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Incoming Massachusetts Governor to Push for Transparency at MBTA Fund

Massachusetts Governor-elect Charlie Baker says he will push for more transparency and openness from the MBTA retirement fund.

Baker’s statements come days after it was reported by the Boston Globe that the pension fund posted its annual report a full year late; the fund also waited a year to disclose troubles at a hedge fund that held pension money. The hedge fund is now shutting down in the wake of civil fraud charges brought against its executives.

From the Boston Globe:

The incoming Baker administration will press for greater openness at the MBTA retirement fund and encourage it to operate more like other pensions for public workers, a spokesman for Governor-elect Charlie Baker said Monday.

“The governor-elect wants to protect the pensions of hard-working MBTA employees and feels greater transparency and disclosure could help the pension board make better investment decisions,’’ the spokesman, Tim Buckley, said in a statement. Given the significant investment of taxpayer dollars in the MBTA, he said, Baker “feels it is appropriate to explore ways to align the MBTA pension board’s investment practices with those of other public pension boards.”

[…]

Baker’s spokesman declined to offer specifics on how he might tackle the issue. The pension fund is organized as a trust and in 1993 won a Supreme Judicial Court ruling that it does not have to make records public, hold open meetings, or follow the ethics rules of public agencies.

[…]

A governor’s main leverage with the MBTA pension fund is indirect. Governors get to appoint people to the seven-member Department of Transportation board, which in turn sends three “management” appointees to the six-member T retirement board.

Read more Pension360 coverage of transparency issues at the MBTA fund here.

Photo by Marissa Babin via Flickr CC License

Unions Approve Omaha Pension Reforms

A third union has approved a contract with the city of Omaha, Nebraska that features major pension changes.

Among the changes: new employees will be shifted into a cash balance plan and the full retirement age will be raised. In exchange, Omaha will increase its payments into the city’s pension fund and employees will receive a raise.

From NBC Omaha:

Monday, Omaha Mayor Jean Stothert’s office announced a third and final civilian union in contract negotiations has approved an offer which includes changing to a cash balance pension plan for new employees.

A news release from the office says the offer “solves the underfunded pension liability and achieves unprecedented pension reform.”

CMPTEC members were the last union group to accept an offer changing from defined benefits to a cash balance plan. The change only impacts new employees hired after January 1st.

The unions include CMPTEC, Local 251 and the Functional Employees Group. A fourth group, AEC, is not represented by a bargaining unit, but it will receive the same benefits.

Each group’s agreement allows current employees to remain in the existing pension plan with reduced benefits and an extension to the number of years required to achieve normal retirement.

In return, the City agreed to increase contributions to the pension fund by 7% over the five-year agreement, give employees a 9% raise over the five-year period, and a 1% one-time “lump sum supplement” for 2013 when wage freezes were enacted.

“I am grateful to the membership, the union negotiators and our negotiating team led by Mark McQueen and Steve Kerrigan for agreements that are good for our employees and the taxpayers,” said Mayor Jean Stothert.

The Personnel Board has already approved the Local 251 agreement. In January, they will meet to approve the other two. The City Council must also approve the contracts.

The contracts run through 2017.

Canada Pensions Team With Spanish Bank on Energy Investment

Two Canadian pension funds – the Ontario Teachers’ Pension Plan Board and the Public Sector Pension Investment Board – have teamed up with Spanish bank Banco Santandar S.A. to manage a $2 billion portfolio of renewable energy assets.

From the Financial Post:

Santandar, which already owned the portfolio, will transfer it to a new company owned equally by the bank, the Ontario Teachers’ Pension Plan Board, and the Public Sector Pension Investment Board (PSP Investments).

The portfolio includes wind, solar and water infrastructure assets that are either operating or in development in seven countries.

The three partners said in a statement Monday they intend to make significant investments in the new company over the next five years.

“This investment fits well with our strategy of deploying capital in sizeable opportunities that offer long term revenues and growth potential along with solid partners,” said Bruno Guilmette, senior vice-president of infrastructure investments at PSP Investments.

Teachers’ investment was led by its infrastructure group, which manages a global portfolio of $11.7-billion of direct infrastructure investments, including water and wastewater, electricity distribution, gas distribution, airports, power generation, high-speed rail and port facilities.

Pending regulatory approval, the transaction is expected to close in the first half of 2015.

The Ontario Teachers’ Pension Plan manages $138.9 billion in assets. The Public Sector Pension Investment Board manages $94 billion in assets.

Several Jacksonville Council Members Support Investigation into Pension System

Earlier this month, Florida state Rep. Janet Adkins sent a letter to Gov. Rick Scott calling for an investigation into the Jacksonville Police and Fire Pension Fund – specifically, the “questionable practices and possible mismanagement” of its DROP fund.

