Illinois | Pension360

$200 Million To Asia Private Equity Among Series of Moves By Illinois Teachers’ Fund

The Illinois Teachers’ Retirement System (TRS) made a series of moves at Thursday’s board meeting that included making $300 million in commitments to two private equity funds and approving the hire of a firm to manage domestic stocks.

The system made several new commitments, including $300 million to two private equity funds, one focusing on Asia and the other on technology. From Pensions & Investments:

Siris Capital Group […] graduated from the emerging managers program with a commitment of $100 million to its technology-focused private equity fund, Siris Partners III. TRS invested $12.5 million in Siris Partners II.

TRS committed up to $200 million to a customized Asia-focused private equity strategy managed in a strategic partnership by Asia Alternatives Management. The allocation will be split evenly between a diversified fund of funds and a co-investment fund. The goal is to eventually move some of the Asian private equity managers from the fund of funds into TRS’ direct investment portfolio, Stefan Backhus, private equity investment officer, told trustees.

Taurus Funds Management, a new manager for the TRS, right, received a $30 million commitment to its Taurus Mining Finance Fund.

Active large-cap value equity managers Affinity Investment Advisors and Lombardia Capital Partners each received $25 million commitments from the emerging managers program for domestic and international portfolios, respectively.

Trustees ratified staff-initiated co-investments of $18.5 million and $20 million to existing managers Carlyle Group and Natural Gas Partners, respectively.

Funding for the Siris, Asia Alternatives, Taurus, Affinity, Lombardia, Carlyle Group and Natural Gas Partners hires will come from cash, index funds and rebalancing.

TRS also hired a new firm to manage domestic equities, promoted one other firm and fired another. From P&I:

Trustees of the $43.5 billion pension fund ratified the hire of LSV Asset Management by investment staff in August to manage $360 million in active domestic large-cap value stocks. LSV, which already managed $1.3 billion for TRS in two other equity strategies, replaced Loomis Sayles & Co., which was terminated in August.

Active bond manager Garcia Hamilton & Associates, was promoted from the pension fund’s $732 million emerging managers program to manage a 4% allocation from the fund’s $7.7 billion fixed-income portfolio. The $61 million Garcia Hamilton previously managed will be returned to the emerging managers program. Funding for the new account will come from reducing Prudential Asset Management’s core-plus bond portfolio and rebalancing among other fixed-income managers.

[…]

In further changes to the fixed-income portfolio, Hartford Investment Management was terminated as manager of a $350 million U.S. Treasury inflation-protected securities portfolio. Investment staff “believes the net-of-fees results from these mandates can be improved through two mandates. Further, staff prefers to utilize global inflation-linked mandates, while Hartford’s portfolio is U.S. only,” said R. Stanley Rupnik, chief investment officer, in an answer to a request for clarification.

The Illinois Teachers’ Retirement System manages $43.5 billion in assets.

Illinois Teachers’ Fund To Stick With PIMCO, But Backup Plan Remains in Place

In the weeks since Bill Gross’ departure from PIMCO, dozens of public pension funds around the country have carefully considered whether to stay with the firm or move on.

In late September, one of the largest plans in the country, the Florida Retirement Systems, announced it was cutting PIMCO in favor of BlackRock.

The Illinois Teachers’ Retirement System announced Thursday it would keep its assets with PIMCO, but would still be watching the firm closely. From Pensions & Investments:

Illinois Teachers’ Retirement System, Springfield, will not terminate any of the nine strategies managed for it by Pacific Investment Management Co., but likely will keep the company on its watchlist.

The $45.3 billion pension fund’s investment staff has had “backup portfolio managers” lined up since rumors started swirling earlier this year of the departure of William H. Gross, co-founder and former chief investment officer, said Scottie Bevill, senior investment officer for fixed income and real assets, to trustees at an investment committee meeting on Wednesday.

[…]

PIMCO manages a total of about $3 billion for the pension fund — all fixed-income, credit or global tactical asset allocation approaches — representing about 6.6% of total fund assets.

PIMCO has been on the pension fund’s watchlist for personnel changes since February, when Mohamed El-Erian, PIMCO’s former co-chief investment officer, announced he would leave the firm.

Trustees approved the proposed watchlist, with PIMCO on it, during the investment committee meeting. The full board must approve the committee’s recommendation at its Friday meeting.

