Pension360

2015 marked the third consecutive year Russia had held back its pension contributions to plug holes elsewhere in its budget.

Now, the country is considering alternatives to the pension system currently in place; an overhaul could be announced by November.

From Bloomberg:

The central bank may announce the alternative to the current pension savings system within a month, Sergey Shvetsov, first deputy central bank governor, told reporters in New York on Wednesday. Russian non-state pension fund managers need to decide whether they want to continue on their own or consolidate to remain profitable, he said.

With a deficit forecast to widen to 3.3 percent of gross domestic product this year, officials are locked in a debate on measures to fill the budget holes that may include increased borrowing, spending cuts and higher oil taxes. The government commission for budget planning had decided to divert savings from future retirement plans in 2016 to meet budget needs, for a third year in a row, RIA Novosti reported on Wednesday, citing the head of Russia’s Pension Fund Anton Drozdov.

“The new system can’t be entirely voluntary,” Shvetsov said. “In any case there’ll be some kind of encouragement for either people or companies to set money aside for non-state pension funds. We’re trying to formulate an alternative that would be less costly for the budget but not less effective in terms of the size of the funds attracted from the population.”

Russia recently altered its pension funds’ investment policy, allowing (and urging) funds to invest more money in domestic corporate bonds.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Mary Williams Marsh of the New York Times reports, Teamsters’ Pension Fund Warns 400,000 of Cuts:

A prominent Teamsters pension fund, one of the largest, has filed for reorganization under a new federal law and has sent letters to more than 400,000 members warning that their benefits must be cut.

Any reorganization of the decades-old Central States Pension Fund would take months and would probably be a brutal battle as workers, retirees, union leaders and employers all seek to protect competing interests. It is a multiemployer plan, the type led jointly by a union and a number of companies, that has caused consternation for many years, because if it failed, it could wipe out a federal insurance program that now pays the benefits of a million retirees.

If the reorganization ultimately proves successful, however, it could serve as a model for other retirement plans with similar, seemingly intractable financial problems.

Cutting retirees’ pensions has generally been illegal, except under the most dire circumstances. But the executive director of the Central States fund, Thomas Nyhan, said that reducing payouts to make the money last longer was the only realistic way of avoiding a devastating collapse in the next few years.

“What we’re asking is to let us tap the brakes a little now, and let us avoid insolvency,” he said. “The longer we wait to act, the larger the benefit reductions will have to be.”

He said the Central States fund had been hit by powerful outside forces — the deregulation of the trucking industry, declining union membership, two big stock crashes and the aging of the population — and it was currently paying out $3.46 in pension benefits to retirees for every dollar it received in employer contributions.

“That math will never work,” Mr. Nyhan said. He said the fund was projected to run out of money in 10 to 15 years, an almost unthinkable outcome for a pension fund that became a political and financial powerhouse in the 1960s, when trucking boomed with the construction of the interstate highway system. Central States became famous back then for financing the construction of hotels and casinos in Las Vegas.

In 1982, the Teamsters were barred from investing their retirees’ money because of the union’s ties to organized crime. Under a federal consent decree, the fund’s investment duties were shifted to a group of large banks, where they have remained. The restructuring plan would not change that.

In the coming months, the Treasury Department will review the Central States restructuring plan, to make sure it complies with the new law. It will also receive comments from affected people through a special master, Kenneth Feinberg, who has been retained by the Treasury to iron out conflicts that have come up in other special circumstances, such as the dispute over whether workers at bailed-out companies could receive contractual bonuses.

The Treasury is expected to decide whether to approve the proposal by next May. If it does, Central States’ roughly 407,000 members will then vote on it. Those facing large cuts would be unlikely to vote in favor of the restructuring. But others might see it as an acceptable way to make their pension plan viable over the long term. Active workers will continue to accrue benefits, for example, and Mr. Nyhan said his projections showed that the restructuring could make the pension fund last for 50 more years.

Mr. Nyhan acknowledged that the process would be emotionally charged. Even if a majority votes no, however, the Treasury Department will have legal authority to impose the changes, because the Central States fund is so large that it qualifies as “systemically important.” That means that if it collapsed, it could take down the multiemployer wing of the Pension Benefit Guaranty Corporation, jeopardizing the roughly one million retirees who currently get their pensions through the program. (The federal insurance program for single-employer pensions would not be affected by a possible failure of the multiemployer program.)

