CalPERS, CalSTRS Nab $300 Million From Settlement With S&P in Suit Over Mortgage Ratings

The CalSTRS Building
The CalSTRS Building

It was revealed today that credit rating agency Standards & Poor’s has entered a $1.375 billion settlement with 18 states over the alleged inflated ratings it gave mortgage-backed securities which eventually turned toxic.

CalPERS and CalSTRS are the biggest individual beneficiaries of the settlement; the entities will receive more than $300 million combined.

More from the Sacramento Bee:

CalPERS said it will receive $301 million from S&P. CalSTRS said it will get $23 million.

“This money belongs to our members and will be put back to work to ensure their long-term retirement security,” said CalPERS Chief Executive Anne Stausboll in a prepared statement.

[…]

“S&P played a central role in the crisis that devastated our economy by giving AAA ratings to mortgage-backed securities that turned out to be little better than junk,” said Stephanie Yonekura, acting U.S. attorney for Los Angeles, in a prepared statement. “This historic settlement makes clear the consequences of putting corporate profits over honesty in the financial markets.”

[…]

With the S&P settlement, CalPERS said it has now recovered approximately $900 million in settlements from bad investments made during the bubble. The big pension fund already settled with Fitch but is continuing to press its suit against Moody’s.

The Justice Department statement on the settlement, which includes a list of the states receiving money, can be read here.

 

Photo by Stephen Curtin

CalPERS Board President Feckner Re-Elected to 11th Term

board room chair

The president of CalPERS’ board of administration, Rob Feckner, has been reelected to his 11th term. The term is one year long.

The board held the vote on Tuesday.

Feckner has sat on the board since 1999.

More from the LA Times:

During his long tenure, Feckner has steered CalPERS away from sometimes strident, anti-corporate activism; backed a campaign that successfully defeated a 2005 initiative that would have reduced some pension benefits; and helped the nearly $300-billion fund recover billions of dollars in losses from the recession of 2008-09 and its aftermath.

He also worked to clean house and overhaul policies in the wake of a 2009 bribery and corruption scandal that resulted in federal criminal charges being filed against two former CalPERS officials, a board member and chief executive.

“In the past few years, we have many accomplishments to be proud of,” Feckner said in a statement released by CalPERS, “but there’s still much more to do to ensure we provide secure retirement and health benefits to California’s hard-working public employees.”

Among those challenges is a potential 2016 proposed ballot measure that would allow cities and local governments to cut pension benefits for current employees. The board is expected to oppose such a measure.

Another development from Tuesday’s meeting: the board elected Henry Jones to the vice president position. He is replacing Priya Mathur, who was stripped of that position after repeated violations of financial reporting laws.

Pension Checks of Some Milwaukee County Retirees in Jeopardy After Acting on Government Advice

cut up one hundred dollar bill

A few hundred Milwaukee County retirees are facing reduced pension checks in the future – all because they took County advice that for years resulted in benefit over-payments.

The retirees were receiving bigger payments because they were following County advice regarding “buy ins” and “buy backs.” But the overpayments they were receiving didn’t county ordinances or IRS rules.

In total, the County’s advice led to $25 million worth of overpayments.

So now the County wants retirees to give the money back. Milwaukee County Executive Chris Abele is leading the charge.

From Express Milwaukee:

Last April, Milwaukee County Executive Chris Abele sent a letter to more than 200 Milwaukee County retirees warning them that their pension payments weren’t valid and that he would take back any money they’ve been overpaid.

Nine months later, Abele is walking back from those comments.

But his new strategy, outlined in a Jan. 9 memo to county supervisors, would still take money away from 221 retirees whose only mistake was accepting the county’s own advice when setting up their pension plans.

“The county executive’s plan does not try to recoup any money from retirees,” emailed Abele’s spokesman, Brendan Conway. “It only adjusts future payments to the amount that complies with the law.”

And by “adjusting” them, Abele means “lowering” them.

Under this plan, the city would be getting its money back – by reducing future benefit checks for the retirees in question.

