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  #1101  
Old 08-08-2017, 06:04 PM
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HARVEY, ILLINOIS

http://cookcountyrecord.com/stories/...nsions#new_tab

Quote:
Appeals court: Pension fund has right to $11M, potential tax hike from Harvey for underpaying pensions

While leaving it to the elected leaders of the city of Harvey to figure how much tax to levy to get the money they need from property tax payers, a state appeals court panel has ruled the south suburban city’s pension fund is on the brink of default, and, thus, the pension board for the city’s firefighters has a valid claim under state law to force the city to cough up nearly $11 million in unpaid and underpaid pension fund contributions.


On Aug. 4, a three justice panel of the Illinois First District Appellate Court in Chicago determined the city’s mayor and council for years had improperly “abused” their “discretionary powers” under state law to fund the city’s firefighter pension fund, leaving the fund on the brink of default and bankruptcy.

This, the appeals justices said, meant a Cook County judge had been correct in determining past Illinois legal precedents, which had generally found courts can’t order cities or other governments to pay certain amounts to fund public worker pensions, don’t apply in Harvey’s case, and the judge was within her rights to order the city to pay the amount it had allegedly underfunded – regardless of the city’s claims it had not been able to do so.

.....
The case had landed in Cook County court in 2010, when the Board of Trustees of the City of Harvey Firefighters’ Pension Fund first filed suit against the city of Harvey, alleging chronic underfunding of the pension fund, which managed pension money for 67 retired firefighters, had left the fund teetering on the verge of insolvency.

Court documents indicated actuaries had indicated the city had “ ‘deprived the Pension Fund of $8 million in actual contributions and another $2 million in actual investment gains on those contributions’ because Harvey failed to make proper contributions to the Pension Fund from 2005 to 2013.” By 2013, this had depleted the pension fund’s assets to just about $11 million, a deficiency of about $23 million compared to the amount actuaries believed was needed.

In her special concurring opinion, Lampkin noted in 2014, the pension fund “paid approximately $157,000 a month to the beneficiaries” while the city’s 47 active firefighters contributed “only $25,000 a month” to the fund.

“The contributions of the active firefighters were being used to pay the current beneficiaries instead of being invested for the active firefighters’ future pension benefits,” Lampkin wrote.

“This is not merely a matter of an underfunded pension plan,” Lampkin added. “The severe fund deficiency and alarming rate of asset depletion, and Harvey’s demonstrated inability to collect on its tax levies to support its obligations establish that the Pension Fund’s ability to pay the beneficiaries will be extinguished in the near future.”

After years of arguments in the trial court, then-Cook County Circuit Judge Mary Mikva, who now also serves as a justice on the state’s First District Appellate Court, determined the county’s failure to pay violated the Illinois Pension Code, and the city was obligated to pay the pension fund nearly $11 million in damages.

.....
The justices also cast aside the city’s attempt to argue it could not make the “required actuarial” payments to its firefighters pension fund because it did not collect enough in taxes to do so. The justices said, rather, the failure to pay into the pension fund came because the city chose to make up for the shortfall in taxes by paying other obligations at the expense of the pension fund. Essentially, the justices said, the city doesn’t have the discretion under state law to short the pension funds exclusively, but can only decrease payments to those funds proportionately to all others.
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Old 08-09-2017, 01:08 PM
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MICHIGAN

http://www.michigancapitolconfidenti...-force-to-task

Quote:

Taking the Pension Task Force to Task

Governments should stop generating new pension debt

There is a well-established pension funding principle that was missing from the recently published report of the Responsible Retirement Reform for Local Government Task Force. The principle is that governments should pay for the promises they make to employees as they make them. This means that governments should set aside enough money each year to cover the full costs of the pension benefits earned by their employees that year. This prevents pension debt from growing out of control.

Yet this remains the fundamental challenge for financing pension systems. To keep them from becoming a burden on future taxpayers, pension managers need to accurately estimate their costs. This requires assumptions about what is going to happen in the future. If pension managers use overly optimistic assumptions, governments will not set aside enough money to pay for those promises.