In the past, multiemployer pension plans were popular because they gave small companies the chance to offer traditional pensions, and they permitted workers to move from job to job, taking their benefits with them. About 10 million Americans participate in multiemployer pension plans, many of them in sectors like trucking, construction and retailing, where unions are a powerful presence.

Such pension plans were also said to be financially stronger than single-employer pension plans, because if one company went out of business, others would keep contributing to the pooled trust fund that paid the benefits. Both types were insured by the federal government’s pension insurance program, but companies taking part in multiemployer plans paid much smaller premiums and the coverage was very limited — no more than $12,870 per year, compared to around $54,120 a year for a single-employer pension.

Many Teamsters have earned pensions that exceed the multiemployer insurance limit and would be hit hard if the Central States fund failed.

But in recent years, some multiemployer plans ran into severe trouble as more and more participating companies went bankrupt, leaving growing numbers of “orphaned” workers and retirees for the surviving companies in the pool to cover. Companies in the more troubled plans said lenders would no longer give them credit. Last December, Congress enacted the Multiemployer Pension Reform Act of 2014, which set up a legal framework for distressed pension plans to restructure.

According to a summary provided by the Central States pension fund, its restructuring plan would work by slowing the rate at which active Teamsters will build up their benefits in the coming years, and by lowering the payouts to current retirees, with certain exceptions.

Retirees who are 80 or older will not have their pensions cut, and those over 75 will receive smaller cuts than younger retirees. Disability pensions will continue to be paid in full.

A group of about 48,000 workers and retirees who earned their benefits by working at United Parcel Service will continue to have their pensions paid in full, thanks to labor contracts between the Teamsters and the company. UPS was for many years the largest employer in the Central States pension fund, but it withdrew from the fund in December 2007 after making one large final payment. After the stock market crash the following year, UPS and the Teamsters negotiated a separate agreement calling for UPS to shelter those workers from any cuts the Central States pension fund might have to make.

The group that seems exposed to the largest pension cuts consists of about 43,400 “orphans,” or retirees still in the pension fund, even though their former employers no longer exist. Their pensions will be cut to 110 percent of what they would get from the Pension Benefit Guaranty Corporation, or at most, $14,158.

Active workers will not lose any of the benefits they have earned up until now. But in their coming years of work, they will accrue benefits at the rate of 0.75 percent of the contributions their employers pay into the fund. In the past, their accrual rate was 1 percent.

The restructuring will also abolish a rule that bars pensioners from returning to the work force to supplement their reduced pensions.

The president of the International Brotherhood of Teamsters, James P. Hoffa, wrote to Mr. Nyhan last month, saying the new restructuring law “creates the false illusion of participatory democracy,” because it required a vote “that can simply be ignored.” Although Mr. Hoffa is president of the union, he has no say over the pension fund, which is run by a group of trustees from the companies and the union.

“Participants and beneficiaries get to vote, but their vote only counts if they vote to cut their own pensions,” Mr. Hoffa said. “The people who conceived that cynical scheme should be ashamed.” He said he preferred legislation introduced by Senator Bernie Sanders of Vermont, which if enacted would close tax loopholes and redirect the money to supporting troubled multiemployer pension plans.

Mr. Nyhan said he liked Senator Sanders’s proposal too, but recalled that a similar bill was introduced in 2010, when Democratic Party lawmakers controlled Congress, but was never approved. He said he thought it was even less likely that today’s fiscally hawkish, Republican-controlled Congress would enact such a bill. It was not safe to wait and see if the Sanders bill would pass, he said, because the passage of time made the insolvency more likely.

“The easy thing for my board to do would be ignore the problem,” he said. “We just don’t think this is the responsible thing to do.”

“We need either less liabilities or more money, and Congress is telling us we’re not getting more money,” he said.

This is a very important development which impacts all U.S. mutiemployer plans. Unfortunately, I don’t expect any relief from Congress as it effectively nuked pensions last December which led to this restructuring.

Welcome to the United States of pension poverty where important social and economic policies are never discussed in an open, constructive and logical manner. Instead, there is the usual divisive politics of “less” versus “more” government which obfuscates issues and impedes any real progress in implementing sensible reforms in education, healthcare and retirement, the three pillars of a vibrant democracy.

