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  #311  
Old 02-18-2019, 09:26 AM
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Mary Pat Campbell
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SOUTH CAROLINA

https://www.postandcourier.com/news/...44cc175d1.html

Quote:
State pension plans that 1 in 9 SC residents rely on are short $25 billion in funding

Spoiler:
The state pension plans that 12 percent of South Carolina residents are counting on gained $1.2 billion in the 2018 financial year, but they need $25.47 billion more to be fully funded.

South Carolina’s pension funds added billions to the bottom line over the past two years but also paid higher fees and produced lower investment returns than most other large public pension funds.

“It’s our job, ultimately, to earn a rate of return that makes our plan work, not to beat our peers,” said Mike Hitchcock, CEO of South Carolina’s Retirement Systems Investment Commission.


Although the state’s main pension fund has just 54 cents for every dollar needed to pay future benefits, retirees aren’t at risk of missing pension checks. The pension system has more than $31 billion invested and gets millions in contributions yearly from workers and the state and local governments that employ them.

The impact of being quite underfunded is that taxpayers, through the governments they finance, are paying increasing amounts of money to shore up the pension system. Those amounts are due to rise for years to come.

“We were able to absorb the increase this year,” said Don Kennedy, the Charleston County School District’s chief financial officer. “Through 2022 we won’t be able to sustain that.”

Contribution rates the district and other branches of government pay are set to rise 1 percentage point each year through at least 2022. That may not sound like a lot, but this year’s increase will cost the school district $2.4 million (in a $507 million operating budget).
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Kennedy said he’ll be recommending tax increases and expense cuts in upcoming budgets.

The Charleston and Berkeley county school districts, University of South Carolina, and Medical University of South Carolina are among the 10 largest contributors to the pension funds. The state government is the largest.

At MUSC, this year’s mandatory increase in pension contributions added up to $7.1 million for the university and hospital system, spokeswoman Heather Woolwine said.

“It’s reasonable to say that we are looking at the entire operating budget for ways to absorb these increases in the employer contribution on both the university and clinical sides of our house,” she said.

The challenge

The ever-growing demand for funding is not because pension benefits are lavish — more than half the 142,652 retirees in the S.C. Retirement System collect monthly benefits of $1,500 or less, and more than a third get no more than $1,000.

The problem is, the pension funds pay out more in retirement benefits each year than they take in from employers and employees. That means the pension fund only grows or and gets closer to being fully funded when investments do well enough to cover the benefit gap, with money left over to invest.

That gap has been shrinking because of mandatory contribution rate increases every year since 2011 and government workers hired in recent years receive less generous pension plans.

“I think we are really starting to see the impact of the pension reform bill,” Hitchcock said. “I don’t think we can overstate the positive impact that bill has had on the fund.”

The S.C. Retirement System has gained billions in assets but at the same time has become less fully funded with each passing year. The plan was nearly 68 percent funded in mid-2009 during the Great Recession; despite investment gains since then, the plan was just 54 percent funded as of June 30.

“It’s among the bottom third of plans,” said Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College. The center curates a database of large public pension plans.

During a lengthy interview, Hitchcock suggested several times that South Carolina should not be judged by the performance of other comparable pension plans.

“When it comes to earning a return that makes the plan work, we’re seeing progress,” he said. “When it comes to beating every other plan out there, that’s not the goal.”

This year, for every $1,000 paid to a school teacher, a school district would contribute $145.60 to the state’s main pension fund, and the teacher would contribute $90. For employees, the mandatory contributions amount to roughly a month’s pay each year. That rate is now capped, but the rate for employers continues to rise.

By 2022, a school district’s contribution rate will be $185.60 per $1,000. Multiply that across a school district’s payroll and every 1 percentage-point increase in the contribution rate can cost millions of dollars — the same cost as giving all those employees a 1 percent raise.

Lagging, not leading

South Carolina’s pension fund has not only seen investment performance that trails its peers but also has continued to pay some of the highest fees for investment expenses and management.

In November, Pew Charitable Trusts published a tool to track public pensions in 50 states. In that ranking, which used fiscal year 2016 data, South Carolina had the second-highest external management fees compared with total investments.

“We have tried to focus on lowering fees,” Hitchcock said. “You also don’t want to do that to the point where it compromises your ability to earn a return.”

