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Actuaries Call on Obama to Address Aging Issues, Retirement Security in State of the Union

The American Academy of Actuaries is urging President Obama and the U.S. Congress to tackle retirement security issues through public policy over the next two years.

That includes addressing the solvency of Social Security, improving the governance and disclosure requirements of public pension plans, and ensuring adequate retirement income for seniors who are living longer.

From the AAA:

The American Academy of Actuaries is calling on the president and the 114th Congress to commit to a focus in the next two years on addressing the needs of an aging America. A concerted national strategy on policies to support systems such as retirement security and lifetime income, health care and long-term care for the elderly, and public programs such as Social Security and Medicare, is long overdue.

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As President Obama prepares to address Congress and the American people this evening, the Academy (which celebrates its own 50th anniversary this year) would point out that the state of our union is inextricably linked to the demographic transition of proportionately greater numbers of Americans entering retirement, coupled with increased longevity, or life expectancies, that will compound the fiscal challenges to both private systems and public programs in the years to come.

The AAA goes on to provide specific points that comprise a public policy “wish list”:

* Take immediate steps to address solvency concerns of key public programs like Social Security and Medicare to ensure that they are sustainable in light of changing demographics. The Academy also urges action to allow the disability trust fund to continue to pay full scheduled disability benefits during and beyond 2016.

* Evaluate and address the risk of retirement-income systems not providing expected income into old age, especially in light of increasing longevity. The Academy’s Retirement for the AGES initiative provides a framework for evaluating both private and public retirement systems, as well as public policy proposals.

* Encourage the use of lifetime-income solutions for people living longer in retirement. The Academy’s Lifetime Income initiative supports more widespread use of lifetime-income options.

* Improve the governance and disclosures regarding the measurements of the value of public-sector (state/municipal) employee pension plans. The Academy’s Public Pension Plans Actuarial E-Guide provides information on the nature of the risks and the complex issues surrounding these plans.

* Explore solutions to provide for affordable long-term care financing, and address caregiver needs and concerns through public and/or private programs.

* Address the impact of delayed retirement, either voluntary or through future retirement age changes, on benefit programs, as well as the needs it may create with increased demand for early retirement hardship considerations and disability income programs.

Read the full release here.

Minnesota Retirement Board Won’t Support Corporate Inversion of Medtronic

The Minnesota State Board of Investment, the entity that manages assets for the state’s retirement systems, decided on Friday that it will not vote in favor of Medtronic’s acquisition Covidien.

Medtronic is Minnesota’s largest medical technology company, and Covidien is a medical supplier based in Dublin.

The retirement board has a say in the decision because it is a shareholder in both companies.

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

HarbourVest May Be Last Party Interested in Buying CalPERS’ Stake in Under-Performing Healthcare Fund

CalPERS announced this summer it was looking to exit the Health Evolution Partners (HEP) Growth Fund, a private equity fund specializing in healthcare companies.

HEP is run by David Brailer, a world-renowned physician who had no previous private equity experience before starting the firm.

The fund promised returns of 20 percent. But its IRR as of March 31 was just 2 percent.

According to Reuters PE Hub, HarbourVest Partners is interested in buying CalPERS’ stake in the fund. From Reuters PE Hub:

HarbourVest Partners appears to be the last bidder interested in buying CalPERS’ stake in a healthcare fund run by a former Bush Administration official, according to two sources.

The California Public Employees’ Retirement System since summer has been trying to sell its stake in a growth fund managed by Health Evolution Partners (HEP). Evercore Partners is running the sales process, sources said.

Landmark Partners was also a bidder until recently, a secondary market professional said.

CalPERS is the sole limited partner in the fund and committed $505 million at its inception in 2008. So far, the GP has drawn down just over $430 million, as of March 31, according to CalPERS.

The fund’s performance has not been stellar. It produced an internal rate of return of 2 percent and a 1x multiple as of March 31, according to CalPERS.

One secondary market professional said bad blood between CalPERs and HEP likely drove away some potential buyers.

Real Desrochers, senior investment officer for CalPERS’ Private Equity Program, recommended the retirement system get out of the investment because he didn’t believe HEP would achieve its goal of a 20 percent IRR, Pensions & Investments reported in August. CalPERS investment staff earlier this year refused to allow HEP to use already-committed capital and told the firm to find a new partner or face liquidation, P&I reported.

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Besides the growth fund, CalPERS committed $200 million to an HEP fund-of-funds in 2007. The sales process has not included the FoF, which had produced a negative 3 percent IRR and a 0.9x multiple as of March 31.

Read more coverage of the HEP Growth Fund here.

Photo by Hobvias Sudoneighm

Here’s How Philadelphia’s New Labor Deal Will Affect Pensions

After years of negotiations, Philadelphia and its largest union have come to an agreement on a new labor contract that has implications for the city’s pension system and the workers that pay into it.

The union, AFSCME District Council 33, indicated that its members will overwhelmingly approve the deal.

A major provision of the deal gives employees a choice between several retirement plan options. Employees will also have to pay more into the pension system. From Business Insurance:

[The deal] will increase employee contributions to the pension fund and allow new employees the choice between a hybrid plan and the traditional pension plan, said Mark McDonald, a spokesman for Mayor Michael A. Nutter.

The contract agreement term is retroactive from July 1, 2009, through June 30, 2016. Terms of the contract must be ratified by members of DC 33.

Current participants in the $4.8 billion Philadelphia Municipal Retirement System, a defined benefit plan, will have their employee contribution increase by 1% of pay over the next two years — 0.5% effective Jan. 1, 2015, and an additional 0.5% effective Jan. 1, 2016.

All employees hired after the contract is ratified can either enter the defined benefit plan and pay 1% more than current participants or enter a hybrid plan. Current employees have 90 days following ratification to make an irrevocable election to move to the hybrid plan.

The rest of the deal, as reported by ABC:

The newly reached seven year tentative agreement is retroactive from July 2009 and expires in 2016.

The deal will include wage increases of 3.5 percent this year, 2.5 percent next year plus a lump sum of $2,800 for every member. However the wage increases are not retroactive.

Also in the deal – employee contributions to pensions will increase and the city will pay a one-time $20 million lump sum into their healthcare.

In the future, the city will be able to use temporary layoffs, if needed, during an economic crisis.

The deal marks a compromise for both sides. According to WPVI, the deal will prove expensive for the city—estimates put the cost at $127 million over five years—that will require some budgetary finagling.

One major concession for the union was that sick leave will no longer be eligible for overtime pay.

Photo by Peter Miller via Flickr CC License