groups amended their court filings on Wednesday to update their argument that Christie broke the law when he slashed the state’s pension contribution.

The contribution, unions argue, was legally required due to a law that Christie himself signed in 2011. From the Asbury Park Press:

The updated court filings are a step toward a new hearing, expected in August, and fuller vetting of the issue by Jacobson, who said claims about the 2015 budget and pension payments needed time to become “ripe.” Christie made changes in the new budget days after Jacobson’s prior ruling.

“The amended filings reflect the fact that the governor didn’t make the full 2014 payment and made his changes in the 2015 budget,” said NJEA spokesman Steve Baker. “Other than that, there’s no substantive difference in the arguments we’ve had all along.”

Christie spokesman Kevin Roberts pointed to the Republican governor’s past comments on the court case, when Christie called the spending cut “one of the hard choices the people of New Jersey expect me to make.”

“For our state’s families who are already overburdened by high taxes, raising taxes even further would not solve a problem created by decades of neglect and irresponsibility,” Christie also said.

The unions will have to make a stronger argument to Jacobson about Christie’s ability as governor to set fiscal priorities for such things as hospitals, nursing homes, tuition aid and other programs. In the June court hearing, the unions also failed to force Christie to turn $300 million from state surplus as a down payment on the shorted pensions. “The governor determined it would be extremely unwise to not maintain that amount,” Jacobson told the lawyers for the plaintiffs.

Read the full complaint here:

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Photo: “New Jersey State House” by Marion Touvel Licensed under Public domain via Wikimedia Commons

Philadelphia Funds Return 15 Percent As New Investment Strategies Play Out

The Philadelphia Board of Pensions, the entity that handles investments for the city’s pension funds, released its annual return data this week. The fund returned just over 15 percent for the fiscal year. From the Philadelphia Enquirer:

The total fund ended the fiscal year up 15.6 percent, outperforming its benchmarks by 1.96 percent. A more narrow portfolio, managed internally, did well, too, showing an 11.97 percent return, about 3.5 percent higher than similar benchmark funds.

The city’s pension system is severely unfunded, with only about half the money it needs to pay its $5 billion in obligations to current and future retirees.

The fund altered its investment strategy in recent years, in large part to the hiring of Chief Investment Officer Sumit Handa. From the Inquirer:

The board’s investment strategy has been revamped with the arrival three years ago of Handa and executive director Francis X. Bielli.

Investments were tweaked, Handa said, particularly the pension board’s fixed-income portfolio.

While investment firms handle the bulk of funds, the pension board staff manages a portfolio of about $260 million, or 5.3 percent of the pension fund. Known as the Independence Fund, it is designed as a “tactical” fund, Handa said, to be used to rapidly respond to opportunities the staff might see.

It strives for high returns at low risk. Since it was established in early 2012, it has been an overachiever by those standards. Outperforming its benchmark, it has shown only a third of the risk associated with investing in the S&P 500, while achieving 60 percent of the rate of return.

This marks the third consecutive year the fund has outperformed its benchmark. Previous to that, the fund has underperformed its benchmarks over the past five and ten-year periods.

The S&P 500 returned 21 percent over the period (July 1- June 30) that the Board of Pensions reported their annual return.

Video: The Evolution of Allocating to Hedge Funds

Bloomberg TV sat down with Agecroft Partners founder Don Steinbrugge to talk about pension fund investments in hedge funds and what it means for both sides.

Other topics touched: hedge funds facing the reality of having to settle for less fees and more transparency to play ball with pension funds, and paying pension fund staff market rates. Watch the video here:

Pension360 has also covered the recent counter-evolution of hedge fund allocation, a trend in which many pension funds across the country are pulling back their hedge fund investments.

CalPERS, for instance, plans to pull back 40 percent of their hedge fund investments in the near future.

Photo by Simon Cunningham via Flickr CC License

Chicago Proposes Telephone Tax to Shore Up Pension Funding

Chicago politicians have been putting their heads together in recent months, trying to come up with ways to solve—or at least head off—the outstanding pension obligations that threaten to cripple the city’s finances.

A recent law mandates that the city make lump sum payments into the System each year to the tune of hundreds of millions of dollars. It’s up to lawmakers to find that money.

The first idea to increase was property taxes. But the move is so politically unpalatable that Illinois Pat Gov. Quinn struck a deal with Chicago: in exchange for the promise of no property tax increases, Quinn signed a bill that increased employee contributions to the city’s pension systems while also reducing employee benefits.