The union response:

“As we’ve come to learn about Abele, he’s making the situation worse,” said Boyd McCamish, head of AFSCME District Council 48, the county’s largest union. “Why does he insist on terrorizing retirees who have done nothing wrong?”

[…]

“It’s about the principle,” McCamish said. “If you are a retiree, a pensioner, you should feel no security at all even though you’ve been paying into these things all your life. One of the main things Abele’s trying to do, along with his buddies the Koch brothers, is to create and perpetuate what is known as the precarious workforce. So even retired people should feel levels of instability. Because when people are desperate and scared they will do anything and they will accept anything.”

Abele’s failed to win over the Pension Review Board in December with the plan.

City officials question whether it is legal to reduce future benefit checks based on overpayments stemming from advice the government itself provided.

“It does not seem clear to me that he can do that legally,” County Supervisor Theo Lipscomb told Express Milwaukee. “Another question is whether you morally should do that. These people relied on advice that the county provided.”

 

Photo by TaxCredits.net

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

capitol

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.

[…]

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.

Video: Pension Reform and the Implications for Private Equity

Kathleen Kennedy Townsend, Managing Director at Rock Creek Group, gave this presentation on pension reform, retirement security and what it means for private equity. The talk was filmed at the 2014 Women’s Private Equity Summit.

New Hampshire Supreme Court Upholds Benefit Changes

gavel

The New Hampshire Supreme Court has upheld several changes key to the state’s pension reforms passed since 2011.

At issue were the definitions of a cost-of-living adjustment and “earned compensation”.

State lawmakers altered the definitions of those terms as part of pension reforms, and the court has now upheld the new definitions.

The court ruling, coupled with a related ruling by the court last month, has big implications for New Hampshire pensions.

The biggest is that public worker pensions aren’t contractually protected from being altered – regardless of whether that alteration comes from raising employee contributions or outright benefit changes.

More from the Associated Press:

The New Hampshire Supreme Court has upheld some legislative reforms to the state retirement system, a month after upholding key provisions.

The court on Friday upheld changes to the definitions of “earned compensation” and Cost of Living Adjustments. It ruled the changes didn’t retroactively reduce pension benefits earned before a law was passed, and that employees don’t have a contractual guarantee that the terms of the plans will never change.

The ruling addressed a lawsuit by the American Federation of Teachers.

State Sen. Jeb Bradley of Wolfeboro said the decision clarifies the Legislature may adjust future pension benefits to safeguard the system.

The New Hampshire Retirement Security Coalition made up of teachers, police and firefighters, said it “unfortunately allows public employers to renege on their promise of security in retirement.”

The state Supreme Court ruled last month that employee contributions to the pension system can legally be increased, even for vested workers.

 

Photo by Joe Gratz via Flickr CC License

Video: State and Local Pension Reform – Can We Cut Costs and Improve Retirement Security?

This panel discussion, held by the Urban Institute, talks about pension reform at the state and local level. What do they mean for retirement security? And is there a way to cut costs for government without jeopardizing retirement security?

Panelists include researchers from the Brookings Institution, the Center for Retirement Research and the Urban Institute.

 

Cover photo by Matthias Ripp via Flickr CC License

Do Pension Plans Give Retirees a False Sense of Retirement Security?

broken piggy bank over pile of one dollar bills

At one time, pensions were seen as the safest, most secure stream of retirement income. But the security of pension benefits is no longer rock-solid. That raises the question: do pensions give retirees a false sense of retirement security?

Economist Allison Schrager explores the idea:

Until recently, a pension benefit seemed as good as money in the bank. Companies or governments set aside money for employees’ retirements; the sponsors were on the hook for funding the promised benefits appropriately. In recent years, it has become clear that most pension plans are falling short, but accrued benefits normally aren’t cut unless the plan, or employer, is on the verge of bankruptcy—high-profile examples include airline and steel companies. Public pension benefits appear even safer, because they are guaranteed by state constitutions.

By comparison, 401(k) and other defined contribution plans seem much less reliable. They require employees to decide, individually, to set aside money for retirement and to invest it appropriately over the course of 30 or so years. Research suggests that people are remarkably bad at both: About 20 percent of eligible employees don’t participate in their 401(k) plan. Those who do save too little, and many choose investments that underperform the market, charge high investment fees, or both.