Now, let be clear here, I don’t like multiemployer pension plans because they are poorly governed which is why many risk insolvency unless comprehensive reforms are implemented. But the problem here is much bigger than multiemployer plans. U.S. retirement policy needs a drastic overhaul to properly cover all Americans, most of which have little or no savings whatsoever.

I’ve shared some of my thoughts on what needs to be done when I examined whether Social Security is on the fritz:

…politics aside, I’m definitely not for privatizing Social Security to offer individuals savings accounts. The United States of pension poverty has to face up to the brutal reality of defined-contribution plans, they simply don’t work. Instead, U.S. policymakers need to understand the benefits of defined-benefit plans and get on to enhancing Social Security for all Americans.

One model Social Security can follow is that of the Canada Pension Plan whose assets are managed by the CPPIB. Of course, to do this properly, you need to get the governance right and have the assets managed at arms-length from the federal government. And the big problem with U.S. public pensions is they’re incapable of getting the governance right.

So let the academics and actuaries debate on whether the assumptions underlying Social Security are right or wrong. I think a much bigger debate is how are they going to revamp Social Security to bolster the retirement security of millions of Americans. That’s the real challenge that lies ahead.

Yes folks, it’s high time the United States of America goes Dutch on pensions and follows the Canadian model of pension governance. Now more than ever, the U.S. needs to enhance Social Security for all Americans and implement the governance model that has worked so well in Canada, the Netherlands, Denmark and Sweden (and even improve on it).

I know, for Americans, these are all “socialist” countries with heavy government involvement and there is no way in hell the U.S. will ever tinker with Social Security to bolster it. Well, that’s too bad because take it from me, there is nothing socialist about providing solid public education, healthcare and pensions to your citizens. Good policies in all three pillars of democracy will bolster the American economy over the very long-run and lower debt and social welfare costs.

If U.S. policymakers stay the course, they will have a much bigger problem down the road. Already, massive inequality is wiping out the middle class. Companies are hoarding record cash levels — over $2 trillion in offshore banks — and the guys and gals on Wall Street are making off like bandits as profits hit $11.3 billion in the last six months.

Good times for everyone, right? Wrong! Capitalism cannot sustain massive inequality over a long period and while some think labor will rise again as the deflationary supercycle (supposedly) ends, I worry that things will get much worse before they get better.

 

Photo by http://401kcalculator.org via Flickr CC License

The CIO for the Pennsylvania Public School Employees’ Retirement System (PSERS) this week released a statement on the system’s 3 percent investment return for fiscal year 2014-15.

But buried in the statement was an interesting comment from CIO James Grossman:

“PSERS continues to be underfunded by school employers and the Commonwealth and we continue to be cash flow negative. As a result, PSERS cannot take the same investment risk we had in the past.”

On Wednesday, PSERS further explained this position to a Philadelphia Inquirer columnist, saying the state contribution rates are “artificially suppressed”. From Philly.com:

PSERS “continues to be underfunded by school employers and the commonwealth,” Grossman noted in this statement Tuesday.

How’s that possible — when all the school districts inspected by state Auditor General Gene DePasquale lately report they are indeed making their legally required contributions and sometimes a bit more?

Because “the rate is artificially being suppressed, as it has been for many years,” PSERS spokeswoman Evelyn T. Williams explains:

Taxpayers last year contributed an extra 21 cents for every $1 of school payroll last year to help fund PSERS and keep its multibillion-dollar deficit from growing. It would have been more like 27 cents, Williams says, if pension actuaries had been able to set payments based on the system’s actual financial need, without the state-imposed “rate collar” Act 120 set in place to delay pension payments into the future, so they’ll be higher in years to come. The surcharge will be 26 cents this year, and is expected to stabilize above 30 cents over the next few years.

It’s a slow, expensive way of coping with an old, expensive problem: Since then-Gov. Tom Ridge and most of the General Assembly voted to raise their own pensions and those of hundreds of thousands of future retirees, without raising money to pay for it all, back in 2001, and especially since the 2008 investment market collapse (which forced pension plans to sell illiquid private investments and other assets, draining funds the ensuing market rally didn’t fully restore), PSERS, like the New Jersey and the Pennsylvania state workers’ pension systems and municipal pensions in Philadelphia and other communities with more retirees than city workers, have kept spending down their assets and bringing closer the day when they’ll require multibillion-dollar cash infusions, or go broke and force public bankruptcy and arbitrary pension cuts.