Now, many alderman have thrown their support behind a new idea for raising money: a telephone tax. More specifically, a 56 percent increase of the current telephone tax. From the Sun-Times:

Effective Sept. 1, the City Council’s Finance Committee agreed to raise the surcharge from $2.50 to $3.90–$1.40 more-per-month or $16.80-a-year–for every land line and cell phone in Chicago. The tax applied to pre-paid phones will rise from 7-to-9 percent, effective Oct. 1.

A family of four with four cell phones and a land-line would end up paying $84 in additional taxes each year. That’s $34-per-year more than the $50 price of Mayor Rahm Emanuel’s original plan to raise property taxes by $250 million over a five-year period to shore up two of Chicago’s four city employee pension funds.

On Tuesday, the Finance Committee honored the mayor’s promise without a single dissenting vote. That’s how eager they all are to avoid a property tax increase — the third rail of Chicago politics—seven months before the election.

The new revenue–$10 million this year and $40 million in 2015–will be used to “fully-fund” Chicago’s 911 emergency center and the Office of Emergency Management and Communications that runs it, thereby freeing up $50 million “to be contributed for the first payment” to reform the Municipal Employees and Laborers pension funds.

Taxing telephones is politically preferable to raising property taxes, which was the other option to raise funds to pay down Chicago’s outstanding pension obligation. Raising property taxes is a political no-no in the city.

But the telephone tax might turn out to be more costly, to both Chicago residents and the city itself. And some alderman have publicly wondered whether the city and the state are playing a political game. From the Sun-Times:

The fact that some Chicago families could end up paying more did not seem to bother most aldermen.

“Even though it may cost a little more because you have more lines and phones, I’d rather come up with an additional $5 or $10 than to come up with $150 [all at once]. It may not be as much pain monthly as it would be at one time,” said Budget Committee Chairman Carrie Austin (34th).

Budget Director Alex Holt added, “For some people, it may be more costly [than a property tax hike]. For others, it will be less costly. It’s going to be different for every home.”

Emanuel has emphatically denied that the phone tax was part of a political “shell game” to get past the Nov. 4 gubernatorial election and the Feb. 24 city election for mayor and aldermen, then sock it to taxpayers.

Ald. Scott Waguespack (32nd) said Tuesday he doesn’t buy it.

“We had this whole property tax issue on the table. Then, I thought I saw somebody [Emanuel] specifically say we’re holding it off for a year. Which means, it’s back on the table after the election,” Waguespack said.

“So, this is just to me sort of a short-term fix. It doesn’t solve the bigger structural problems we have. And it doesn’t put any other solutions on the table that we’ve had three years of talking about and haven’t proposed anything.”

Chicago’s largest fund, the Chicago Municipal Employees Annuity & Benefit Fund, was only 37 percent funded as of December 2012, according to the fund’s most recent annual report.

Photo: Pete Souza [Public domain], via Wikimedia Commons

Los Angeles Pension Reforms Rescinded by Labor Board; City Will Appeal

The Employee Relations Board, a five-member panel that handles labor complaints in Los Angeles’ City Hall, probably didn’t expect to become famous overnight.

But they’ve become a household name in Los Angeles this morning, after news broke that the Board voted to rescind a series of pension reforms passed by Los Angeles in 2012.

The Board ruled that city officials did not properly negotiate the reforms –which reduced pension benefits for new hires and raised retirement ages—with municipal employee unions. From the LA Times:

The Employee Relations Board voted unanimously Monday to order the City Council to rescind a 2012 law scaling back pension benefits for new employees of the Coalition of L.A. City Unions, on the grounds that the changes were not properly negotiated. That law, backed by Mayor Eric Garcetti when he was a councilman, was expected to cut retirement costs by up to $309 million over a decade, according to city analysts.

Ellen Greenstone, a lawyer for the labor coalition, described the vote as a “huge, big deal” — one that shows the city could not unilaterally impose changes in pension benefits on its workforce.

Coalition chairwoman Cheryl Parisi said in a statement that the reduction in benefits, which included a hike in the employee retirement age, “devalues middle-class city workers and their dedication to serving the residents of Los Angeles.

The city’s labor board is a quasi-judicial body that reviews complaints from unions, managers and individual employees. Under the city’s labor ordinance, the panel has the power to invalidate decisions by the council, said the board’s executive director, Robert Bergeson.

