Category: Pension Newsroom

The Canada Pension Plan Investment Board on Monday made its first foray into the U.S. student housing market.

The CPPIB will own a 47.5% stake in a $1.6 billion portfolio of university student housing, which the pension fund has committed to buy along with two other investors.

More details from the Wall Street Journal:

Canada Pension Plan Investment Board and Singapore’s sovereign-wealth fund have teamed with Scion Group LLC to buy a U.S. university student-housing portfolio for about $1.4 billion, the group said Monday.

CPPIB, Singapore’s GIC Private Ltd. and student-housing operator Scion agreed to buy University House Communities Group Inc., which has a portfolio of 18 established U.S. student-housing communities and four in development, from InvenTrust Properties Corp.

The Canadian fund and GIC will each own a 47.5% stake in a newly formed joint venture that will purchase the portfolio, while Scion will own the remaining 5%. Scion will operate the properties, the group said.

“This transaction enables us to gain immediate scale in the attractive U.S. student housing market,” Peter Ballon, CPPIB’s head of real-estate investments for the Americas, said in a news release.

The group said it plans to pursue other opportunities to purchase student housing in the U.S.

CPPIB manages about $197 billion in assets.

 

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons

A report this month from the Employee Benefit Research Institute found that older generations tend to value workplace benefits more than younger ones.

See the above chart for a glimpse at the findings. The full report can be viewed here.

Further insights into the generational gap regarding workplace benefits, from EBRI:

– Millennials are less likely than Baby Boomers and Gen Xers to report health insurance as the most important benefit they receive at work. Millennials are more likely than Baby Boomers or Gen Xers to report that they value life insurance and paid time off as the most important benefit.

– Millennials are less likely than Baby Boomers and Gen Xers to report that the benefits a potential employer offers are extremely important in their decision to accept or reject a job. Millennials are also more likely than Baby Boomers and Gen Xers to be open to non-traditional ways of obtaining benefits.

– Millennials are more likely than other workers to respond that they do not know about their benefits. Participation in various employee benefit programs is generally lower among Millennials than among Baby Boomers and Gen Xers.

In 2012, San Diego voters approved Proposition B, a measure that funneled most new city hires into a 401(k)-style retirement plan, as opposed to the defined-benefit system previously available to everyone.

But a California labor board on Tuesday overturned the pension overhaul, and ordered the city to begin paying back lost benefits to those in the 401(k) plan.

From the San Diego Union Tribune:

City Attorney Jan Goldsmith said he hopes to quickly get City Council approval to appeal Tuesday’s ruling by the Public Employment Relations Board.

[…]

Many city budget projections and proposals rely on future pension savings creating by Proposition B, so any softening or elimination of the measure could have a significant effect.

Zucchet said the city has hired roughly 2,000 employees without pensions since the cutbacks took effect in July 2012, noting that Tuesday’s ruling requires the city to backfill pensions for those workers, pay them 7 percent interest as a penalty, and cover their attorney’s fees.

“I don’t know whether it’s $5 million or $500 million, but if I had to guess I’d say it’s somewhere in the $100 million range,” Zucchet said.

Goldsmith called the ruling unsurprising and said he was confident it would be overturned based on past defeats of PERB by the city. PERB unsuccessfully tried to keep Proposition B from going to voters, and was rejected when it tried to block implementation of the measure after voter approval.

Labor leaders, on the other hand, urged the city to cut its losses and accept the ruling, rather than spend money on future appeals.

 

Photo by jypsygen via Flickr CC License

There are 227 institutional investors that have $1 billion or more invested in hedge funds, according to a recent report from Preqin.

Members of the “$1 billion club” range from family offices to endowments. But the most frequent member: pension funds.

Overall, 40 percent of the capital of the “$1 billion club” comes from public and private pension funds, according to the report.

Public pension assets make up 25 percent of the club’s collective capital, while private sector pension assets account for 15 percent.

Interestingly, members of the $1 billion club were far less likely to invest in hedge funds through fund-of-fund vehicles (see chart on right).

For the full report, see here.

Malaysia’s second largest pension fund is in the process of selling one of its successful international investments – a downtown London office building – and using the proceeds to help boost Malaysia’s domestic market.

The move is in response to a call from the government in August urging institutional investors to shift some of their foreign investments back home.