PSERS manages $51.9 billion and is the 20^th largest state-level DB plan in the country.

 

Photo by SeniorLiving.org

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Back in July, Chris Flood and Chris Newlands of the Financial Times reported on CalSTRS’s private equity woes:

The second-largest US public pension fund has admitted it has failed to record total payments made to its private equity managers over a period of 27 years.

The admission by Calstrs, the $191bn California-based pension fund, prompted John Chiang, the state treasurer of California, to declare he will investigate the failure, which poses serious questions as to how pension fund money is being spent.

The news comes a week after FTfm reported that the state treasurer had voiced “great concern” that fellow pension fund Calpers, the US’s largest at $300bn, also has no idea how much it pays its private equity managers.

Mr Chiang said he would demand clear answers from Calpers over why it does not know how much has been paid in “carried interest” or investment profits over a period of 25 years to the private equity managers running its assets.

A spokesman for Calstrs, which helps finance the retirement plans of teachers, said the fund does not record carried interest. “What matters is the overall performance of the portfolio.”

Following questions from FTfm, Mr Chiang said he would demand Calstrs look into payments of carried interest to its private equity managers.

“Disclosure [of carried interest fees] is very important,” said Mr Chiang, who sits on the administration board of both Calstrs and Calpers.

The revelations come just weeks after US regulators issued an explicit warning to the private equity industry to expect more fines for overcharging investors.

Calpers, which uses more than 100 private equity firms, identified a need to track fees and carried interest better in 2011, but it has taken until now to develop a new reporting system for its $30.5bn private equity portfolio.

But Calstrs, which manages a $19.3bn private equity portfolio and has 880,000 members, said it has no plans to upgrade its systems for tracking and reporting payments to private equity managers.

Margot Wirth, director of private equity at Calstrs, said it used “rigorous checks” to ensure private equity managers took the right amount of carried interest.

All of Calstrs’ partnerships with private equity managers were independently audited, Ms Wirth added. She said the pension fund carried out its own internal audits and employed a specialist “deep dive” team to look at private equity contracts.

Professor Ludovic Phalippou, a finance professor at the University of Oxford Saïd Business School, who specialises in private equity, told FTfm last week: “Calpers’ total bill is likely to be astronomical. People will choke when they see the true number.”

Prof Phalippou said the same would be true of Calstrs, which first invested in private equity in 1998.

Ms Wirth argued it was “wrong to conflate the fees paid to private equity managers with carried interest”.

She said: “Carried interest is a profit split between the investor and the private equity manager. The higher that carried interest is, then the better both the investor and private equity manager have performed.”

The fear is that if sophisticated investors such as Calpers and Calstrs faced difficulties in obtaining accurate information, then it could only be harder for smaller pension funds, endowments and wealth managers that are less well resourced.

David Neal, managing director of the Future Fund, Australia’s A$128bn sovereign wealth fund and one of the world’s largest investors in private equity, said: “There just are not enough decent private equity managers around to justify the fees.”

He added: “We negotiate fee arrangements that transparently reward genuine performance and drive alignment of interest. Where managers cannot meet those expectations, we do not invest. While we work hard at the arrangements with our managers, the industry still has some way to go.”

Fast forward to October where Yves Smith of Naked Capitalism just put out another stinging comment, CalSTRS Board Chairman Harry Keiley, in Op-Ed Rejected by Financial Times, Gave Inconsistent and Inaccurate Information in Carry Fee Scandal (added emphasis is mine):

The staff and board members of California public pension fund CalSTRS continue to embarrass themselves in their efforts to justify their indefensible position on private equity carry fees.

Readers may recall that the biggest public pension fund, CalPERS, had a put-foot-in-mouth-and-chew incident when it said it didn’t track the profits interest more commonly called “carry fees,” which is one of the biggest charges it incurs on its private equity investments. CalPERS added to the damage by falsely claiming that no investors could get that information. After we broke that story and a host of experts and media outlets criticized CalPERS over the lapse and the misrepresentation, CalPERS reversed itself. It asked its general partners for all the carry fee data for the entire history of all of its funds, and obtained it all in a mere two weeks, with only one exception out of the nearly 900 funds in which it has invested.

So what has the second biggest public pension fund, CalSTRS, done? Like CalPERS, it has admitted that it does not track carry fees. But in a remarkable contrast, CalSTRS is attempting to justify inaction by misleading beneficiaries as to how much information it really has and saying that it’s thinking really hard about what (if anything) to do.