If council members do not agree with Monday’s decision, they can file legal paperwork seeking to have a judge overturn it, Bergeson said.

City officials have previously argued that changes in the retirement benefits of future employees do not need to be negotiated. The 2012 law rolling back benefits applied only to employees hired after July 1, 2013. Budget officials had hoped that the reductions would trim the city’s retirement costs by more than $4 billion over a 30-year period.

The board’s decision comes as the city’s contributions for civilian employee retirement costs have climbed from $260 million in 2005 to an estimated $410 million this year, according to a recent budget report.

Los Angeles, meanwhile, plans to appeal the board’s decision. From Bloomberg:

Los Angeles will appeal an administrative panel’s decision to roll back changes in public employee pensions that were expected to save as much as $4.3 billion over 30 years, a spokesman for Mayor Eric Garcetti said.

The second most-populous city’s Employee Relations Board concluded yesterday that officials failed to properly consult with municipal employee unions before pushing through the changes in a City Council vote in October 2012.

The city will appeal the board’s 5-0 vote in court, Jeff Millman, a spokesman for the mayor, said by e-mail. Millman said Garcetti, a 43-year-old Democrat, disagreed with the ruling, although Millman didn’t spell out the reasons.

Los Angeles was expecting to save between $3.9 and $4.3 billion over the next 30 years. If the city does indeed appeal the ruling, the reforms will then land in front of a judge, who will have the final say.

Photo: “LA Skyline Mountains2″ by Nserrano – Own work. Licensed under Creative Commons

Chris Christie’s New Pension Proposal May Trigger Another Wave of Mass Retirements

Back in 2011, when New Jersey Gov. Chris Christie signed into law the state’s first round of pension reforms, a curious thing happened: state workers started heading for the exits. And they weren’t leaving for the weekend—they were leaving for good.

In fact, state workers retired in unprecedented numbers in 2010 and 2011, when the pension proposal was being discussed and passed through the legislature. Under the plan, workers have to contribute more of their paychecks to the pension system.

Now, Gov. Christie has announced he’s planning to propose a new set of pension reforms—and he’s made it clear that the benefits of workers will not come out unscathed.

With that news circulating, New Jersey is reporting that another wave of retirements is already in the making. The Star-Ledger reports:

As Gov. Chris Christie bangs the drum for a second round of pension reform in New Jersey, public officials and union leaders are bracing for another wave of public workers rushing to retire.

Employees in state and local government headed for the door in record numbers at the beginning of Christie’s first term, thanks in part to laws passed by the governor and state lawmakers asking public workers to pay a larger share of their health and pension costs. More than 20,000 retired in 2010, followed by 19,500 the next year.

After slowing the next two years, the pace of public worker retirements is picking up again, according to state Treasury Department figures.

A total of 11,916 employees are scheduled to retire through the end of this month — a nearly 9 percent spike from the same point in 2013. If the pace continues, about 17,000 may file papers by the end of the year. A total of 15,700 public workers retired last year.

The change comes as Christie gets ready to introduce further changes to the pension system, which is facing $40 billion in unfunded liabilities.

The Republican governor, a potential 2016 presidential candidate who rose to popularity partly because of his pension fights with public worker unions, said the previous changes didn’t go far enough. He has put curtailing the costs of public employee benefits at the top of his summer agenda, suggesting the state could go bankrupt without more action.

Union leaders have offered up various explanations for the spike. Some say the retirements are indeed caused by the virtual guarantee that workers will see their benefits decrease if they don’t lock them in by retiring.

But other union officials claim that the surge in retirements can be chalked up to random fluctuations. From NJ.com:

Some union leaders say more public workers may be planning to retire out of fear they could see their pensions and health benefits cut if they don’t get out now.

“There’s a feeling of unease about what’s going to happen,” said Pat Colligan, president of the state Policemen’s Benevolent Association. “People have left the past couple of months because they’re afraid. And there are people who have their finger on the retirement button.”

But Steve Baker, a spokesman for the New Jersey Education Association, the state teachers union, said he’s not convinced this year’s 9 percent increase in retirements was caused by Christie’s warnings, saying numbers fluctuate from year to year.

“They may be on the higher end of the range, but they’re certainly within the range,” he said.

Hetty Rosenstein, director of the state chapter of the Communications Workers of America, said she would be upset if Christie’s talk caused more public workers to retire in the coming months.

