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Where Does Bruce Rauner Stand on Pension Reform?

When talking pensions on the campaign trail early in 2014, Bruce Rauner said that new hires, current workers and retirees all would need to be on the receiving end of pension benefit cuts.

But Rauner has softened that stance in recent months; the Illinois governor now says the benefits accrued by current workers and retirees need to be protected.

From NBC Chicago:

[Rauner remarked] that it’s most important to “protect what is done—don’t change history. Don’t modify or reduce anybody’s pension who has retired, or has paid into a system and they’ve accrued benefits. Those don’t need to change.”

[…]

“What we should change is the future—the future accruals, the future benefits for future work,” he said, according to the Chicago Sun-Times. “That is constitutional. It’s also fair and appropriate for the taxpayers and the workers themselves.”

“Hopefully (the state Supreme Court) will give us some feedback that will help guide the discussion for future modifications as appropriate for the pensions,” noted Rauner.

Rauner’s website has also been updated accordingly and clarifies his official stance further. He is still pushing for a switch to a 401(k)-style system, but he wants to keep current retirees insulated from any changes:

We must keep our promise to current retirees, but we put all government workers at risk by continuing to promise a pension no one can afford.

[…]

We must boldly reform our pension system. To do that, we can:

* Ensure pay and benefits do not rise faster than the rate of inflation.

* Eliminate the ability of government employees to receive massive pay raises before they retire just to increase their pension.

* Cap the current system and move towards a defined contribution system.

The change in sentiment is perhaps due to a circuit court ruling late last year that overturned the state’s pension reform law, which made it more unlikely that pension reforms can legally come in the form of benefit cuts for retirees.

The law is currently being heard in the halls of the state Supreme Court.

It could also be that Rauner, since taking office and taking the temperature of fellow lawmakers, is now more in-tune with the political realities of steep pension cuts, and doesn’t see the worth in pushing an unpopular policy if it has little chance of coming to fruition.

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Virginia Governor Proposes Extra $150 Million Payment to Pension System This Year

Virginia Gov. Terry McAuliffe wants to put an extra $150 million in the state’s teacher retirement fund this year in a bid to reduce the state’s pension contributions in future years.

The extra money would also reduce future pension payments from school districts.

From the Richmond Times-Dispatch:

The proposed payment to the teacher fund would reduce government contribution rates for teacher pensions by 0.35 percentage point beginning in fiscal 2016, according to the Virginia Retirement System in a presentation to the Senate Finance Committee on Tuesday.

The reduced rate would save the state about $10 million and local school systems $15.8 million.

The governor’s pending budget proposal also would accelerate the 10-year payback of more than $741 million in contributions the General Assembly and Gov. Bob McDonnell deferred in 2010 to balance the two-year state budget at the end of the recession.

[…]

The teacher retirement plan carries the largest unfunded liability, estimated at $14.3 billion last year using the same methodology as used to calculate the rates. (The unfunded liability of the plan is $11.9 billion, if based on the current market value of system assets, but that method is subject to big swings in market value that would make rates unstable, VRS officials said.)

Local governments pay about two-thirds of the employer retirement costs for teachers, and the state pays the rest. The climb in pension contribution rates — projected to peak in 2018-19 — has put heavy pressure on school system budgets. Next year, for the first time, local school systems will have to show that liability on their books under new federal accounting rules — about $500 million each for Chesterfield and Henrico counties.

The state’s teacher retirement system was 65.4 percent as of June 30.

$700 Million in New York Pension Payments Go to Florida Retirees

If you want a sense of how many New Yorkers move to Florida in their retirement years, look no further than this number: $708 million.

That’s how much New York’s pension system paid out to Florida residents in 2014; the number represented 7 percent of the system’s total benefit payout.

Florida to 19 Local Pension Plans: Fix Funding Issues Now

Nineteen of Florida’s most underfunded local pension plans received “call to action” letters from the state Tuesday, calling for the systems to immediately begin formulating a plan to deal with their funding issues.