The task force’s report focuses on the pension debt that Michigan local governments have already developed. There is a lot of it. The report lists $7.5 billion in pension debt liability and another $10.1 billion represented by current retiree health care policies.

Task force members did not make recommendations for how to pay down these obligations, but there are only a handful of options. Local governments can look for savings in their operations and put that extra money into the retirement system. They can cut retiree health care benefits. They can raise taxes and put that money into their retirement system. Or they can ask for more money from state taxpayers.

Instead, the report recommends that the state set up an entity to monitor local government pension systems and provide recommendations and technical assistance to help local governments. Local governments would report information on their pension systems to a new board, which would identify funding problems, provide oversight and create a plan for local governments to address these issues. Task force members were not unified in whether the new board should have the power to mandate changes to local government finances.

This seems to just be a different application of the state’s current insolvency-prevention policies. Local governments are required to balance their budgets and submit “deficit elimination plans” if they overspend. The state already monitors and assists local governments when possible. And if problems continue, the state has processes in place to get more involved. Though the emphasis is different, a lot of what the task force is proposing is already policy.
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Old 08-09-2017, 01:12 PM
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http://californiapolicycenter.org/ol...ension-crisis/

Quote:
Same old story as Loyalton’s woes echo growing pension crisis
By Steven Greenhut
August 8, 2017

Sacramento

The tiny Sierra Nevada mountain town of Loyalton, Calif.—population: 862—has become the poster child for cities that want to check out of the California Public Employee’s Retirement System, but can’t swallow the insurmountable cost of leaving. Loyalton’s oft-repeated tale appeared again this week, on Sunday in the Los Angeles Times.

All the familiar characters are there, in the Times story. There’s CalPERS demanding far more money than the city spends on its entire annual budget. There are cash-strapped city officials struggling to make ends meet (even though their spending priorities were criticized by a 2014 grand-jury report). And there are retirees looking to get by on 40 percent of their promised pensions.

The only thing missing is a solution.

Sen. John Moorlach, R-Costa Mesa, has proposed a serious solution in the state Capitol, but the legislation has a ballpark-zero chance of passage given the power of union-allied Democrats. His Senate Bill 681 would allow an agency to “terminate its contract with CalPERS in a manner that does not result in excessive costs or penalties” while ensuring that the agency is responsible for the full costs of its employees without shifting them onto other CalPERS participants.

Though it would seem fair – and would better protect promised benefits in Loyalton and other agencies facing a similar situation – the measure is opposed by several unions. They know that once an agency has exited the system, CalPERS cannot collect anything from it in the future. That’s why CalPERS’ current approach reminds Moorlach of the lyrics from the Eagles’ song, Hotel California: “You can check out any time you like, but you can never leave.”

.....
Certainly, contracts need to be honored, but there’s something seedy about the way the system is designed. During a recent legislative hearing, Moorlach focused on the most relevant point: “When you want to exit, they use a whole different discount rate … It could be like 2 percent.” That’s a shocking revelation, although it needs some explanation.

The predicted rate of return on CalPERS’ investments determines the size of the system’s unfunded liabilities – i.e., the shortfalls to meet promises made to California public employees. CalPERS expects to earn 7 percent (recently lowered from 7.5 percent) on those investments. The higher the predicted return, the better the financial shape of the system.

Public employees are promised a pension based on a formula (the number of years worked multiplied by a percentage of the final years’ salary) and taxpayers are responsible for any shortfalls. So the pension fund, and the unions and politicians, have a vested interest in keeping the earnings assumptions as high as possible to downplay any predicted shortfalls.

Moorlach revealed a dirty little secret. The agency is bullish about the stock market when the public’s money is at risk, figuring that 7 percent is a fair rate to expect. But when cities want to exit the fund, CalPERS becomes shockingly conservative, given that its own money is on the line. It then assumes a miniscule rate of return. CalPERS assesses those high termination fees to make up the difference between its overall fund and the special fund for terminated agencies, which can no longer depend on taxpayers to make up for future downturns.
.....
Ironically, CalPERS’ defenders criticized a 2011 Stanford study that projected a 4.1 percent rate of return as realistic, yet the fund’s handling of the Loyalton exit is a tacit acknowledgment that the system’s expected returns are unrealistically high and that pension debts are far larger than the state will acknowledge.