More from Bloomberg:

Kumpulan Wang Persaraan (Diperbadankan), which has about 120 billion ringgit ($28 billion) of assets, is finalizing an agreement to sell an office building at 88 Wood Street in the City of London that it bought in 2013 for 215 million pounds, according to the fund’s Chief Executive Officer Wan Kamaruzaman Wan Ahmad. As well as getting a higher sale price, the fund will benefit from the sharp rise in sterling against the ringgit over the past two years.

“We are selling the property because we stand to benefit from real estate and foreign-currency gains,” Wan Kamaruzaman said in an interview in Kuala Lumpur earlier this week. “It’s also in line with the government call to repatriate gains back to invest in the domestic market.”

Malaysia’s stock market and the ringgit have been hurt this year by investor worries about a political furore over Prime Minister Najib Razak’s dealings with the state-owned 1Malaysia Development Bhd, and by concerns about the effect of higher U.S. interest rates on Malaysia and other emerging markets.

KWAP, as the state-owned fund is known, expects to be able to repatriate the funds back to Malaysia by the end of the first quarter to invest in local markets, Wan Kamaruzaman said. He didn’t name the buyer of the London office building.

The London office building nearly doubled in value in three years.

 

Photo  jjMustang_79 via Flickr CC License

Over the holiday weekend, a judge rejected San Bernardino’s bankruptcy plan for the second time.

The plan is controversial for bondholders because they take the brunt of the pain; the city is repaying as little as one penny on the dollar for some debt classes.

Pensions will remain intact under the current plan, with very few exceptions.

More details from the Wall Street Journal:

U.S. Bankruptcy Judge Meredith Jury Wednesday rejected—for a second time—the city’s proposal to cut debts, saying it didn’t contain enough information for bondholders, retirees who face health-care cuts and others to vote on the proposal.

Several groups protested the bankruptcy-exit plan’s wording, arguing that city leaders should explain why they can’t pay a class of debt valued between $130 million and $150 million more than 1 cent on the dollar. That includes $52 million owed to bondholders who extended money to the city so it could pay pensions.

[…]

San Bernardino officials plan to continue making full payments into the pension fund run by California Public Employees’ Retirement System, also known as Calpers, which distributes that money to thousands of retired city workers.

City officials decided to make pension payments, even though federal judges in charge of Detroit and Stockton’s bankruptcy cases ruled that pensions could indeed be cut. In its plan, San Bernardino said it considered breaking ties to Calpers but determined that it wasn’t realistic if the city wanted to attract workers.

The judge will consider the next draft of the plan at a March 9 hearing.

 

Photo by Joe Gratz via Flickr CC License

GASB statements 67 and 68 have lifted the veil on a portion of Alaska’s pension debt, putting a larger burden on the state to make annual payments.

As a result, state-level lawmakers are discussing the possibility of offloading some of that debt to municipalities – an idea starkly opposed by the municipalities.

More details from the Juneau Empire:

Local leaders attended a meeting last week in Juneau to discuss possible changes to the system that would assign a portion of the system’s debt to municipalities, The Ketchikan Daily News reported.

A change in national accounting standards requires the state to show the approximately $10 billion in debt on its books. The Alaska Department of Administration in September sent a memo notifying local governments that they would shoulder a portion of that burden.

“By saying it’s not (its) responsibility, the state is essentially saying it’s somebody else’s,” said Scott Brandt-Erichsen, attorney for the borough, “and we don’t agree.”

[…]

[Municipal] leaders argue that the change could change the boroughs bond debt rating and cost taxpayers in the short run.

In a Monday letter to Department of Administration Commissioner Sheldon Fisher, Alaska Municipal League Execute Director Kathie Wasserman said communities would be unwilling to take on more costs and debt from the pension system and asked the Department of Administration to oppose legislation that would negatively impact municipalities.

The issue will next be brought up in January’s policy session.

 

Photo credit: “Flag map of Alaska” by 2002_Winter_Olympics_torch_relay_route.svg: User:Mangoman88, using Blank_US_Map.svg by User:Theshibboleth – 2002_Winter_Olympics_torch_relay_route.svgFlag_of_Alaska.svg. Licensed under Public Domain via Wikimedia Commons

Researchers from universities in Canada, the U.S. and Italy released a paper this week examining the impact of institutional investors on corporate social responsibility.

When it comes to affecting change, institutional investors prefer engagement over outright divestment; they argue it gives them a “seat at the table” and more effectively allows them to engage with a firm. Does that line of thinking hold up?