The dishonesty of the CalSTRS position is evident in its e-mails with the Financial Times after the pink paper reported that CalSTRS, like CalPERS, did not track carry fees, and California Treasurer John Chiang, who sits on both the CalPERS and CalSTRS boards, said he would press CalSTRS to look into the matter. I became aware of the contretemps when an FT reporter called me to thank me for my work. I asked him how CalSTRS was taking his story. He said they weren’t happy with it and they’d offered CalSTRS the opportunity to publish an op-ed, which was running early the following week. When I failed to see any such article, I contacted the reporter, who said his editor had rejected the article. I then lodged a Public Records Act request (California-speak for FOIA) for the op-ed and all e-mails between CalSTRS and the Financial Times from the date the Financial Times ran the article on CalSTRS’ carry fee tracking.

It’s important to remember that CalSTRS had said, flatly, that it does not know what it pays in carry fees. From the Sacramento Bee on July 2:

Ricardo Duran, a spokesman for the California State Teachers’ Retirement System, said CalSTRS can estimate the fees “within a couple of percentage points” but doesn’t report the figure.

“It’s not a number that we track,” Duran said. “It’s not that important to us as a measure of performance.”

Memo to CalSTRS: if you are estimating, you don’t know for sure.*

After the Financial Times ran its CalSTRS story, Ricardo Duran, CalSTRS’ head of communications, sent a clearly-annoyed e-mail to the Financial Times’ Chris Flood. Duran tried objecting that the so-called carry fee was not a fee because….drumroll..it was not paid directly by CalSTRS to general partners:

The following paragraph talks about [California Treasurer and CalSTRS board member] Mr. Chiang’s demand of CalPERS about how much has been “paid in carried interest.” Carried interest is not a payment but a profit split. I believe [head of private equity] Margot [Wirth] mentioned that distinction as well.

The language throughout the piece conflated carried interest with management/manager fees. That’s fine if that’s the way you want to characterize it. I only ask if you write about CalSTRS and carried interest again, you specifically mention this and attribute it to me or Margot.

So get a load of this: CalSTRS demanding that if the FT ever dare report on CalSTRS’ carry fee reporting again, that it include the staff’s pet position that a carry fee is not a fee, even when that contradicts statements by board members who oversee CalSTRS. Since when do mere employees a California agency have the right to undercut on-the-record statements of top California government officials?

And that’s before you get to the fact that this “carry fee is not a fee” position is bogus. As Eileen Appelbaum, the co-author of Private Equity at Work, wrote:

The email exchange in which CalSTERS argues with the Financial Times over the question of when is a fee not a fee has a certain Alice in Wonderland quality. The CalSTRS representative insists that a fee is not a fee if it takes the form of profit sharing. But profit sharing is clearly a performance fee – a fee paid to the PE investment manager based on the performance of the PE fund.

And as an expert who has been writing about private equity fees for decades said:

Private equity general partners put up around 1% of the money in a fund once you back out management fee waivers. They get 20% of the profits. The part over and above their pro-rata share is clearly a fee. As we lawyers like to say, res ipsa loquitur.

But the best part is Duran’s wounded claim that the FT “conflated” interest with management fees, as if that were inaccurate. This is from the very first limited partnership agreement I looked at from our document trove, KKR’s 2006 fund:

The Partnership will not invest in investment funds sponsored by, and as to which a management fee or carried interest is payable to, any Person….

Gee, KKR says in its own agreement that carried interest is indeed “paid” just like management fees!

But this is all a warm-up to the op-ed that the chairman of CalSTRS’ board, Harry Keiley, submitted to the Financial Times.

[snip]

Go to Naked Capitalism to read the rest of the story, including the rejected op-ed.

Wow, where do I begin? First, let me praise Yves Smith (aka Susan Webber) for lodging a Public Records Act request (California-speak for FOIA) for the op-ed and all e-mails between CalSTRS and the Financial Times and bringing this to our attention.

Second, in sharp contrast to other tirades, I completely agree with Yves Smith, these emails and that editorial are a total embarrassment to CalSTRS and either show gross incompetence on the part of CalSTRS’s private equity staff (Keiley didn’t write that without their input) or more likely, a pathetic attempt to misinform the public on how much has been doled out in management fees and carried interest (“carry” or performance) fees throughout all these years.