“You have people who have dedicated their life to public service,” said Rosenstein, whose union represents more than 40,000 state workers in New Jersey. “It would be really terrible and shameful if people make their retirement decisions based upon fear that after 30 years their retirement isn’t secure.”

Among public workers, retirements for teachers and non-uniformed government workers are both up 12 percent so far this year, while police and firefighter retirements are down 14 percent. Retirements for the State Police dropped from 145 to 83, the figures show.

In the decade before Christie was governor, public workers retired at a rate of 13,656 a year. Since he took office, the clip is at 17,602 — a 29 percent increase.

Bill Dressel, executive director of the New Jersey League of Municipalities, said part of the problem is that Christie has yet to unveil any details of his plan to revise public worker benefits.

“There’s always fear of the unknown,” Dressel said. “There’s not a clear message coming from our state policymakers.”

Christie is currently holding a series of town hall meetings around the state addressing pension issues. He has not announced specific details of his latest pension reform proposal, but he says he will release the proposal to the public by the end of summer.

Oklahoma Teachers’ Retirement System Rakes in 22 Percent Returns

Driven in large part by index-beating equity investments, the Oklahoma Teachers’ Retirement System returned 22 percent for the fiscal year 2013-14, according to the System’s director. That number takes into account investment expenses and manager fees.

The System outperformed its internal benchmark, which was 18.1 percent for 2013-14. A more detailed breakdown of returns from Pensions and Investments:

The top performer was master limited partnerships, which returned approximately 42%, followed by total domestic equity, 27.6%; international equity, 21.1%; high-yield bonds, 12.5%; and core fixed income, 7.9%. Real estate and private equity returns were not provided.

Longer term, the pension returned a compound annualized 13.6% for the three years ended June 30, 16.1% for five years and 9% for 10 years.

As of June 30, the pension fund’s actual asset allocation was 45.7% domestic equity; 22.2% total “non-core” assets, which consists of 8.8% MLPs, 5.5% high-yield bonds, 4.1% real estate, 2.6% private equity and 1.2% opportunistic assets;, 16.6% international equity, 14.9% core fixed income and the rest in cash. The pension fund’s target allocations are 40% domestic equity, 25% total “non-core” assets and 17.5% each international equity and core fixed income.

Pensions and Investments also reports that several of the firms with which the pension fund invests with have been put “on alert”. From P&I:

Geneva Capital Management was put “on alert” as a result of being acquired by Henderson Global Investors. Geneva Capital Management runs a $186 million domestic small-cap growth equity strategy for Oklahoma Teachers.

Lord Abbett was put also put on alert for personnel changes. Lord Abbett currently manages $603 million in a core fixed-income strategy and $262 million in a high-yield fixed-income strategy for the pension fund.

Being put on alert is a step below being placed “on notice,” which is the last step before termination.

Photo: “Flag-map of Oklahoma” by Darwinek – self-made using Image:Flag of Oklahoma.svg and Image:USA Oklahoma location map.svg. Licensed under Creative Commons Attribution

Montana Funds Return 17 percent for Fiscal Year

The Montana Board of Investments, the entity that manages investments for the state’s pension funds, released its annual return data yesterday. As a whole, the Board pulled in a return of just over 17 percent for fiscal year 2013-14. From the Missoulian:

State investments showed a return of 17.17 percent on all pension investments in the fiscal year that ended June 30.

The state Board of Investments’ return for the year was approaching the historic high return for the board, which was 21.8 percent in 2011. The return last year was 13 percent.

These percentages are net returns, calculated after all investment expenses are paid.

Montana has been in the top 25 percent of its peers for the past three years.

Since the Board of Investments’ inception in 1972, its overall earnings are 7.93 percent, exceeding the 7.75 percent needed to fund the pension systems.

The investments have bounced back since state pension funds lost a fourth of their money during the national recession in 2008 and 2009.

“The taxpayers of Montana re the winners with today’s announcement,” Gov. Steve Bullock said. “At a time when other states are forced to raise taxes to fix their pension problems, Montana has fixed our public pensions without increasing taxes.”

Bullock said the state is continuing to improve its financial picture through prudent investments of cash holdings and investments.

Over the same period, the S&P 500 returned approximately 21 percent.