Meanwhile, CalPERS maintains big surpluses in the special fund for those agencies that terminated their accounts — $111 million, according to the Times. CalPERS apparently has thrown a handful of low-earning, small-town public employees under the bus to make an example for other agencies and protect the inordinately high earnings of many public employees, especially those in the public-safety and management professions.
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  #1104  
Old 08-13-2017, 05:22 PM
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CALPERS
CALIFORNIA

https://www.nakedcapitalism.com/2017...0-pay-cut.html

Quote:
CalPERS CIO Ted Eliopoulos Handing Off Most of His Job Duties. So Why Isn’t He Taking a $500,000 Pay Cut?
Posted on August 13, 2017 by Yves Smith
A bit of CalPERS Kremlinology: when a staff member is tasked to present a policy change devised by someone else, it’s a sign mischief is afoot.1

The example set to take place this Monday at the Investment Committee meeting is that Eric Baggesen, who is in charge of Trust Level Portfolio Management (aka risk and strategy), is going to walk through a slideshow that presents a major organizational change for the Investment Office. Needless to say, Baggesen didn’t devise or recommend these moves. They were almost certainly cooked up by Chief Investment Officer, Ted Eliopoulos, Baggesen’s boss, probably with input from Wylie Tollette, the Chief Operating Investment Officer and the most influential staff member reporting to Eliopoulos.

Here’s the astonishing part: Eliopoulos, as told by his human shield Baggesen, has dumped his most important job responsibilities on Baggesen. Baggesen appears to be getting only an upgrade in his title from “Senior Investment Officer” to “Managing Investment Director” for all the added responsibility and related stress.2 Nor is Eliopoulos proposing what ought to be happening, a change in his title to reflect the abdication of most of his duties, along with a pay cut, and a corresponding pay increase to Baggesen.

Eliopoulos no doubt assumes he can get away with this because he has the board eating out of his hand. After all, the board has already made clear they will allow him to shirk the duties that go with his role and his $700,000+ compensation, so this is just another step in that direction.

For instance, in June, Elipoulos made an aggrieved speech to the board in which he claimed that he was unable to keep staff focused on doing their jobs because CalPERS was getting so much unfavorable press. As North Carolina’s former CIO, Andrew Silton, pointed out:
Quote:
As the leader of North Carolina’s investment effort, it was my job to ensure that the attacks didn’t distract staff. We simply continued to invest. Mr. Eliopolis’s statement to the investment committee only serves to reinforce my critique of CalPERS. The pension plan has a leadership problem.
Appallingly, instead of telling Eliopoulos that if he couldn’t handle critical press stories and keep his team focused on their duties, maybe he needed to look for a new job, the board gave Eliopoulos an extended round of applause.

Another sign of how well-established the Cult of Ted is at the board is that it awarded him a $135,000 gift last year in the form of bonus clearly in excess of what his bonus plan permitted. 70% of his bonus is based on investment performance. In CalPERS’ 2015-2016 fiscal year, the giant pension fund earned a mere 0.61%, which was clearly below the level needed for Eliopoulos to get any bonus for the investment-related part of his bonus calculation. Yet the board paid him as if he’d met the performance target when he hadn’t.

.....
How Eliopoulos Ditched Most of His Responsibilities

In this presentation scheduled for Monday’s board meeting, page 23 shows the organization chart of the Investment Office. You can see it’s substantively the same as that portion of the CalPERS Enterprise Organization chart, so there is no change in formal reporting relationships. But page 23 (and page 22) focus the discussion on “Trust Level Portfolio Management,” the activity Baggesen runs.

The big switcheroo comes at the very end, the last page of the presentation, after several soporific slides of organizational apple pie and motherhood:


One board trustee’s terse reaction to this page: “What does the CIO do?”