From the Florida Times-Union:

The 19 pension plans all are less than 50 percent funded, prompting the terse letter from the Department of Management Services, the state agency tasked with reviewing local pensions.

DMS Secretary Chad Poppell sent letters to Jacksonville Police and Fire Pension Fund executive director John Keane and Raymond Ferngren, administrator of the Jacksonville Corrections Officers’ Pension Fund and the Jacksonville General Employees’ Disability Fund. The Alachua School Board Early Retirement Plan and Ocala General Employees’ Retirement System also received letters, and Jacksonville Chief Financial Officer Ronald Belton was copied.

The letter to Keane pointed to the Police and Fire Pension’s $1.6 billion unfunded liability and said current funding was only enough to pay 37.3 cents of every dollar owned to retirees and current employees.

“As a result, your plan should consider taking action to prevent future taxpayers from having to incur costs,” Poppell wrote.

Coincidentally, Poppell serviced as Jacksonville’s chief of human resources under Jacksonville Mayor John Peyton.

The Police and Fire Pension letter also mentions ongoing discussions with city officials to reform the pension, saying they “are not yet realized.”

“The Department of Management Services requests you immediately notify all active and retired members of the plan regarding the plan’s conditions and what actions will be taken to improve it,” it said.

It’s unclear whether the funds will have any punishment if they don’t comply with the letter’s demands.

Photo credit: “Bluefl”. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Bluefl.png#mediaviewer/File:Bluefl.png

Delaware Lawmaker To Introduce Bill To Strip Pensions From Public Workers Convicted of Felonies

A Delaware lawmaker wants to re-introduce a bill that would strip pensions from public employees convicted of felonies.

Sen. Ernie Lopez [R-Lewes] initially introduced the bill last summer but it didn’t go far. However, Lopez hopes that recent events will highlight the importance of the bill.

From Delaware Online:

Sen. Ernie Lopez, a Lewes Republican, said in an e-mail to supporters that he wants to reintroduce the measure after Richard ‘Dickie’ Howell, a Kent County teacher and wrestling coach, was charged with child sex abuse and rape in what police said was a 10 month-long sexual relationship with a 17-year-old student. He said in the email that a number of his constituents had reached out to him regarding the incident at Caesar Rodney High School in Camden.

[…]

“As a public policy maker and also as a father, I strongly believe that Delaware should be first in the nation in laws that protect our most vulnerable populations, especially our children,” Lopez wrote in the e-mail. “To think that 25 other states have pension forfeiture laws yet Delaware does not, demands that this bill deserves a full and open hearing.”

Lopez introduced similar legislation last June, but the measure never made it out of committee. Under that version of the legislation a state employee would have their pension terminated if they were convicted of felonies, including murder, child pornography, and sexual abuse of a child by a person in a position of trust.

He said in the e-mail that he plans to circulate the bill for co-sponsors this week with the hope that the bill will be heard and assigned to a committee when the General Assembly reconvenes in March.

Half the states in the U.S. have similar laws on their books. Illinois is the most recent state to join those ranks.

Pennsylvania Teachers’ Pension Commits $150 Million to Industrial Real Estate

The Pennsylvania Public School Employees’ Retirement System (PSERS) has invested $150 million in the Cabot Core Industrial Fund.

From IPE Real Estate:

Pennsylvania Public School made the commitment based on strong operating fundamentals for industrial properties, with the sector enjoying its lowest vacancy rates since 2001 and rents rising 4% year on year.

The fund is Cabot’s first core vehicle, having previously invested in industrial properties through value-add funds.

Pennsylvania Public School participated in the funds with a $100m commitment to Cabot’s Industrial Value Fund III in 2008 and $75m to the Industrial Value IV in 2013.

Cabot has been active in Atlanta, Chicago, Dallas, Florida, Los Angeles, New Jersey and Pennsylvania.