Pension funds that have PIMCO on their watchlists include: the Texas Municipal Retirement System, Indiana Public Retirement System, New York City Employee Retirement System, and the Hawaii Employees’ Retirement System.

Former Illinois Attorney General: Pension Reform “Single Most Important” Issue Facing Illinois

Ty Fahner, president of the Civic Committee of The Commercial Club of Chicago and former Illinois attorney general, has been pushing Illinois lawmakers for months to come up with a “Plan B” for pension reform.

He contends that it’s likely the Illinois Supreme Court will overturn the state’s pension reform law. And if it does, Illinois has no contingency plan in place.

In a column in the Belleville News-Democrat, Fahner says of pension reform: “no issue of greater importance to Illinois’ future”. He writes:

What if?

It’s the single most important question that Illinois residents should be asking, and candidates for office should be answering.

Yet as Election Day approaches, too few are asking about the most critical issue facing the state.

What if the Illinois Supreme Court rejects pension reform?

Illinois needs an open and honest conversation about the potential impact this decision could have on the state and its citizens. Regardless of the outcome, the consequences are far-reaching and voters deserve to know whats at stake.

This is about what is good for the state and its future. Illinois needs to be in a position to grow its economy, create jobs for Illinois residents, invest in education and infrastructure and provide for the most vulnerable among us. The pension law decision will have a sweeping impact that will touch every Illinois resident in one way or another.

Illinois can no longer kick the can down the road. Half measures will not suffice. We need to address these issues now. Even if the law is upheld, we are still lagging virtually every state in the nation. All of the answers to these questions will take time to develop, win approval from the General Assembly and implement. Many of the social services already have been cut to the bone and educational funding reduced by $2.7 billion since 2009 — what is the plan?

[…]

With the future of pension reform hanging in the balance, now is the time to ask the question.

What if?

No issue is of greater importance to Illinois’ future.

And if the Supreme Court does reject the state’s pension reform law, Fahner writes:

If the court rejects the law, $145 billion in state contributions is immediately added to the taxpayer tab over the next 30 years. Whether through even more tax hikes or continued service cuts, that money has to be accounted for. We would pay a lot more for a lot less in return.

Property taxes could rise to the highest in the nation. School districts could face further budget strain. Tens of thousands of seniors, children and mentally ill could face significant reductions, if not loss, of the state assistance on which they rely. The security of the pension systems themselves would be jeopardized.

Illinois needs this conversation. The sad truth is that all of the state”s biggest problems are directly tied to the pension crisis, which has already resulted in paralyzing tax hikes, steep cuts to social services, unreasonable burdens on students and the loss of jobs to neighboring states. Already, Illinois ranks last or near last among the states on every economic indicator from unemployment, to property taxes, to jobs climate and state support for education.

Read the entire column here.

Chart: Is The Actuarially Required Contribution A “Joke”?

Yesterday, Pioneer Institute Senior Fellow Iliya Atanasov called the annual required contribution (ARC) the “biggest joke of the costing and funding process”. He said in a column at Public Sector Inc:

The biggest joke of the costing and funding process is the so-called annual required contribution (ARC) that the actuarial valuation is supposed to determine. In reality, there is nothing “required” about the ARC – most jurisdictions can contribute absolutely nothing and face no legal repercussions, at least in the short run. And when state and local governments don’t make the ARC, they rarely look at, let alone disclose, the long-term cost of postponing the payment and how much more expensive the benefits become as a result. Just look at Illinois, New Jersey and Pennsylvania, which owe some $300 billion in unfunded liabilities between them, or at the sad condition of once glorious cities like Philadelphia, Chicago and Detroit, teetering towards or already in bankruptcy.

As the above chart shows, the country’s public pension funds are indeed failing to pay 100 percent of their ARCs. Often, states and municipalities make full payments to smaller systems but fail to make consistent, meaningful contributions to larger systems. Another chart for more context:

Illinois Loophole Lets Teacher Union Leaders Boost Pensions After Leaving Classroom

A Washington Times investigation has uncovered an interesting legal quirk in Illinois that lets retired teachers continue to build pension credit after retirement. The law allows teachers who later become union leaders to credit their union salaries towards their pension.