Photo: “Winnett MT Rims South of Town” by J.B. Chandler – Own work. Licensed under Creative Commons

Oral Arguments by Pension Funds and Unions Pushed Back in Detroit Bankruptcy Hearing

When Detroit first raised the issue of cutting pension benefits for the city’s workers, unions and pension funds balked at the idea.

So when a Detroit bankruptcy court ruled that the city could indeed cut pension benefits as part of bankruptcy proceedings, several parties immediately filed appeals, including two public employee unions and one pension fund. They wanted their day in court; a chance to stand in front of a judge and make their arguments face-to-face.

That day was supposed to be Wednesday. But there will be no appeals heard that day, as the Appeals Court in question has postponed the oral arguments that were previously scheduled to be given by the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

The groups were going to argue that Detroit is ineligible for bankruptcy because Michigan law does not allow a city to file for bankruptcy. From Detroit News:

A federal appeals court Tuesday canceled oral arguments for two public safety unions, a retiree group and the city’s pension funds, which were trying to overturn the city’s eligibility for bankruptcy and its ability to slash pensions.

The cancellation comes one day before the groups were scheduled to deliver arguments in the U.S. 6th Circuit Court of Appeals in Cincinnati, Ohio, and following a request to delay the hearing by a city bankruptcy lawyer, who cited ongoing negotiations. The groups impacted by the cancellation are the Detroit Fire Fighters Association, Detroit Police Officers Association, the city’s two pension funds and the Retired Detroit Police Members Association.

Oral argument was set for 1:30 p.m. Wednesday and posed one last legal obstacle that could derail an Aug. 14 trial to determine whether Detroit can shed $7 billion in debt and emerge from the biggest municipal bankruptcy in U.S. history. Legal experts, however, believe appeals from pension funds, unions and retiree groups will fail and the bankruptcy case will continue to trial next month.

Robert Gordon, a lead attorney for Detroit’s retirement systems, said the appellate court’s clerk’s office called attorneys involved late Monday and informed them of the cancellation.

A spokeswoman for the Retired Detroit Police Members Association confirmed Tuesday morning the group had struck a deal with the city late Monday night to avoid Wednesday’s planned hearing. That group has argued Michigan’s emergency manager law is unconstitutional because of its similarities to a previous law voters repealed in November 2012.

Detroit has settled with most of its creditors as part of its bankruptcy proceedings. But there has been one notable holdout: Syncora Guarantee Inc, which is facing millions of dollars in potential losses due to the drastic decline in value of the Detroit bonds the corporation holds.

Photo: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons

Value of New York City Funds Reach All-Time High After Big Returns

New York City’s pension funds together returned over 17 percent for fiscal year 2013-14, the City’s strongest return since fiscal year 2010-11. As a result, the value of the City’s pension system has reached an all-time high. From Reuters:

New York City’s pension system had a banner fiscal year in 2014, increasing its total value to a record $160.5 billion, Comptroller Scott Stringer is set to announce on Monday.

That is a nearly $19 billion increase from the fiscal year ending July 31, 2013, when the five pension funds had a combined value of $141.7 billion, according to records on Stringer’s website.

As a result of the funds’ performance, the city will save $17.8 billion over the next two decades, due to an above-average rate of return, according to a press release distributed to reporters on Sunday.

“Five years of positive returns are good news for the pension funds and for the city,” Stringer said in the release.

The five combined funds had a 17.4 percent rate of return on investments for FY2014, which ended on June 30. That tops the rates of 12.1 percent in FY2013 and 1.4 percent in FY2012, but falls short of the 23.2 percent rate in FY11. The rate in FY2010 was 14.2 percent.

The assumed rate of return, which is set by the city’s actuary, is 7 percent. That means that if the funds perform below that rate, the city must make up the difference with taxpayer money.

The $17.8 billion in savings will begin in FY2016 and will be phased in over a six-year period. Each year’s incremental savings will be repeated for 15 years thereafter.

New York City is now planning on decreasing its contributions into the System, as the required payments are tied to investment returns; the bigger the returns, the less money the state is legally required to pay into the system.

Over fiscal year 2013, the S&P 500 returned nearly 22 percent.

Pension360 had previously covered the lackluster private equity returns from New York City pension funds.

The New York City Employees’ Retirement System (NYCERS) was 65 percent funded as of 2013, while the New York State and Local Retirement System was 87 percent funded.

Photo: Manhattan amk by user AngMoKio. Licensed under Creative Commons

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