The high fees are partly due to earlier decisions to pursue costly alternative investments, such as hedge funds, with the goal of higher investment returns. That began more than a decade ago after South Carolina voters approved a constitutional amendment to allow such investments.

“One thing that is intriguing to me is that the asset shift was so dramatic, and the fee rate is out of this world compared to any other pension plan I see,” said Aubry, the Boston College researcher. “It’s hard to understand why, unless they think most other plans are doing it wrong.”

Aubry looked up the average investment returns for 124 pension funds with fiscal years that end in June, including South Carolina’s. He said that from 2007 through 2017 the S.C. Retirement System ranked 113th, with all but 11 of the other plans seeing higher investment gains.

Broad impact

About 591,000 people are counting on the state’s pension plans for current or future retirement benefits. That’s more than one out of nine South Carolina residents.

Some are current retirees while others are working for the state, local municipalities, school districts and public universities. They include teachers, police officers, judges and university administrators.

One positive reason the pensions appear increasingly underfunded is that the state has adopted more conservative, realistic assumptions about its investments.

Since 2000, the state’s pension plans have failed to meet annual goals for investment performance as often as they’ve met or exceeded them. Despite that, as recently as 2009, South Carolina assumed against all evidence that its pension fund could make an 8 percent return on its investments year after year.

Assuming such a high rate of return makes a pension plan appear better funded. Lowering the assumed rate of return makes a plan appear less fully funded.

In 2012, as part of a pension reform package, South Carolina’s assumed rate of return was dropped to 7.5 percent and a multi-year increase in required contributions began. More recently, the assumption was dropped again, to a 7.25 percent rate.

Both changes made the pensions appear more poorly funded for the long term because the long-term finances depend on investment gains. If the state changed its investment assumption to 6.25 percent yearly gains, the pension system’s underfunded amount would jump by almost $7 billion more, according to RSIC’s financial reports.

Most recently, in the year ending June 2018, South Carolina’s pension funds saw a 7.82 percent gain on investments, after fees, beating the goal.

Looking ahead

The state’s financial year ends June 30. Since then, financial markets have become volatile, with U.S. stocks plunging in December then rebounding sharply in January.

“We didn’t sit on our hands during that time,” said Geoffrey Berg, RSIC’s chief investment officer. “We did make a meaningful — I think it was on the 21st of December — addition to the equities in our portfolio.”

Inevitably, at some point there will be a downturn in financial markets that will once again challenge the pension funds.

“We are doing a number of things in recognition that the risks are rising,” said Berg. “I am not convinced, however, that a recession is imminent.”

Contribution rates for the two largest pension funds are not allowed to decrease unless those plans are at least 85 percent funded. The RSIC remains confident that fully funding the pensions remains possible, but in the short term, there are clouds on the horizon.

“It is inevitable that growth will eventually slow and equity markets pull back,” Frank E. Benham, investment consultant to the S.C. Retirement System Investment Commission said in the RSIC’s annual report, “but the question is when.”
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  #312  
Old 02-18-2019, 09:28 AM
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PENNSYLVANIA

http://www.altoonamirror.com/uncateg...sion-problems/
Quote:
AG: Rising police demand tied to pension problems
DePasquale says municipalities closing services due to costs

Spoiler:
HARRISBURG — State Auditor General Euqene DePasquale drew a link last week between helping struggling municipal pension plans get out of debt and easing demand for state police coverage in additional parts of Pennsylvania.

One reason that municipalities are closing police and fire departments is due to the cost of providing pensions to police officers and firefighters, DePasquale told the House Appropriations Committee.

“They don’t want to have the pension obligation anymore,” he said adding it leads to more requests to the state police to assign troopers to provide coverage.

The state police coverage issue is part of the budget debate in Fiscal Year 2019-20. Gov. Tom Wolf has proposed a sliding per-capita fee scale for municipalities receiving state police coverage that would generate nearly $104 million to pay for state police operations. The per-capita fee would vary depending on the size of the municipality, but officials estimate the average fee could be around $40 per capita, though for the largest municipalities (populations of 20,000 or more) without police forces would face a maximum per capita fee of $166.