A longer-form take from another expert:

Quote:
Eliopoulos seems to be explicitly embracing a role for himself as purely the administrative manager of the investment office, while giving away the functional role of Chief Investment Officer to the new position of Trust Level Portfolio Management Managing Investment Director (Eric Baggesen). This new role has all of the investment decision-making delegated authority. Surely, Eliopoulos must recognize that he is leaving himself as a minister-without-portfolio and jeopardizing his job over the long-term. Perhaps one could view this positively, that he knows that he is not competent in this area and is not comfortable making risky decisions without the requisite skills.

The wee problem with that generous interpretation is that if Eliopoulos recognizes that he is over his head and has decided he needs to offload the substance of his job to Baggesen, why in God’s name did he seek far more power by asking for and getting for $2 billion of delegated investment authority well over a year ago?

Moreover, by effectively giving up the CIO role, save the public relations and personnel duties, Eliopoulos has confirmed that JJ Jelincic was correct when he said Eliopoulos was unqualified for the job, which should hardly be a controversial statement. Eliopoulos is a lawyer by training, and wound up in his post by virtue of having been a protege of former state Treasurer Phil Angelides. He has no finance training, no CPA, CFA, or even a mere MBA. Nor does he have meaningful on-the-ground experience to compensate for a lack of relevant education. Yet Jelincic was censured for stating the obvious.

......
Eric Baggesen Is On His Way to Becoming a CIO….Somewhere Else

Eliopoulos has set Baggesen up with the perfect CalPERS exit strategy. Having all the taxing parts of the CIO job without the pay and the title makes for a great reason for leaving CalPERS and becoming the CIO at another public pension fund or making the leap to a better paid private sector fund management job. Alert headhunters are almost certain to start calling Baggesen nine months from now, if not sooner. Unless Baggesen is very attached to living in Sacramento, the odds favor him being at another institutional investor within 24 months.

......
The final question is where CEO Marcie Frost sits in this picture. Even though the CalPERS board is remarkably passive, that does not mean, as you would assume in a public company, that the CEO has filled the power vacuum. A CEO in a public pension fund has informal constraint on their authority and it takes time to weaken them. For instance, shortly after she took the helm at CalPERS, Frost tried bringing in her chief actuary from her former public pension fund, the State of Washington. She did not appear to appreciate that the chief actuary job at CalPERS is the second most difficult in the US by virtue of CalPERS managing 2200 pension funds. It is exceeded only by the chief actuary for the Social Security Administration. Her candidate was not up to the task. But the way she found out was via a staff revolt, something that would be inconceivable in a public company.

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  #1105  
Old 08-16-2017, 06:11 PM
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ILLINOIS
IMRF

http://www.dailyherald.com/news/2017...p-his-pensions

Quote:
Why parks director with four jobs gets to keep his pensions

A parks executive holding jobs in four suburban districts is eligible to continue participating in a statewide taxpayer-funded pension program, an investigation has determined.

Illinois Municipal Retirement Fund administrators allowed Joe Vallez to remain in the pension plan after three of the park districts submitted affidavits from board members attesting Vallez meets the minimum work requirement of 1,000 hours annually per job to participate in IMRF. The North Berwyn, Marengo and Justice park board also ratified resolutions codifying Vallez's workload, another requirement of IMRF.

Each district claimed Vallez works more than 1,000 hours a year. However, North Berwyn officials stated his contract requires 40-hour work weeks, or about 2,000 hours a year. That means Vallez is required to work, among all the jobs, about 4,000 hours a year, or an 11-hour workday every day of the year.

IMRF Executive Director Louis Kosiba was unmoved by the evidence provided by the park districts to prove Vallez's workload, writing that "little could be concluded from much of the information." Nonetheless, Kosiba cited the board members' "significant" willingness to legally attest to Vallez's eligibility as his reason to allow Vallez to continue participating in the pension program.

"As prudent public officials, the park board members who passed these resolutions were clearly aware of the extensive liability to their districts resulting from their actions as well as the serious criminal charges that can result from knowingly making a false statement to a pension fund," Kosiba wrote in letters sent to each district.

