Tag: Illinois pension

Here’s How A Handful of Pension Funds Will Benefit From Citigroup’s $7 Billion Settlement

Last week, Citigroup agreed to settle the claim that it had misled investors about the quality of mortgage-backed bonds it sold prior to the 2008 Financial Crisis. The settlement required that Citi admit they misrepresented the quality of those bonds, and that admission carried a $7 billion price tag for the firm. Most of that money will be allocated toward fines it must pay to the Justice Department and to consumer relief.

But there were other victims as well, which means there are other winners in this settlement: the pension funds who bought those precarious bonds.

Illinois is one state that will benefit. From the Chicago Tribune:

Illinois will receive $84 million as part of a national $7 billion settlement resolving allegations by federal and state authorities that Citigroup Inc. sold risky mortgage-backed securities that harmed investors, which included pension systems and communities.

More than half the money headed to Illinois will fully compensate the state’s pension funds for losses suffered from 2006 to 2007, when they were misled by Citi, according to the Illinois attorney general’s office.

Citigroup will pay $33.04 million to the Illinois Teachers’ Retirement System, $3.12 million to the State Universities Retirement System and $7.83 million to the Illinois State Board of Investment, which oversees the State Employees’ Retirement System, General Assembly Retirement System and Judges’ Retirement System.

An additional $40 million will be dedicated to consumer relief, and an independent monitor will be appointed to help distribute the money.

“This relief will fully restore the losses Illinois’ pension systems incurred as a result of Citigroup’s fraudulent schemes in the mortgage-backed securities market, and it will provide much-needed aid to Illinois homeowners who are still paying for Wall Street’s reckless actions,” Illinois Attorney General Lisa Madigan said in a statement.

Illinois can’t yet break out the party hats: the state’s pension shortfall still stands at around $100 billion.

California is the other major beneficiary. As reported by the Sacramento Business Journal:

California will get nearly $200 million as part of Citigroup Inc.’s $7 billion nationwide settlement with the U.S. Department of Justice in resolving civil claims related to the financial company’s conduct in selling residential mortgage packages during the run-up to the financial crisis.

California’s two large public pension funds, California Public Employees’ Retirement System and California State Teachers’ Retirement System, will recover $102.7 million in damages for losses on mortgage-backed securities. California consumers also are guaranteed at least $90 million in relief.

“Citigroup misled consumers and profited by providing California’s pension funds with incomplete information about mortgage investments,” California Attorney General Kamala Harris said in a news release. “This settlement holds Citi accountable and compensates the state’s pension funds that protect the retirement savings of hardworking Californians.”

New York is receiving $92 million as well, but it’s not known whether the state’s pension funds will see any of that money.

An Under-The-Rader Bill in Illinois Would Set Up Another State-Run Retirement Plan

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Illinois has the worst funded pension system in the United States–40.37 percent funded as of 2013–which is why it’s a significant news item that state lawmakers are trying to establish another state-run retirement system. Interestingly, these efforts have garnered very little media attention. But the idea is edging closer to becoming law, as the bill passed the Senate in April and now waits in the House.

The bill, called SB2758–which you can read in its entirety here–would set up a 401(k)-style plan for all businesses in the private sector who don’t already have a retirement plan. All eligible employees would be automatically enrolled, although there would be an opt-out option. And the program would be run by Illinois Department of Revenue. Reboot Illinois has more:

The proposed program would require employers who employee over 25 workers and who offer no retirement plan to automatically enroll their employees with a 3% payroll deduction. The employees could opt out at any time or change the contribution level. These retirement accounts are totally portable, and the money would never enter the state treasury but would instead be owned by the worker. The assets would be pooled to ensure low fees and secure investments. Simply put, the plan would make it easy for employees to save their own money for retirement without burdening employers or costing taxpayers a penny.

 
The program would be overseen by a Board chaired by the state Treasurer. The bill lays out a simple concept: automatic enrollment in a retirement savings account that belongs to employees and not politicians and is managed by proven private vendors. To make it a reality, we need a state Treasurer who is committed to transparency, knowledgeable about finance, and relentless in fighting for the financial security of ordinary people.

A 401(k) plan is much safer for the government to administer than a defined-benefit plan. But Illinois has a poor track record when it comes to maintaining a sustainable retirement system, and it’s that angle that has people worried about the state’s ability to run a retirement system. That includes John Giokaris of the Illinois Mirror:

If experience teaches us anything, the entry of Illinois state government into the non-public employee retirement fund marketing and investment oversight business ought to be a non-starter. SB 2758 attempts to construct a government program that largely duplicates IRA services already widely available in the private market for anyone interested in retirement savings. It exposes the state and private employers to a liability risk, despite the bill’s purported protections against lawsuits (this is Illinois, after all). It also opens the door for likely litigation over whether a state can compel participation in a program that Biss and Frerichs are selling as “voluntary.”

The reason for the bill is simple: Illinois’ private sector workers aren’t saving enough money. And they shouldn’t expect Social Security to help them, because it won’t be enough. From Reboot Illinois:

Social Security was never intended to be a sole source of retirement income. Indeed, the average Social Security payout per month is $1,281. Unfortunately, in Illinois, the median amount of money in retirement accounts is $3,000. Together, these two numbers tell us that far too many Illinois residents will likely to live in poverty when their working days are over. They should not have to choose between paying for groceries, utilities or their prescriptions. They deserve better than that: they deserve a safe, easy way to save for retirement.

Ultimately, it’s up to the government to administer this plan in an efficient, cost-effective way that doesn’t put a target on the back of taxpayers’ heads down the line. You can be sure the debate around this plan will intensify if and when it passes the House. Pension360 will keep you updated.