Third, and most importantly, I do not buy for one second that the private equity staff at CalPERS or CalSTRS do not track all fees doled out to each GP (general partner or fund) to the penny. If they don’t, they all need to be immediately dismissed for gross incompetence and breach of their fiduciary duties and their respective boards need be replaced for being equally incompetent in their supervision of staff (except keep JJ Jelincic on CalPERS’s board as he’s the only one doing his job, grilling CalPERS’s private equity team and asking tough questions that need to be answered).

I’m not going to mince my words, it’s simply indefensible for any large public pension fund investing billions in private equity, real estate and hedge funds not to track all the fees paid out to the GPs as well as track any hidden rebates with third parties which these GPs hide from their clients, effectively stealing from them.

You might be wondering, how hard is it for a CalPERS or a CalSTRS to track fees and other pertinent information from their private equity fund investments? The answer is it’s not hard at all. Over the weekend, I was looking at buying a few more books in finance (not that I need to add to my insanely large collection) and was looking at one called Inside Private Equity.

I was attracted to the book because one of the authors is Austin Long of Alignment Capital who I met back in 2004 when I was helping Derek Murphy set up private equity as an asset class at PSP Investments. I liked Austin and their approach to rigorous due diligence before investing in a private equity fund (like on-site visits where they pull records off a deal thy pick at random to analyze it and pick a junior staff member at random to ask them soft and hard questions on the fund’s culture).

Anyways, I was reading the foreword of the book which was written by Tom Judge, a former VC investor and inductee to the Private Equity Hall of Fame (1995), and he was writing about how it used to be complicated tracking over 100 partnerships for the AT&T pension fund until he met Jim Kocis, another author of the book, and founder of the Burgiss Group which provides software-based solutions for investors in private equity and other alternative assets (click on image to read passage):

Today the tools Burgiss Group developed support over a thousand clients representing over $2 trillion of committed capital.

Why am I writing this? I’m not plugging Burgiss Group because I simply don’t know them well enough and haven’t performed a due diligence on them but obviously it’s a huge firm with excellent experience in tracking detailed information of PE partnerships on behalf of their clients, providing them with the transparency they need to track their fund investments.

Again, in 2015, it’s simply mind-boggling and inexcusable for a CalPERS or a CalSTRS not to be able to track detailed information on all their fund investments going back decades. This includes detailed information on management fees and carry.

What are CalPERS and CalSTRS hiding? I don’t know but I think John Chiang, the state treasurer of California, is absolutely right to investigate and inform Califonia’s taxpayers on exactly how much has been doled out in private equity, real estate and hedge fund fees over the years at these two giant funds which pride themselves on transparency.

Below, I embedded the three investment committee clips from CalSTRS’s September board meeting. In the first clip, Chris Ailman, CalSTRS’s CIO, discusses their risk mitigation strategies and Mike Moy of Pension consulting Alliance, discusses the performance of private equity in the third clip.

I know they’re excruciatingly long (you can fast-forward boring sections) but take the time to listen to these investment committees as they provide a lot of excellent insights. Not surprisingly, nothing was mentioned on how exactly CalSTRS is going to track and disclose all fees paid to their private equity partnerships (however, in the third clip, Mr. Murphy, a teacher representing the California Federation of Teachers did mention this issue was a huge concern).

If the staff at CalSTRS, CalPERS or anyone else has anything to add, feel free to reach out to me at LKolivakis@gmail.com. I have my views but I don’t have a monopoly of wisdom when it comes to pensions and investments and I welcome constructive criticism on all my comments and will openly share your input, good or bad.

 

Photo by Stephen Curtin via Flickr CC License

An overwhelming majority of CIOs believe environmental, social, and governance (ESG) risks should be priced into investments – but a majority also believe that a greater focus on ESG issues won’t lead to the maximization of retirement income.

The insights come from a survey of over 100 institutional investors conducted by Hermes Investment Management.

More details on the results, from ai-cio.com:

A new survey by Hermes Investment Management found that 90% of respondents believed fund managers should price in corporate governance risks as a core part of their investment analysis.

Despite this show of ESG awareness, 47% still said pension funds should focus exclusively on maximizing retirement incomes—a goal the majority believed would not be met by focusing on ESG issues.

Just 46% believed ESG-focused investing would produce better long-term returns.