At the hearing, DePasquale and Rep. Keith Greiner, R-Lancaster, discussed efforts to revive legislation to tackle municipal pension debt. Greiner was involved in drafting municipal pension legislation last session while DePasquale chaired a gubernatorial task force on municipal pension debt in 2015.

The emphasis of these efforts has been on making Pennsylvania’s 2,600 municipal pension plans, many of which are seriously underfunded, more sustainable.

One provision discussed in previous legislative sessions would put severely distressed municipal pension plans under control of the Pennsylvania Municipal Re*tirement System. The more plans that are under PMRS the better off taxpayers will be, said DePasquale.

Starting in 2016, the auditor general’s office took over the functions of collecting payroll and personnel data from municipal pension plans that is needed to distribute state pension aid and aid to volunteer firefighter companies. A state law en*acted that year abolished the Pennsylvania Employee Re*tirement Commission which had previously collected the data.

DePasquale said his office has implemented an electronic filing system to obtain the data and the pension aid is distributed earlier as a result.

The auditor general is re*questing a $42 million budget, representing a $1 million or 2.5 percent increase, for the next fiscal year.

The department plans to release audits and special reports in the next few months on diverse subjects, including state workforce development programs, PennDOT contracting, the Department of State’s voter registration system, the Pennsylvania Turnpike Commission’s spending on infrastructure, the Pennsyl*vania Game Commission, criminal justice reform and the state’s climate change initiative.

In that regard, Rep. Jesse Topper, R-Bedford, said he’s concerned that DePasquale has veered too often into policy areas. One notable example: DePasquale has been a vocal advocate, and used his office as part of the advocacy, for legalization of recreational marijuana, which he claims could bring hundreds of millions of dollars in new revenue to the state’s coffers if Pennsylvania taxed adult use.

DePasquale said he is making judgment calls on what to tackle. He said his job is not just to point out problems, but also make recommendations on how to fix them.


https://reason.org/commentary/pennsy...-pension-debt/
Quote:
Pennsylvania Commission’s Recommendations For the State’s $60 Billion Pension Debt
"Without full annual funding, none of the following recommendations will be sufficient to ensure the availability of retirement benefits for future generations of public servants."
Spoiler:
The Pennsylvania Public Pension Management and Asset Investment Review Commission recently released its recommendations for the commonwealth’s two largest public pension systems — the Pennsylvania Public School Employees’ Retirement System (PSERS) and the State Employees’ Retirement System (SERS). The funding ratios of the two plans are 56.3 percent and 59.4 percent respectively, which means the pension systems currently hold a little over half of the funding to pay for benefits that have been earned. While policymakers have embraced some major pension reforms in recent years, additional actions could further reduce the risk that the current pension debt of over $60 billion will continue to crowd out other public services.

Among the major savings opportunities highlighted in the report is the cost associated with active management of the pension funds’ investment portfolios. Specifically, the report points out that “…it is estimated that total fees, revenue share and investment expense for PERS in the fiscal year 2016-17 were greater than all employee contributions to the system during the same period.”

So, all that hard-earned money that members are contributing to the system are enough to cover the expenses associated with management of the pension portfolio. On the employers’ side, final contributions, comprised of pension rate and health insurance rate were at 29.2 percent and 32.9 percent of payroll for PSERS and SERS in 2017, skyrocketing from 5.72 percent and 4 percent, respectively, in 2008.

As part of cost-saving measures, the commission recommends to fully index all public market investment in both retirement systems. The rationale behind this is that, in the long term, risk-adjusted index funds outperform actively managed funds. Index funds are cheaper to manage – they do not have fees associated with active fund management, thus reducing the total bill.

Another recommendation targeted at reducing the cost is consolidating the two plans under one office in order to leverage the combined size of the two retirement systems.

Componenst of PSERS Total Employer Contribution Rate FY 2019

Source: Pennsylvania Public Pension Management and Asset Investment Review Commission Report 2018, Figure 4: Components of PSERS Total Employer Contribution Rate, page 35

The report also points out that taxpayers are largely paying for promised benefits from the past that ended up costing more than expected, with 75 percent of the total employer pension contributions going to “past service payments.” These amortization payments are government funds that otherwise could have gone toward improving existing services, salary increases, or other taxpayer priorities.