It turns out that pension plan sponsors, and the politicians who oversee them, are just as fallible as workaday employees. We all prefer to spend more today and deal with the future when it comes. Pension plans have done this for years by promising generous benefits without a clear plan to pay for them. When pressed, they may simply raise their performance expectations or choose more risky investments in search of higher returns. Neither is a legitimate solution. In theory, regulators should keep pension plan sponsors in check. In practice, the rules regulators must enforce tend to indulge, or even encourage, risky behavior.

Because pension plans seem so dependable, workers do in fact depend on them and save less outside their plans. According to the 2013 Survey of Consumer Finances, people between ages 55 and 65 with pensions have, on average, $60,000 in financial assets. Households with other kinds of retirement savings accounts have $160,000. It’s true that defined benefit pensions are worth more than the difference, but not if the benefit is cut.

As the new legislation makes clear, pension plans can kick the can down the road for only so long. Defined contribution plans have their problems, but a tremendous effort has been made to educate workers about the importance of participating. (Even if the education campaign has been the product of asset managers who make money when more people participate, it’s still valuable.) Almost half of 401(k) plans now automatically enroll employees, which has increased participation and encouraged investment in low-cost index funds. And now it looks like a generous 401(k) plan with sensible, low-cost investment options may turn out to be less risky than a poorly managed pension plan, not least of all because workers know exactly what the risks are.

Read the entire column here.

 

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

CalPERS Hires Lobbying Firms to Represent Interests Before Congress

building

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

NYC Comptroller Explains Boardroom Accountability Project in Open Letter

boardroom chair

New York City Comptroller Scott Stringer is pushing corporations to give their biggest investors – often pension funds – more power over corporate boardrooms.

Stringer says pension funds can use their leverage as large shareholders to rein in excessive executive compensation and make corporate boards more diverse.

From a piece written by Stringer in Wednesday’s Daily News:

In partnership with the city’s pension funds, recently launched the Boardroom Accountability Project, a national initiative designed to improve the long-term performance of American companies by giving shareowners the right to nominate directors using the corporate ballot — also known as proxy access.

Proxy access promises to transform corporate elections from rubber-stamp affairs, where one slate of candidates is listed on an official ballot determined entirely by current officeholders, to true tests of merit and independence.

Bringing accountability to the boardroom will have real benefits for the retirement security of millions of Americans, including the 700,000 municipal workers , retirees and their beneficiaries who rely on city pension funds.

A recent report by the CFA Institute, the world’s largest association of investment professionals, concluded that on a marketwide basis, bringing more democracy to the boardroom could increase U.S. market capitalization by up to $140 billion.

We have focused our initial list of 75 companies being targeted around three core issues: those with excessive CEO pay, those with little or no gender or racial diversity on their board, and many of our most carbon-intensive energy companies. They include Urban Outfitters, ExxonMobil, Abercrombie & Fitch and Netflix.

Excessive CEO pay is a problem in itself and can create perverse incentives for management to focus on short-term profits at the expense of long-term value creation. It is also often a sign of a captive board that puts the interests of management ahead of the interests of shareholders.

And while most agree that more diverse boards make better decisions, the pace of change is glacial. In 2006, women made up 11% of S&P 1500 board seats. By last year, that number had barely budged (to 15%), and also as of last year, 56% of S&P 100 companies had no women or minority-group members in their highest-paid senior executive positions.

That’s bad for business, investors and our economy, and we will use our leverage to change it.

Lastly, we know that transitioning the world’s energy production to low-carbon sources is essential if we are to stem the most extreme effects of climate change. But the CEOs of the world’s major energy companies have little incentive to make investments that may reduce earnings today to protect their companies’ long-term prosperity.

In corporate America, the buck stops with the board. As a result, the right of shareowners to nominate and elect truly independent directors that reflect a diversity of viewpoints is critical to ensuring that the interests of long-term shareowners triumph over the pressure for short-term gains that all too often drives decisions at our largest corporations.

Read the whole piece here.