If it had been determined Vallez was working less than 1,000 hours at any of the jobs, that portion of his salaries would not count toward his future pension.

Vallez's current annual salaries from the three park districts amount to $178,691, according to IMRF records. North Berwyn pays $109,478, Justice pays $36,919, and Marengo pays $32,294. That's down from the combined $244,714 he received from the districts in 2015.

The pay decrease will have little effect on his eventual pension because IMRF calculates pension rates on a participant's highest-paid 48 consecutive months during the final decade of employment. Vallez, who turns 57 this month, can start collecting his pension in three years without any penalties.

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Old 08-16-2017, 06:25 PM
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https://www.forbes.com/sites/investo.../#1f0edaf236c4

Quote:
Pension Trustees Must Stop Pretending They Know How To Choose Money Managers
GUEST POST WRITTEN BY

Marc Levine
Marc Levine is the chairman of the Illinois State Board of Investment overseeing $16 billion for state employees, judges and lawmakers.


As our nation’s pension tanker veers toward an iceberg, all hands had better be on deck. That includes the trustees overseeing investment decisions for $3.5 trillion in public pension assets. As a start, trustees can stop pretending they know how to choose money managers.

For this reason, the board that oversees the Illinois State Board of Investment (ISBI) pension fund has moved to indexing about 70% of its $21 billion in assets. We have increased expected returns, lowered costs and simplified our portfolio.

What about the other 30 percent? As ISBI’s chairman, I’ve stood at the forefront of the “active vs. passive” investment debate. While I have been vocal about the benefits of indexing, I know private market assets (such as real estate and private equity) can’t be indexed, and some public market managers have added value. We want access to them.


Nationwide, public pensions still have about 60% of their assets with active managers. Whatever the percentage, we all share a problem - public pension funds bring unwelcome baggage to the selection of active managers.

The government procurement process starts with a “request for proposal” straight out of central planning, instantly weeding out top performers that don’t need the money and won’t waste their time. Next, consultants and staff bury trustees with hundreds of pages of mostly incomprehensible “due diligence”. Managers then parade into the boardroom and are given thirty minutes to make their pitch. One after another, they are evaluated without any regard for the materiality of their impact on the portfolio.

Look around the table. Most trustees are not there for investment expertise. Instead, boards are stocked with public officeholders, campaign donors and union folks, all highly attuned to the political consequences of their votes.

.....
Last month ISBI’s board stopped pretending we were smart enough to compensate for a flawed process. We voted unanimously to outsource the selection of active managers in both private and public markets to a handful of specialized investment firms.

These strategic partners take responsibility for sourcing managers across the world, performing due diligence, comparing them to their peers, constructing a portfolio, and monitoring the results. They have the resources that we don’t.

Outsourcing manager selection is an evolution of three widely used models - consulting, outsourced CIO services, and fund of funds. Several large pension plans, including Teachers Retirement System of Texas and the New York State Common Retirement Fund have taken steps down this path. At ISBI we are going all in by outsourcing the selection of all active management.

Our board will no longer focus on any individual manager’s performance. Instead, we will assess our active portfolio vs. our indexed portfolio. An “active” dollar is expected to beat an indexed dollar decisively. We now hold just a few firms accountable for this, not a hundred.

The downside of outsourcing active manager selection? For some, it takes away the fun of being on a board. Fewer chances to meet celebrity investors; fewer invitations to posh conferences; limited opportunities to reward personal, business and political allies.


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Old 08-16-2017, 06:28 PM
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PALO ALTO, CALIFORNIA
CALPERS

https://www.paloaltoonline.com/news/...rowing-problem

Quote:
Pension contract tackles city's growing problem
City's agreement with CalPERS would require employees to contribute part of city's share

by Gennady Sheyner / Palo Alto Weekly



How do you solve a problem so vast that it's practically immeasurable?

That's the question the Palo Alto City Council continues to struggle with when it comes to the city's pension liabilities, a fluctuating burden that by most estimates ranges somewhere between $300 million and $800 million. During budget discussions in May, members of the City Council characterized it as the city's most massive budget issue, with Greg Tanaka saying the total owed to future retirees "dwarfs everything else by a lot."