As one of the top priorities for both retirement systems, the commission mentioned “maintaining full payment of the annual actuarially determined contribution (ADC).” It is critical for the plans’ fiscal health to pay the ADC—which consists of pensions benefits accrued in the current year (normal cost) and an amount to pay the unfunded liability (pension debt)—in full each year. Each time the plan fails to make the full annual payment, the amount of unfunded liability and the interest accrued on that debt grow. PSERS consistently failed to pay the full ADC for a decade (2005 to 2016, see figure below), which was well below the rates paid by other public plans. As the report notes, “Without full annual funding, none of the following recommendations will be sufficient to ensure the availability of retirement benefits for future generations of public servants.”

Average % of Annual Required Contribution (ARC)/Actuarially Determined Contribution (ADC) ReceivedSource: Pennsylvania Public Pension Management and Asset Investment Review Commission Report 2018; Figure 2, page 33

The commission also recommends improving the plans’ transparency, as it pertains to the disclosure of data, analysis, and processes. Transparency is important for public pension plans since all stakeholders—employees, taxpayers, residents, and property owners—in the state should clearly understand the risks taken by the plan and the fiscal impact they could have on their livelihood.

The commission’s recommendations offer constructive ideas to advance the fiscal health of the Pennsylvania’s two largest pension plans, which could, consequently, relieve the pressure of pension debt payments for taxpayers. To their credit, both plans have already made significant policy changes that will push them toward solvency. For instance, in 2017 introduced a hybrid retirement benefit structure for new hires in both systems that takes effect this year. However, this change only affects benefits going forward. In order to decrease the accumulated pension debt and prevent it from growing further, the two major Pennsylvania plans need significant improvements to funding policy, such as a shortened amortization schedule and a lower assumed rate of return.

According to the report, “The state has, and wishes to maintain, a commitment to providing fair and secure retirement benefits to those whose careers have been dedicated to public service.” The commission’s recommendations show that more fiscal stability can be achieved in a way that keeps these promises to those who have and continue to serve the commonwealth.


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  #313  
Old 02-18-2019, 09:30 AM
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NEW YORK

https://www.timesunion.com/news/arti...n-13598531.php
Quote:
Contributions for New York teacher pensions will drop in 2020
Strong stock market until recently has lifted returns

Spoiler:
School districts are getting some good news this week, at least when it comes to future costs for teacher pensions. The amount that they will have to contribute toward pensions is expected to fall from 10.62 to 8.86 percent of their payrolls.

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The final contribution will be set in July, but the New York State Teachers’ Retirement System, which administers school employee pensions, published the estimated amount in a bulletin earlier in the week.

A 17 percent decrease, it should save school districts an estimated $300 million and will be the lowest rate since 2011.

Pensions for teachers and other school personnel such as administrators are guaranteed by law because they are public employees. Much of the pension fund returns are based on stock market performance and local districts see their costs rise and fall with those numbers, although the results are compiled on a five-year average.


If the stock market goes up, districts have to put in less, meaning there is more money for other expenditures. If it drops, districts, and local taxpayers, have to put in more.

Rates have varied from 21.4 percent in 1985-86 to less than 1 percent of payroll in 2002-03.


NYSTRS cautioned that the contributions could change in future years, noting that “Investment returns are a major component in the calculation of future ECRs. As you are aware, stock market indices globally have experienced downturns,” according to the bulletin.

“Tepid investment returns will result in higher future ECRs. You may wish to consider this scenario as you develop your operating budgets.”

Because contributions are calculated on the five-year average, school planners expect the number to rise a year later, remarked Michael Borges executive director of the state association of School Business Officials.

“Last year’s stock market plunge will be figured in,” Borges said of future contributions.

School districts will spend about $2 billion in teacher pensions in the coming year, noted Dave Albert, spokesman for the New York State School Boards Association. And while the contributions are down, health care costs for school employees continue to escalate, he said.

The December stock market drop is already being reflected in the state’s major pension fund, the Common Retirement Fund, which covers state and local municipal employees.

That fell 7.17 percent to $197.3 billion in the last three months of 2018, which is the third quarter of the current state fiscal year ending on March 31.

“Like other investors, the fund saw its strong first half gains erased during the market’s steep drop at the tail end of 2018,” Comptroller Tom DiNapoli said in a prepared statement outlining the drop.