Courtland Partners, which advises Pennsylvania Public School, said the fund would target net returns of 8-10%, with an initial current yield of 5-6%.

Around 70-80% of returns are expected to come from current income, with the balance from appreciation.

PSERS managed $51.9 billion in assets as of September 30, 2014.

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

Preqin Tells Private Equity to Heed the “Power of the Limited Partner” After CalPERS’ Cuts

Research firm Preqin has released a note reacting to CalPERS’ cutting of private equity managers.

The firm notes that limited partners are beginning to wield more negotiating power, and cautions private equity firms to consider CalPERS’ actions an “effective statement” on the power of limited partners.

CPPIB CEO Urges Canada to Look Overseas for Growth

The CEO of the Canada Pension Plan Investment Board (CPPIB) told the Toronto Region Board of Trade on Monday that Canada should be looking overseas and around the world for growth opportunities.

More on Mark Wiseman’s remarks from the Times Colonist:

Meanwhile, Wiseman said in a speech prepared for Monday’s annual dinner of the Toronto Region Board of Trade that Canadian organizations should be looking overseas for growth.

He noted that the CPPIB already invests 70 per cent of its capital outside of Canada, with a particular focus on China, India and Brazil.

“Most of you are familiar with Wayne Gretzky’s style of playing hockey — he staked to where the puck was going to be, not to where it was,” Wiseman said in his speech to the business audience.

“To put it bluntly, Canada needs to follow Gretzky’s practice.”

Wiseman says Canada should leverage its strong reputation overseas and its large population of immigrants, who possess a wealth of global experience that can help Canadian companies expand abroad.

“Having international skills and knowledge is a key asset — and it’s one that won’t rise and fall in value along with global commodity prices,” Wiseman said.

The CPPIB managed $201.1 billion in assets at the end of last fiscal year.

Photo by Horia Varlan via Flickr CC License

Kentucky Pension Investment Performance Lags Behind Peers, System Says

Kentucky Retirement Systems officials met with lawmakers on Monday as they presented the findings of an internal study to the Pension Oversight Board.

The study examined how KRS investment performance stacks up with other, similar funds.

Officials said the study indicated that the system’s investments were performing at rates that lagged behind their peers as well as the system’s own assumed rate of return.

More from the Northern Kentucky Tribune:

The 10 peer states–Indiana, Kentucky, Louisiana, Maryland, Massachusetts, New Jersey, Rhode Island, South Carolina, Virginia, and West Virginia–were chosen for the similarities in their investment mixes. But even through this seemingly narrow frame of reference, Kentucky still lingers at the bottom of the list: the state’s investments are returning at a 6.8 percent rate compared with list-topping Louisiana, whose investment spread is paying off at an 8.3 percent rate of return.

Though Kentucky legislators have set a target 10-year return rate of 7.75 percent for their investments, Cracraft cautioned the Board that none of Kentucky’s peer states have consistently met that target, nor have any of the 44 states with similar pension plans.

[…]

Measuring investment outlooks at one, three, five, and 10 year forecasts, KRS returns lagged behind other plans at nearly every turn.

KRS’ particular mix of investments has less investment in U.S. equities than the others, with 10.6 percent in hedge funds, 11.2 percent in private equity, 2.9 percent in real estate, and 9.8 percent real funds.

Cracraft said allocations to hedge funds is a trait shared by the six lowest performers.

“The takeaway here for me and the group of staff,” said Cracraft, “was that when compared to plans we feel are taking a similar approach, while KRS appears to be slightly below, it’s performing in line with the group.”

Pension officials also reported a piece of sobering news: if investment performance stays flat for the rest of the fiscal year, the system will lose $168 million in assets.

George Soros: Hedge Funds “Not a Winning Strategy” For Pensions

Hedge fund guru George Soros said at the Davos Economic Forum last week that he doesn’t think pension funds should be investing in hedge funds. He cited the current market, management fees and recent under-performance as reasons for his view.