Now, several members of the Jacksonville City Council say would support such an investigation and are planning on writing to Gov. Scott as well.

From the Florida Times-Union:

Councilman Bill Gulliford said he sent Scott a letter last week asking him to take a “hard look” into the pension fund’s practices. Councilman Bill Bishop and Council President Clay Yarborough said they plan to send letters to Scott, as well.

[…]

In October, the Times-Union reported how the pension fund ignored findings by the City Council Auditor’s Office and city lawyers that the pension fund incorrectly applied regulations for participation in DROP. The Times-Union found that three individuals who entered DROP will collectively receive about $1.8 million more than they would under strict interpretation of the code.

“You have members of the public and taxpayers asking leaders how they can get away with this,” Yarborough said. “I don’t have a good answer for them.”

When asked Monday what they thought of Adkin’s call for a state investigation, many council members said they supported the idea.

“I think it’s a worthwhile exercise,” said Councilman John Crescimbeni. “I think the taxpayers have a right to know whether there’s any waste or fraud.”

Other council members say they don’t support an investigation, or remained non-committal:

Councilman Jim Love said a state investigation may be “overkill”, while Councilman Richard Clark said it would serve as a distraction to the city’s attempt at pension reform.

“It puts a bad taste in my mouth,” Clark said. “I don’t know what it solves by accusing them of something. We need to solve our pension issues. We need to solve them in a fashion that’s constructive.”

Councilwoman Denise Lee said she didn’t “really have an opinion on it,” and Councilman Robin Lumb said he had no comment.

Mayor Alvin Brown’s office didn’t respond to a message seeking comment.

The Jacksonville Police and Fire Pension Fund is currently deciding whether to approve the city’s pension reform measure, which was passed by the City Council earlier this month.

Photo by pshab via Flickr CC License

CalPERS Hires Lobbying Firms to Represent Interests Before Congress

CalPERS announced Monday it has hired two lobbying firms to represent its retirement policy and market regulation interests in front of the U.S. Congress and the Executive Branch.

From a CalPERS press release:

The joint venture between Lussier Group/Williams and Jensen was selected as [CalPERS’] federal representative for retirement policy issues, and K&L Gates was selected as its federal representative for investment and financial market regulation issues.

A third firm, a joint venture of Avenue Solutions/Jennings Policy Strategies was selected in November to represent CalPERS’ health care-related interests.

“Having specialized representatives in these areas will enable us to play a stronger role in retirement and investment national policy development that will continue to enhance the long-term sustainability and effectiveness of our programs,” said Board President Rob Feckner. “We look forward to working with both of these firms and are eager to have their skill and expertise put to work for us.”

Earlier this year, the CalPERS Board directed staff to begin the search for specialized representatives in the policy areas of health care, retirement, and investments. Three firms were selected as finalists for the retirement policy representative, while two firms were selected as finalists for the investment policy representative. After a thorough review and interview process, Lussier Group/Williams and Jensen, and K&L Gates were selected by the Board this week. The selections are contingent upon satisfactory negotiations of terms and conditions in order for the contracts to be awarded.

“Engaging nationally on retirement security issues is a priority for CalPERS and an important part of our commitment to our members,” said Anne Stausboll, CalPERS Chief Executive Officer. “Having three separate and focused representatives broadens our reach and ability to influence outcomes.”

CalPERS is the largest public pension fund in the United States with assets of about $300 billion.

Photo by rocor via Flickr CC License

Jacksonville Pension Reform Bill, Approved by Council, Could Still Stall

The Jacksonville City Council approved the city’s long-debated reform plan last month, which increase future employees contributions to the city’s Police and Fire Pension Fund, as well as boost the city’s payments by $40 million annually.

But now the proposal is awaiting approval from the Police and Fire Pension Fund, and one big question remains: how will the city pay for its higher payments? From News4Jax.com:

The Police and Fire Pension Fund met Monday to look at the city’s proposal to deal with the $1.7 billion pension deficit and the members are stuck on a major issue: how the city will pay for it.

The Jacksonville City Council approved a plan without designating a funding source and gave the pension board a little more than a month to approve or reject it.

The pension board is debating several issues again, including whether new members should carry the brunt of reform.

Under the plan approved by the council, future police and firefighters would undergo significant changes in the way their retirement is funded. They would pay more and the city would pay more into the retirement fund to bring it in line.

The pension board previously agreed to those changes in the plan, but now it might change its stance.

The board will reportedly meet again on Jan. 5 to vote on the reform measure.

Photo by pshab via Flickr CC License

Public Pension Hedge Fund Portfolio Returns vs. Benchmarks in 2014

Here’s a chart listing the strongest-performing hedge fund portfolios over the 12 month period ended September 30, 2014.

You can also see whether or not the portfolio outperformed its benchmark, and the percentage of system assets dedicated to hedge funds.