Borges said his group is pushing for legislation that would allow school districts to create special reserve funds to smooth out the ups and downs of contributions. Employers in the Common Retirement fund are allowed such reserves.

The teachers fund currently supports 160,049 retired teachers and 6,236 beneficiaries. The fund paid out $7.1 billion in benefits during its last fiscal year, which should increase to $7.3 billion this year.


https://infogram.com/teacher-pension...ho16vzpx7lv2nq
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  #314  
Old 02-18-2019, 09:32 AM
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OREGON

https://fixedincome.fidelity.com/ftg...030c0000_110.1
Quote:
Oregon lawmakers may shift tax rebate to fund pensions

Spoiler:
Oregon’s lawmakers are weighing two options that would divert the state’s “kicker” tax rebate to pay for pension liabilities or education.

The state’s taxpayers are on track to receive $724 million of kicker rebates when they file their income taxes in 2020, according to the state Office of Economic Analysis’ most recent economic report in November. The state’s unique system is triggered when revenue for the state’s two-year budget cycle exceeds the final revenue forecast by 2%. Individual taxpayers receive a “kicker” rebate credit on their taxes for the following year.


Voters approved a ballot measure creating the rebate in 1980 in the wake of the anti-tax fervor of the late 1970s.

It originally applied to corporations as well as individuals, but a measure that passed in 2012 reallocates the corporate kicker revenue into a special fund for public schools. A 2000 ballot measure made the kicker part of the state constitution. It requires a two-thirds vote of the Legislature to divert the money for another purpose.

Critics of the trigger say it makes the state budget more volatile. Oregon has no sales tax and is heavily dependent on income taxes.

S&P Global Ratings analysts cited dependence on the personal income tax, and that the kicker makes it difficult to build a budgetary cushion, as credit challenges in an April 2018 credit report.

Oregon's general obligation bonds are rated AA-plus by both S&P and Fitch Ratings and Aa1 by Moody's Investors Service (MCO). All assign stable outlooks.

State Economist Josh Lehner said OEA hasn’t firmed up the numbers for the next quarterly forecast due out in three weeks and couldn’t say if the $724 million figure could change.

Changes from the 2017 federal tax law resulted in growth in revenues from taxpayers paying early, but like many states Oregon saw a decline in revenues in the fourth quarter, Lehner said.

Money anticipated from the tax law’s corporate repatriation program also doesn’t appear to be living up to expectations. U.S. corporations were required by the tax law to bring many years of their foreign earnings back onshore to be taxed at preferential rates. Initial estimates were too large and are being revised downward, Lehner said.

Despite those caveats, the Oregon economy is robust and economists have baked both factors into their assumptions, so Lehner doesn’t think they will affect the size of the kicker.

“The uncertainty around revenue is about taxpayer behavior around federal tax law reform. But that doesn’t mean revenues are going to be down substantially. Revenues are growing. We have seen a lot growth in the Oregon economy relative to the rest of the country,” Lehner said. “The uncertainty is about taxpayer behavior and shifting capital gains from one year to next.”

What may affect whether Oregonians see that money are the proposals to divert it for other uses.

One proposal would divert the money on a one-time basis into a fund created by Gov. Kate Brown to encourage local governments to contribute money to help reduce the state’s public pension liability. Another measure, SJR3, introduced by the Senate Interim Committee on Finance and Revenue, would permanently send the surplus to the Education Stability Fund.

If the money isn’t diverted, taxpayers with the median adjusted gross income of about $35,000 could get a $174 credit. The state’s top wage earners benefit the most. People who earn more than $401,000 could receive an estimated $7,175 tax break, economists said.

This represents the third straight biennium kicker rebate for Oregon taxpayers. The state returned $402 million in 2015 and $464 million in 2017.

“The legislature should only use kicker funds to pay down unfunded liabilities if it is part of a larger reform package; otherwise extra pension payments could become a regular occurrence,” said Marc Joffe, a senior analyst with the Reason Foundation.

Oregon’s unfunded liability, the amount by which the system’s obligation exceed its assets, was $22.3 billion as of December 31, 2017 and was 80% funded, according to a Public Employees Retirement System report.

"PERS actuarial assumptions should be reviewed,” Joffe said. “For example, its assumed rate of return should be further lowered from its current 7.2% level and employees should be asked to contribute to the system.”