Illinois Governor Candidates Talk Pensions in First Debate

One of the hottest issues in the race for Illinois governor is also one where the candidates differ starkly: how to fix the state’s retirement system.

So it’s no surprise that pensions came up during the race’s first debate.

There were no revelations here; Pat Quinn and Bruce Rauner both used the time to double-down on their stances. From the Associated Press:

Quinn signed legislation last year that would fully fund the retirement systems by 2045, in part by cutting benefits. Public-employee unions have sued, saying the overhaul violates a provision of the constitution that says benefits can’t be reduced.

Rauner supports letting retirees keep the benefits they’ve been promised but freezing the systems and moving employees to a 401(k)-style plan in which workers are not guaranteed a certain level of benefits. He said that plan — similar to what most private-sector workers have — wouldn’t save much money to start but would save billions in the long term.

“I don’t believe it’s right to change the payments to a retiree after they are already retired, and that’s what Gov. Quinn did,” Rauner said.

But Quinn called Rauner’s plan “risky” because workers’ retirements would depend largely on market performance. He said he deserves credit for making Illinois’ full pension payment each year he’s been governor — something his predecessors didn’t do. That contributed to Illinois having the worst-funded pension systems of any state in the U.S.

Illinois’ pension reform law has spent the last 6 months being fast-tracked through lower courts. A ruling on the constitutionality of the law could come before the end of the year.

Illinois Pension Case Stays On Fast Track; Arguments Set For November

Illinois’ pension reform law is going to get its day in court soon. A judge on Wednesday scheduled arguments for and against the law for next month. That means a final ruling on the law could be made by the end of the year.

The law’s opponents and defenders have one thing in common: they both want a ruling on the law’s legality sooner than later.

From Reuters:

Sangamon County Circuit Court Judge John Belz, who is overseeing five consolidated lawsuits filed by labor unions and others, set Nov. 20 for arguments for and against the constitutionality of the law passed by the Illinois legislature last December.

Public labor union coalition We Are One Illinois and other parties have been seeking an expedited ruling in the wake of a July 3 Illinois Supreme Court decision in an unrelated case that determined health care for retired state workers is a pension benefit protected by a provision in the state constitution.

The same provision, which prohibits the impairment or diminishment of retirement benefits for public workers, is the focus of the lawsuits against the state’s pension reform law. The new law, which is currently on hold, reduces and suspends cost-of-living increases for pensions, raises retirement ages and limits the salaries on which pensions are based.

In documents filed with the court on Friday, Illinois Attorney General Lisa Madigan argued that the high court’s July 3 ruling only dealt with retiree health care subsidies being part of the contractual relationship Illinois has with members of the state’s public pension systems.

“The court did not address whether such benefits are immune from the state’s exercise of its police powers. That issue was not before the court,” Madigan’s court filing noted.

In its defense of the pension reform law, Illinois is leaning heavily on its so-called police powers trumping the constitutional provision against reducing public employee retirement benefits. Those powers include the state’s ability to properly fund education, healthcare and public safety. Those sectors would experience substantial cuts if the state’s already large pension burden grows, Madigan said in the filings.

We Are Illinois released the following statement on Wednesday:

“As we have always maintained and the recent Kanerva decision confirms, the pension protection clause of the Illinois Constitution is absolute and without exception. There is no merit to the State’s purported justification for the unconstitutional diminishments and impairments that SB1 imposes. We are hopeful for a swift resolution in the plaintiffs’ favor, so that we can work with legislators willing to develop a fair—and legal—solution to our state’s challenges, together.”

State Pension Funding Improves For First Time in Six Years

State pension plans have improved their collective funding ratios for the first time since 2007, according to 2013 data.

From Bloomberg:

The median state system last year had 69.3 percent of the assets needed to meet promised benefits, up from 68.7 percent in 2012, according to data compiled by Bloomberg. It was the first increase since the start of the 18-month recession that ravaged retirement assets and led some officials to skip payments as tax revenue sank. Illinois and New Jersey, with the weakest state credit ratings, saw funding levels set new lows for the period.

Buoyed as the Standard & Poor’s 500 index set record highs, the nation’s 100 largest public pensions earned about $448 billion in 2013, the most in at least five years, Census data show. At the same time, governments added a record $95 billion to their plans as they socked away rebounding tax revenue toward obligations to retirees.