Chart credit: Pensions & Investments

Pennsylvania Lawmaker To Propose Shale Tax to Fund Pensions

A Pennsylvania representative is planning to introduce a bill in January that would levy a 3.5 percent tax on companies that frack in the state. The revenues – estimated to be $400 million annually – would then go to paying down the Public School Employees’ Retirement System’s (PSERS) unfunded liabilities.

From Main Line Media:

The way state Rep. Kate Harper sees it, a shale tax could ensure drillers are paying their fair share and help solve the state’s pension crisis at the same time.

Harper, R-61, began circulating a memo Dec. 17 to get co-sponsors for a bill she plans to introduce in January calling for a 3.5 percent shale tax, with the proceeds estimated at $400 million annually, going toward the state’s $32 billion unfunded Public School Employees’ Retirement System liability.

“If we don’t get pensions under control, everybody’s school taxes are going up,” Harper said. “My bill adds a severance tax to the existing impact fee and uses it for education, specifically pensions.

“I believe the majority of Pennsylvanians are OK with fracking,” she said, but they want two things: regulation of the industry to ensure the water stays clean; and, if the money is needed that the drillers pay their fair share.

The bill is similar to one introduced last session by state Rep. Madeleine Dean, D-153, that Harper co-sponsored but didn’t even get out of committee, in that it would keep the current impact fee in place, she said.

Those fees are used to address infrastructure and other impacts in communities where drilling takes place, and to contribute to several statewide environmental programs, a press release from Harper says. So far, the impact fee has generated more than $630 million.

[…]

“If the tax is too high we will lose jobs, so I’m trying to have them pay at a reasonable level and not discourage them so they leave the state,” Harper said. The 3.5 percent tax she is proposing “is not onerous on the drilling industry” and “compares favorably with the 5 percent tax in West Virginia,” she said.

PSERS was 63.8 percent funded as of June 30, 2014.

Michigan’s $195 Million Payment to Detroit Pension Systems Approved

A board on Monday approved a $195 million payment that Michigan will make to Detroit’s pension system as part of the city’s plan to avoid steeper benefit cuts.

From the Lansing State Journal:

Detroit’s two pension funds are expected to receive the state’s “grand bargain” bankruptcy contribution of $194.8 million on Feb. 9 after a state panel gave final approval to the payments on Monday.

The three-member Michigan Settlement Administration Authority approved the payments after board members were advised all legal claims against the state related to the largest municipal bankruptcy in the nation’s history had been dismissed.

The authority — made up of Treasurer Kevin Clinton, Budget Director John Roberts, and Huntington Woods attorney William Cohen — is not expected to meet again. Its sole function was to oversee payment of the state’s contribution to a grand bargain that helped settle the bankruptcy. The Legislature approved the payments last May.

The state’s contribution is part of more than $800 million raised from foundations, private donors and the Detroit Institute of Arts to shore up city pension funds and protect a sell-off of the DIA’s collection of artwork during Detroit’s Chapter 9 proceedings, which ended this month.

[…]

The money will go into the investment funds of the two pension funds.

The state is financing the payments from a fund established from money it received through the settlement of a multi-state lawsuit against tobacco companies.

Detroit will reportedly receive the money on February 9.

Photo credit: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

OECD: Infrastructure Investing Low Among Largest Pensions

The world’s largest pension funds have significantly increased their allocations to alternative investments over the last four years. But allocations to infrastructure haven’t followed that upward trend, according to an OECD report.

Reported by Pensions & Investments:

Infrastructure investing activity remains low among the largest pension funds and public pension reserve funds worldwide, despite increased allocations to other alternative investments, a report from the Organization for Economic Co-operation and Development showed.

[…]

Average allocations to alternatives increased to 19.5% from 17.6% between 2010 and 2013 among the 10 largest pension funds surveyed, while infrastructure allocations were more stable. Of the 71 funds that responded to the OECD survey, unlisted equity and debt infrastructure investments totaled $80 billion, or 1% of total respondent assets, at the end of 2013, up slightly from $72.1 billion, or 0.9% of total respondent assets, at the end of 2012.

Mr. Paula and Raffaele Della Croce, lead manager on the OECD’s long-term investment project and co-author of the report, attributed the slow uptake to unstable regulatory frameworks and a lack of bankable projects.

“Pressure is on the policy side to provide the right conditions for investors to accept infrastructure,” Mr. Della Croce said in a telephone interview.

Although infrastructure investment activity remains low, plan executives are expressing interest in the asset category.

Large pension funds like the €20 billion ($24.5 billion) Etablissement de Retraite Additionnelle de la Fonction Publique, Paris, and $28 billion Afore Banamex, Mexico City, plan to establish new target allocations to infrastructure, according to the report.

Read the full OECD report here.

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