He also suggested that new employees and higher income current employees should be offered benefit structures that reduce risk to future taxpayers, such as hybrid plans that combine elements of defined contribution and defined benefit plans.

Tax Fairness Oregon, a watchdog group, supports using the money to pay down the pension liability, warning on its website the kicker could mean tax increases to pay for pensions in a downturn.

Brown reportedly said last week that she wanted to preserve the tax rebate for certain taxpayers, but declined to weigh in on the potential diversions for this article. A spokeswoman said the governor was not available for an interview.

She has gone full throttle on educational programs from pre-K through college since releasing her proposed budget in December. She also worked with lawmakers last year to create a program to chip away at the pension liability.

Her budget would dedicate an additional $100 million to help schools cover increasing pension costs. But PERS estimates that $1 billion to $1.5 billion in additional contributions are needed for schools over the next biennium.

Brown and the Legislature created an employer incentive fund last year that offers matching grants to PERS employers with high benefit costs to create side accounts. It also directs any state legal settlements funds to PERS. Treasurer Tobias Read contributed $430,000 from a rate-manipulation settlement.

Brown also asked that an additional $1.9 billion be earmarked for education in her budget without designating where the money would come from. The State School Fund is funded at $8.97 billion, including $8.86 billion from the general fund and lottery funds and $102.1 million from marijuana tax revenue.

She also included a $100 million bond sale for the Oregon School Capital Incentive Matching Program and $225 million in bonding capacity for public universities.


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Old 02-18-2019, 09:33 AM
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CALIFORNIA
CALPERS

https://www.nakedcapitalism.com/2019...hes-lying.html
Quote:
Even More on “Is CalPERS Private Equity Architect John Cole So Clueless He Doesn’t Know He’s Lying?”
Spoiler:
This is our third post in a series examining a single presentation to the CalPERS board by John Cole, the senior manager tasked with re-structuring the pension fund’s private equity program. Here are the earlier posts: Is CalPERS Private Equity Architect John Cole So Clueless He Doesn’t Know He’s Lying? and the second, More on “Is CalPERS Private Equity Architect John Cole So Clueless He Doesn’t Know He’s Lying?”

Cole’s presentation caught our attention for its astonishing combination of ignorance and duplicity toward the board. Multiple people had noted to us previously that Cole has no professional background in private equity and is instead a “public markets” professional. But the depth of his ignorance wasn’t quite so apparent until the December presentation and raises serious questions about whether the board relying on him as the architect of a $10+ billion investment program constitutes per se breach of its fiduciary duty.

The object lesson today is a section of Cole’s presentation to the board in December in which he was asked about how CalPERS newfangled vehicles would handle the so-called carry fee. The carry fee is a significant form of compensation to the fund managers, and it is separately considered important because it is supposed to incentivize the manager to deliver superior returns.

The prototypical compensation structure is “2 and 20,” with the “20” being a 20% participation in realized profits. But as we’ll see, determining what should be considered profit needs to be defined carefully. That problem has been largely solved but Cole misleads the board about both some new issues the CalPERS approach raises and the fact that CalPERS elsewhere is relying on well-established provisions.

We’ll boil down the exchange in question into a simple analogy. A man walks into a mobile phone store and says to the sales agent, “I’d like to buy a phone. My wife says I need to ask about what bands the phone transmits on because we travel abroad a lot. I am definitely not an expert in the band stuff, but I need to know so that I can report back to my wife before I decide. She’s an expert in this.” The sales agent then proceeds to ignore the question and offers the bizarre response. “Our phones can all send SMS messages and have built-in speakerphones.” The customer then asks, “Don’t pretty much all phones have speakerphones and send SMS,” to which the sales agent says, “No, most do not. Ours are special, and you are lucky to get these features.”

Here is the private equity version of this mobile phone discussion:

Acting Committee Member Juarez: And so where does the carry equivalent come from for the GP to realize at least some sense of the same profit they would have gotten if they were under a traditional arrangements?

Investment Director Cole: Yeah. So, first of all, importantly, that in the 20 side of 2 and 20, that we expect — not expect — we will insist, we will demand that the costs that are necessary to operate the business that I just described would need to be fully offset or effectively reimbursed before the first dollar of incentive is paid. So whatever that number might be, that all of it is — is — comes back to CalPERS before the calculation of the incentive, the carry, kicks in. That’s one.