The current city budget pegs the pension liability to be at about $330.1 million, though many expect it to rise steeply in the coming years. The California Public Employees' Retirement System, the massive public fund that manages the city's pension and health benefits, has recently decreased the expected rate of return from its investment portfolio from 7.5 percent to 7 percent, a change that will be phased in over three years starting in fiscal year 2019 and that will further accelerate the city's already rising pension costs.

To brace for the looming pension storm, the council has been pursuing two strategies: having employees pick up a greater share of pension contributions and creating what's known as an IRS Section 115 Pension Trust Fund to offset major fluctuations down the road.

On Monday, the council will address the former when it amends its contract with CalPERS. The new agreement calls for all bargaining units in the public-safety departments (which includes the Palo Alto Police Officers Association, the Palo Alto Police Managers Association, the International Association of Fire Fighters and the Palo Alto Fire Chiefs Association) to pick up 3 percent of the employer pension contribution as of fiscal year 2018.

For the roughly 600 workers represented by the Service Employees International Union, Local 521, the share of employer contribution they would have to pay would start retroactively at 0.5 percent as of Dec. 1, 2016, and then increase to 1 percent as of Dec. 1, 2017. The "management and professionals group" of about 200 employees is expected to adopt a similar arrangement after the SEIU deal is approved by CalPERS this fall.

The approach is a reversal from Palo Alto's traditional practice in which the city covered both its own and employees' CalPERS contributions. The burden began to slowly shift during the 2009 economic downturn, when a shrinking budget and growing expenses prompted the council to pursue new agreements with its labor groups so that employees would pay their own share of the costs and, ultimately, a small portion of the city's. The contracts included tiered pension plans, with new and recently hired employees belonging to a tier with less generous benefits.

In June, the council approved a budget that calls increases to employee contributions "an important tool to help the City contain pension costs." But even so, no one expects the Monday action to change the underlying problem. Collectively, the higher employee contributions are expected to lower the city's annual pension costs by about $1 million (from about $24.6 million to $23.6 million) -- hardly a panacea for a problem that continues to grow thanks to CalPERS' revisions.

For the council, shrinking the pension liability is among the most pressing and challenging priorities. And for Councilman Eric Filseth, chair of the council's Finance Committee, it is a problem that is gradually becoming less abstract and more tangible, with real impact to residents.

Just before the council adopted its budget on June 27, Filseth observed that the city's public pension and health liabilities are both growing much faster than revenues. The budget included an additional contribution to the Section 115 fund, raising its balance to $3.5 million.
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Old 08-16-2017, 06:31 PM
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SPRINGFIELD, MASSACHUSETTS
CRIMINAL OFFICIALS

http://www.masslive.com/news/index.s...ce_detect.html

Quote:
City considers Springfield Police Detective Kevin Burnham's pension in wake of apparent suicide after criminal indictment

SPRINGFIELD -- The city's five-member retirement board is set to vote Wednesday on a proposal to settle the pension distribution of late police Detective Kevin Burnham, who died of an apparent suicide June 5 -- the day he was scheduled to plead guilty to larceny charges.

Burnham was indicted in Hampden Superior Court in early 2016 in connection with siphoning nearly $400,000 over five years from the narcotics evidence room before his retirement in 2014. On the afternoon he was to plead guilty before Judge John Agostini, he did not show up for the hearing, and the judge issued a warrant for his arrest.

However, when police arrived at his Wilbraham home around 3 p.m. that day, they made the tragic discovery.

Burnham is survived by his wife.

While he was at risk under state law of losing his $47,745 annual pension if he was convicted of a felony -- particularly a job-related crime -- the state attorney general's office was forced to dismiss the case against him upon his death. Burnham had been a police officer for 43 years when he retired with Badge No. 1.
....
The agenda item for the retirement board's Aug. 9 meeting reads: "Kevin Burnham - consideration and vote on parties' agreement."

The proposal is not yet publicly available, but Susana Baltazar, executive director of the city board, said board Chairman Thomas Scanlon, a detective with the Springfield Police Department, may make a public statement after the vote.