“States are playing catch-up — you see more discipline and more public acknowledgment that plans have got to make the required payment every year,” said Eileen Norcross, senior research fellow at George Mason University’s Mercatus Center in Arlington, Virginia.

[…]

The Bloomberg data for 2013, the latest available, underscore the findings in a June report from S&P that said funding levels “have likely bottomed out” and are poised to improve along with climbing stocks.

The S&P 500 index (SPX) rose almost 30 percent last year, the most since 1997, propping up the pensions as the Federal Reserve’s policy of keeping its benchmark interest rate close to zero suppresses debt yields.

But not all states got healthier. The funding statuses of pensions in Illinois and New Jersey have deteriorated further.

Illinois’ funding status dropped from 40.4 percent in 2012 to 39.3 percent in 2013.

New Jersey’s ratio fell from 67.5 percent in 2012 to 64.5 percent in 2013, according to Bloomberg data.

Photo by www.SeniorLiving.Org

Controversial Retirement Plan Becomes Issue In Illinois Treasurer Race

Former House Republican Leader Tom Cross and Democratic Senator Mike Frerichs are both vying to become the next Treasurer of Illinois, and the race has gotten a little more interesting in the past few days.

Cross says that an early retirement incentive (ERI) plan, passed under Frerichs when he was the auditor of Champaign County, cost the county millions of dollars. But others say the plan saved the county millions.

Reported by WUIS:

Back in 2003, Mike Frerichs was the Champaign County Auditor when the County Board passed a plan that allowed some county employees to take early retirement.

An early retirement incentive, or ERI, is sometimes used by city or county governments, often as a way to cut payroll costs. At the time, Frerichs also served as the county’s agent to IMRF, the Illinois Municipal Retirement Fund.

Now, Cross, the former House Republican leader, said Frerichs put Champaign County in a financial hole by pushing the early retirement incentive on the county board.

“He ran (the numbers) and said let’s do it – it’s going to save us money,” Cross said. “We’ve now found out it costs $2-to-3 million – the county had to go sell bonds. So if you’re a rank and file county board member, you’re relying on this guy who’s the county board’s representative of IMRF, and you relied on that data and that information and recommendation.”

Frerichs fired back at Cross and said the accusations were inaccurate. From WUIS:

“Tom Cross’ campaign told lies about who instigated it, they told lies about how much it saved, and they told lies about the authorized agent,” [Frerichs] said.

Frerichs called the accusations from the Cross campaign, ‘revisionist history’.

The Senator said he was approached eleven years ago by Champaign County Administrator Deb Busey to prepare some numbers, and find out how many county employees might opt to retire early.

Tom Betz, a Democrat and a Champaign County Board member at the time, said a group of county employees pushed for the plan.

“A lot of people lobbied – because they wanted to retire,” he said. “And they wanted an incentive to retire.”

Frerichs said gathering data and presenting the information to the county administrator was the extent of his job as the county’s IMRF officer. After that, the proposal went to the full board for a vote, and passed 13-10, with bipartisan support.

The head of the pension fund backs Frerichs on that point. IMRF Executive Director Louis Kosiba said a city or county’s decision to implement the program — or not — has nothing to do with the authorized agent.

“To me it’s a kind of tempest in a teapot if you’re saying the authorized agent did something or didn’t do something vis a vis IMRF,” he said. “They’re just a communication conduit – they have no responsibility.”

ERI plans seek to replace highly paid employees with lower-paid employees. The plan is sometimes used by governments looking to downsize or cut costs.

WUIS further investigated the cost of the retirement program here.

Illinois Pension Board Director to Retire; Search for New Director Begins Soon

William Mabe, executive director of the State University Retirement System of Illinois, has announced that he will retire on March 31.

The System plans to hire a firm to search for and secure a new director by the time Mabe leaves his post.

From the Chicago Sun-Times:

William Mabe, executive director of the State University Retirement System, will retire on March 31, and five of the 11 board members’ terms will expire next summer.

[…]

The board expects to hire a search firm at an Oct. 30 meeting to find a new executive director, and intends to choose the new leader by the time Mabe retires, a spokesman said.

Mabe, 67, said in an interview Thursday that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

There may be further turnover on the board, as the terms of five more trustees expire in June 2015.

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712