Two, is that what we — there are some very important concepts that we’re embedding in looking at carry. Most important of all in my estimation is the concept of pooling or netting. What those terms mean is that when you have — are doing deals in a fund, in a commingled fund environment, let’s say you do — have five transactions, two of those transactions work out really well, one of them’s okay and — or maybe two are okay and one doesn’t work out very well. Often, and I’ll say most of the time, that the way the incentives are structured, there is a — it is paid for the benefit — on the benefit of those things that had done very well and there’s no penalty in the event that it doesn’t.

The idea of pooling or netting is to say that we look in aggregate. We think of it as an entire portfolio. And therefore, those things that underperformed on the one side of the portfolio are fully a part of calculating the overall success and netted against those things on the other side is the key concept and one that’s not —

Acting Member Juarez: And would you argue that differs from the current carry provisions that we experience?

Investment Director Cole: Yes.

Before we get to the more complicated question of “where does the carry equivalent come from” which was, in the context of the interaction, the “what bands does this phone transmit on,” question, let’s first dispense with the part that is the equivalent to the claim that “the phones all have the unique features of speakerphones and can SMS.” These were Cole’s two claims that

1. “We [CalPERS] will insist, we will demand that the costs that are necessary to operate the business that I just described would need to be fully offset or effectively reimbursed before the first dollar of incentive is paid.”

AND,

2. Two, is that what we — there are some very important concepts that we’re embedding in looking at carry. Most important of all in my estimation is the concept of pooling or netting.

Both of these features are absolutely standard provisions of private equity fund investing, and have been so for decades. It is trivially easy to demonstrate the truth of this statement simply by quoting from a treatise on standard private equity fund terms published by Debevoise and Plimpton, which has one of the largest U.S. practices representing private equity firms (and is chaired by Mary Jo White, former chairwoman of the SEC).

On page 28, the treatise refutes Cole’s first claim, his self-righteous assertion that it is necessary for CalPERS to stomp its feet, “insist,” and “demand” that carried interest be computed on the net profitability of the contemplated vehicle, after accounting for the expenses paid in by CalPERS. According to Debevoise:

Carried Interest typically is computed net of expenses, including Management Fees.

Likewise Debevoise contradicts Cole’s strong claim that “pooling or netting” is an atypical accommodation by a private equity manager to its investors (note that Juarez asks Cole specifically at the end of the exchange whether pooling or netting “differs from the current carry provisions that we experience” with other managers, and Cole answers definitively “Yes.”). On page 27 of the treatise it says:

When computing the Carried Interest, the netting of a Fund’s gains and losses across all investments is almost universal.

The concept of “pooling or netting” refers simply to the idea that the percentage of profits that a private equity manager takes as its “carried interest” must be based on the overall profitability of the vehicle, not the profitability of each investment in isolation. Otherwise, a fund could lose money overall while some individual investments were profitable, which in the absence of pooling or netting would allow the fund manager to take carry on those profitable investments even though the manager performed poorly overall.

In the early days of private equity, in the 1980s and early 1990s, it was relatively common for funds to lack a pooling or netting feature. Ironically, CalPERS played a major role in forcing the pooling and netting feature into funds as a standard feature. In the mid-1990s, CalPERS issued a report arguing for the flawed nature of funds that didn’t provide for pooling and announced that it wouldn’t invest in new funds that lacked that feature. Now we have Cole, 25 years later, stumbling onto the ruins of an ancient temple, missing the intellect or imagination to grasp the glory that was Rome.

This brings us to Juarez’s original question that set off Cole’s display of ignorance and/or misdirection. It appears that what Juarez wanted to know was how the private equity manager would receive carried interest in the long-lived, so called “Warren Buffett” strategy fund, where assets might not be sold for 15 years. Private equity fund managers typically sell assets after a four to seven year holding period, which allows them to start collecting carry, assuming that the fund is profitable overall. So the long holding period is a major negative for the fund manager, and that raises the question of whether it would seek novel carry fee provisions that could have hidden or obvious negatives for CalPERS.

With the much longer expected holding period, there are two main alternatives. One is for the manager has to accept waiting MUCH longer to be paid carry when the company is sold. The other is for CalPERS to agree to let the manager treat accounting gains as if they were realized profits, and take carry out of cash flow that would not normally be used to pay carry, such as dividends to CalPERS.