Pikula also said the city hopes to issue public documents after the vote. The meeting is scheduled to begin at 5 p.m., but there are more than a dozen items on the agenda and the Burnham matter is listed as second-to-last.

Reached for comment on Monday, Scanlon said he had not yet seen the finalized agreement between the city and the Burnham estate but said it includes a restitution component.



http://wwlp.com/2017/08/09/family-of...ining-pension/

Quote:
Family of ex-Springfield Police officer will not receive his remaining pension
Burnham was accused of stealing nearly $400,000 dollars from a Police evidence room

SPRINGFIELD, Mass. (WWLP) – The family of a late retired Springfield Police officer will not receive any of his remaining pension after an agreement with the city.

Under the agreement, the Springfield retirement board will pay the city of Springfield the remainder of Kevin Burnham’s pension; roughly $74,000

Burnham was accused of stealing nearly $400,000 from the Police evidence room, but he died of an apparent suicide before his case went to trial.

The city wanted to seek restitution in the case, but because Burnham was never convicted, the city would have had to hold a “misappropriation of funds” hearing, and prove their case in order to recoup any money. By settling, the city and Burnham’s family avoid further litigation.

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Old 08-16-2017, 06:32 PM
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SAN FRANCISCO, CALIFORNIA
DIVESTMENT

http://www.sfchronicle.com/opinion/o...l-11743298.php

Quote:
SF pension board must divest from fossil fuel investments
by Tom Steyer

President Trump’s abandonment of America’s global role on climate change means cities and states must lead the way. San Francisco can claim the mantle of leadership and set an example for the world by divesting its pension funds from fossil fuels.

Wednesday, the San Francisco Employees’ Retirement System’s pension board will decide the issue. As someone who spent 30 years in the investment world, I believe the choice is clear: Divestment is the right thing to do, and it’s financially smart. I speak from experience as someone who decided to divest almost five years ago. It feels right and it pays well.

Divestment is primarily a moral obligation. Burning fossil fuels causes global warming, which threatens the health, safety and prosperity of every American. With global temperatures rising dangerously toward a point of no return, the urgency of moral action is clear. This is poignant in San Francisco, where the sea level is expected to rise several feet by 2100, swamping entire sections of the city. No amount of financial gain from a stock could ever justify such destruction.

Fortunately, we have the technology we need to address climate change: clean energy. Clean energy sources such as wind and solar reduce harmful emissions that cause global warming. These clean energy sources boost the economy and create millions of good-paying jobs. When used to power electric vehicles, they also eliminate soot and smog-forming pollution from cars, buses and trucks.

The greatest challenge of our lifetimes — global warming — is also one of our greatest economic opportunities. That’s why fossil fuel stocks are a bad bet, and why the San Francisco pension board has a fiduciary responsibility to divest from them. Coal, oil and natural gas are industries in decline. They are shrinking because their products are quickly being rendered obsolete by superior technology. With wind and solar becoming cheaper every year, the trend will only continue. California is taking steps toward 100 percent renewable energy, and energy storage costs have fallen 73 percent since 2010 and are expected to drop another 75 percent by 2030.

The pension board is under pressure from the fossil fuel lobby to stick with their polluting products, but board members should heed reality: Divestment is the only fiscally responsible decision. Otherwise, the board is tying the fates of public employees in the most progressive city in the world to the fate of a dying dirty fuel industry whose harmful product will wreak destruction on our shores. This would cost San Francisco employees a lot of money in the long run.

A 2015 study by the financial firm MSCI found that investors who dumped dirty fuel stocks “earned an average return of 1.2 percent more” over a five-year period than investors who kept them. That’s why institutional investors like universities, churches and government entities are divesting from dirty fuels and investing in clean energy.

Let’s hope the San Francisco pension board has the wisdom and the courage to make the right call. A vote for divestment is a vote for a better, brighter future.


San Franciscan Tom Steyer spent 30 years as a professional investor and is the president of NexGen America.