The researchers studied large firms across 41 countries from 2004 – 2013. A summary of their findings:

We find that institutional ownership is positively associated with firm-level environmental and social commitments. Further, the “color of money” matters. Domestic institutional investors and non-U.S. foreign investors account for these positive associations, while U.S. institutional investors’ holdings are not related to environmental and social scores. Similarly, higher scores are associated with long-term investors such as pension funds but not with hedge funds. Evidence from a quasi-natural experiment shows that institutional ownership causes improvements in environmental scores. Overall, our results suggest that institutional investors, in aggregate, use their ownership stakes to promote good CSR practices around the world.

Download the full paper here.

 

Photo by  Horia Varlan via Flickr CC License

Carol Buckmann is an attorney who has practiced in the employee benefits field for over 30 years. This post was originally published at Pensions & Benefits Law.

Can plan fiduciaries sue to recover overpayments made many years ago? As plan audits have uncovered more and more payment errors, many plans have acted as if no time limits or other restrictions applied to their repayment demands. However, a recent decision involving a Pfizer pension plan illustrates that even though the case law has recognized a fiduciary’s right to recover overpayments, lawsuits against retirees who don’t respond to demands for repayment may face some obstacles.

The retiree in this case had elected to receive her pension over a three year period ending in 2005. However, her monthly payments kept coming, and when she and her financial adviser called Fidelity, which was responsible for pension check disbursement, they were told that she had taken out an annuity that would continue for life. It was not until 2009 that Pfizer found the mistake and cut off future monthly payments. The plan and Pfizer did not commence the suit to recover over $1.3 million in overpayments until 2014.

Surprisingly, the retiree did not raise an estoppel claim or a surcharge claim under the landmark U.S. Supreme Court decision in CIGNA v. Amara, but the retiree raised other defenses. In refusing to dismiss all of the claims or grant summary judgment, the district court made the following rulings:

• Equitable claims for repayment could proceed to trial, but plaintiffs would have to show that there were still identifiable funds (such as if the funds had been put into a bank account) or their proceeds in order to recover. It should be noted that there is a dispute among the circuits about whether this “tracing” is required, and the U.S. Supreme Court has agreed to decide this issue in a pending case, Montanile v. Board of Trustees. (135 S. Ct. 1700) If tracing is required, no recovery may be possible if the retiree has used the overpayment to pay living expenses.
• The statute of limitations that applied was five years, based on the most similar state cause of action. (One of the surprises fiduciaries sometimes receive when they consider suing is that it is well-settled that ERISA’s three year and six year statutes of limitations do not apply to these claims. Courts look to the limit for the most similar state cause of action, which may be longer or shorter.)
• The retiree argued that plaintiffs still sued too late, because the five years began to run when they should have discovered the error in 2006. This will be decided at trial, as will the viability of the equitable defense of laches (that plaintiffs waited unreasonable long to sue).
• Plaintiffs could not sue to enforce the terms of the plan because they could not point to a specific plan provision requiring repayment.
• Plaintiffs’ state law claims were pre-empted by ERISA.

While they await the outcome of this case and Montanile, plan fiduciaries can consider the following steps to improve their chances of prevailing in these suits:

1. Make sure that plans have specific provisions for recouping overpayments.
2. Give the payee the opportunity to argue that the payment is correct under ERISA’s claims and appeals procedures. While not an issue in the Pfizer case, this eliminates a potential defense that these have been violated.
3. Do self-audits regularly and if a lawsuit seems necessary, file it promptly.
4. Pay attention when retirees call to question whether they are receiving the right payments. If the error had been caught when the retiree and her adviser called Fidelity, or if Fidelity had relayed the question to Pfizer, this lawsuit might have been avoided.

Fiduciaries should also realize that lawsuits may not always be an appropriate response if participants ignore requests for repayments. These are not always required under new IRS’ correction procedures. The recipient’s financial ability to repay, the amount of the mistake , and the extent to which the mistake was the plan’s fault are also issues to consider.

At least one federal decision, Wells v. United States Steel & Carnegie Pension Fund (950 F2d 125, 6^th Cir. 1991), recognized that fiduciaries have a cause of action under ERISA to recover overpayments, but noted that recoupment may be unavailable if it results in hardship to the payee.

In addition to looking for the Montanile decision, fiduciaries should be aware that organizations such as AARP have been urging Congress and the federal agencies to adopt new rules restricting a plan’s ability to recoup overpayments, and there is a possibility of new laws or regulations in this area as well.

Photo by TaxCredits.net