Additionally, while 79% considered significant ESG risks with financial implications as sufficient reasons to reject an otherwise attractive investment, 58% believed the number of opportunities rejected by pension schemes because of ESG will increase only slightly over the next five years.

“It is clear that ESG has become mainstream,” said Hermes Chief Executive Saker Nusseibeh. “However, the industry’s obsessive focus on measurement leads naturally to more short-term thinking and decisions that often miss the whole point of investment.”

Read the full survey here.

 

Photo by penagate via Flickr CC

After the first iteration failed to generate much funding or support, former San Diego Mayor Chuck Reed reworked his benefit-cutting ballot measure and released the updated measures this week.

The measures aim to rein in the cost of pensions in California by requiring voter approval of any benefit increases, and would put a cap on government contributions to the pensions of new employees.

More on the measures, from the Mercury News:

The first, called the Voter Empowerment Initiative, would require voter approval for any of the following: pension benefits for new government employees, increases in benefits for existing employees or taxpayer subsidies of benefits of more than 50 percent.

The coalition also added a second initiative, called the Government Pension Cap Act. This measure would limit government contributions to new employees’ retirement benefits to 11 percent of base compensation. The percentage would rise to 13 percent for safety employees. Like its sister initiative, the Government Pension Cap Act would also prohibit the government from paying more than half the total cost of retirement benefits, unless voters say otherwise.

Despite the differences between the two approaches, the core philosophy is the same, Reed said Monday during a conference call with reporters.

“The cost is what’s driving our concern for the future of California,” Reed said. “The public understands that the skyrocketing cost of retirement benefits is a huge financial burden.”

The twin initiatives met with fierce opposition Monday from Californians for Retirement Security, an alliance of several government labor unions. Dave Low, the group’s chairman, accused the reformers of “rewarding Wall Street” by trying to eliminate retirement security for millions of people.

Reed wants one of the measures on the 2016 state-wide ballot – which means he needs to gather 580,000 in the next six months.

 

Photo by  San Jose Rotary via Flickr CC License

New Jersey public employee retirements in the first seven months of 2015 jumped 10 percent compared to the same period in 2014, according to state data.

It may not be a coincidence that the spike coincides with state Gov. Chris Christie’s attempts to cut benefits to reduce pension costs to the state.

From NJ.com:

More than 13,000 public employees retired through July, compared with fewer than 12,000 in 2014, and the increase was concentrated among state workers and public safety employees, state data shows.

“Every time this governor opens his mouth and comes out with a new report or threatens a new report… he scares our guys right to the retirement line,” said Ed Donnelly, president of the New Jersey State Firefighters’ Mutual Benevolent Association.

[…]

Through the first seven months of this year, the number of workers who have retired or notified the state of their plans to retire is up 9.6 percent from the same period in 2014. If retirements continue at that pace, which is uncertain, nearly 19,500 workers could exit — a level on par with 2011.

Workers bracing for the first wave of benefits reforms after Christie took office in 2010 left in droves. While about 12,700 people retired in 2009, more than 20,000 clocked out in 2010. The next year, when the Legislature adopted changes that raised the retirement age, required workers to contribute more for their benefits and froze cost-of-living increases, 19,500 workers left.

Specifically, Christie has backed a series of reforms proposed in February that would switch workers into a hybrid 401(k)-style plan offering fewer health benefits.

 

Photo By Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

The Ohio Police & Fire Pension Fund last week announced it would begin posting its checkbook-level expenditures online in a searchable, organized database.

The initiative is part of a partnership with Ohio Treasurer Josh Mandel.

More from the Columbus Dispatch:

The fund has become the first in the nation to post its checkbook-level expenditures online. Fund officials have an interest in showing members that they are being transparent and doing what’s needed to keep the fund healthy. The partnership with Ohio Treasurer Josh Mandel’s OhioCheckbook.com was announced Thursday; the site puts detailed financial data in a searchable and sortable format.

“Public-employee pension funds have a particular need to make their information easy to find and understand because of their obligations to thousands of retirees,” said Dennis Hetzel, executive director of the Ohio Newspaper Association and a supporter of the online-checkbook initiative.

The pension fund joins a growing list of municipalities and public organizations that are using the treasurer’s site, which has received national acclaim since launching in late 2014. Franklin and Delaware are among the Ohio counties that have committed to putting their checkbook information on the site.

The pension fund’s data is not yet on the site, but check out Ohio Checkbook here.

 

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