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Old 08-16-2017, 06:34 PM
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DIVESTMENT

http://www.vcstar.com/story/news/201...oal/550686001/

Quote:
California pension fund divests from coal

Coal stocks are on the rebound, but California’s main public pension fund won’t see investment gains from that industry.

The California Public Employees’ Retirement System is almost entirely out of coal, according to a report it released Monday on its compliance with a 2015 law that compelled it and the California State Teachers’ Retirement System to divest from coal by July 1, 2017.

Coal stocks were a drag on CalPERS when the Legislature passed its divestment law.

According to CalPERS’ 2016 investment report, the pension fund’s coal stocks were worth about 10 to 50 percent of what it paid for them.

The worst performer at the time was Peabody Energy.

CalPERS owned about 46,000 shares in the company a year ago that were worth about $63,000. CalPERS had paid $13.5 million for those shares.

On Monday, Peabody stocks were trading about $30 a share. That’s well below their peak value, but about 15 times their value when the company declared bankruptcy in April 2016.

CalPERS does not disclose when it sells stocks. Megan White, a CalPERS spokeswoman, said the pension fund had some Peabody stock this calendar year and it has since sold its stake in the coal company.

Democratic lawmakers who voted for the coal divestment bill characterized it as a stand against fossil companies whose industries contribute to global warming as a well as a smart move for the pension fund because of the plummeting value of those stocks.

.....

CalPERS has a portfolio worth about $323 billion. It earned 11.2 percent investment return over the past year, but is considered underfunded because its assets are worth about 68 percent of what the pension owes to its members.

This year, it has opposed bills that would have compelled it to divest from companies in Turkey, and those that build the controversial Dakota Access Pipeline or work on the Trump administration’s proposed border wall.

CalPERS kept a stake in three coal companies that persuaded the pension fund that they were moving into different kinds of energy production. Each of the three companies – Adaro of Indonesia, Banpu Public Company of Thailand and Exxaro Resources of South Africa wrote to CalPERS and outlined new investments in renewable energy, which met a requirement in the state law that allowed the pension fund to continue investing in them. CalPERS’ stake in those companies is worth $11.2 million.

http://reason.com/blog/2017/08/08/fo...s-california-p

Quote:
Forced Coal Divestment Robs California Pension Fund of Revenue
Millions lost when political influence overrules financial acumen.
Scott Shackford|Aug. 8, 2017 1:20 pm

Thank political ideology for California's public employee pensions missing out on a chance to improve stock performances and make up for part of a huge problem with the chronic underfunding that puts taxpayers on the hook for billions in liabilities.

In 2015, lawmakers passed a bill subsequently signed by Gov. Jerry Brown forcing the California Public Employees' Retirement System (CalPERS) to divest all of its coal investments by July 2017. And they have, for the most part.

The decision was pushed by Democratic environment-minded lawmakers wanting to "take a stand" against fossil fuel companies and against climate change, as the Sacramento Bee notes. While the move was clearly political, there wasn't much outrage because at the time it wasn't really a bad business decision. Coal companies were not performing well and CalPERS' own investment report for last year determined that their coal investments were worth less than half what they paid for them.

The performance of the coal industry, however, was also political, burdened as it was by executive orders for heavy regulation put into place by President Barack Obama.

.....
In 2013 CalPERS sold off its investments in gun companies and has made many other divestment choices entirely based on what lawmakers and the politically influential see as socially responsible without any sort of consideration of the financial consequences.

If it were a private retirement fund, who would object? There are many funds out there folks invest in that revolve around trying to make socially responsible investments and still hammer out positive returns.

But this is a public employee pension fund, and returns are guaranteed. California taxpayers end up paying the difference when divestment leads to financial loss. Lawmakers and political activists risk the citizens' money in order to make statements like this. And California cities have suffered tremendously due to growing pension obligations, having to cut back on services, lay off employees and even file for bankruptcy.

To its credit, CalPERS warns against these sorts of divestments, with good reason. It is not actually "responsible" to threaten the financial stability of the pension fund to make a political statement. But, as with every other poor financial decision by lawmakers, they know they aren't the ones who have to deal with the consequences.

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