This second alternative presents multiple problems for CalPERS. First, the carry payment would have to be computed on appraised values of the assets, as opposed to the actual values at which the assets are sold in the traditional model. This presents a lot of opportunity for manipulating values, especially since the private equity managers traditionally assign values to the portfolio and do not obtain independent valuations. The other main problem is that taking carry out of cash flow would produce inferior economics for CalPERS relative to the traditional private equity structure, where cash flows like management fees are not inflated by having to pay carry.

Another way of generating cash in the “Warren Buffet” strategy to pay carry would be for the manager to aggressively add debt to the companies over time and take out equity. This is the equivalent of a “cash-out refi” of your house. You can be sure that if this is the only way that the manager can receive carry, they will do it, despite the dramatic increase in risk that it would entail and that CalPERS certainly did not intend.

You can see how Juarez’s question about how carry would be paid was probing at a critical issue and deserved a substantive response. All Juarez got was a load of nonsense from Cole that demonstrated Cole’s own ignorance and unwillingness to give good faith answers.


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Old 02-18-2019, 09:35 AM
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ESG
SHAREHOLDER ACTIVISM

https://www.nakedcapitalism.com/2019...al-system.html

Quote:
Can Shareholder Activism Tame the Financial System?
Spoiler:
Posted on February 16, 2019 by Yves Smith
Yves here. I should provide a longer introduction, but I am forced to be brief. This piece provides an excellent overview of the history of shareholder activism and the orientations of some of the major types of institutional investors. However, based on what I have seen at CalPERS, one of the leading advocates of ESG (“environmental, social and governance”) investing, I am skeptical that they can do much outside “governance,” where pushing corporate managements to be less self-serving is clearly a plus for investors. Pension funds and endowments are fiduciaries, and there are tensions between eschewing various types of “bad actor” investments and acting in the financial best interest of beneficiaries. And a strong form implementation of ESG would result in a very narrow investment universe, which would also create risks due to lack of diversification.

By Owen Davis, a journalist and graduate student in economics at the New School for Social Research in New York City. He previously worked as a financial reporter at the Wall Street news site Dealbreaker. Before that he reported on banking at International Business Times. Originally published at openDemocracy



A demonstration outside of the Bank of England in London, during the 2009 G20 protests in the centre of London. Image: PA

A surprising concern has arisen recently on Wall Street: markets are becoming socialist. The culprit? Passive investing. Instead of actively choosing which stocks to buy, or paying someone to do that, investors are devoting a growing slice of their portfolios to funds that simply own every stock in a broad index, such as the S&P 500 – made up of 500 leading American companies from a number of sectors, from Amazon to Delta Airlines. When investors indiscriminately own a small share of every company, the result strikes some as a form of socialism. One alarmed director at a major firm has gone as far to describe passive investing as “worse than Marxism”. For famed hedge fund manager Paul Singer, such funds are “devouring capitalism”.

The argument has precedent. In 1914, a prominent German banker surveyed the growing consolidation of industry under the control of major banks and grew uneasy. “One fine morning we shall wake up in surprise to see nothing but trusts before our eyes, and to find ourselves faced with the necessity of substituting state monopolies for private monopolies,” he wrote. Financiers would have abetted the rise of socialism, he argued, “accelerated by the manipulation of stocks”.

Evident then, as now, was a seeming paradox: that the tools of finance might serve ends other than pure capitalism. Indeed, the idea that finance could be a socialising force is an old one. For radicals preceding even Marx, corporate stock provided a template for both the socialisation of ownership and redistribution of income.

Today, progressives, radicals, and social-environmental activists are gathering around the stock market, that border space between the productive economy and the financial system. Through ownership of corporate equity, they hope to spur changes in areas as diverse as climate justice, money in politics, gender and racial inclusion, and inequality.

In effect, they want a second shareholder revolution. The first, launched in the 1980s, saw the reorientation of business away from an array of stakeholders to stockholders alone. Spearheading this revolution were the infamous corporate raiders, joined by investors thirsty for returns after a long profit drought. Together they realised the vision Milton Friedman outlined in 1970: that corporate managers should have no other object but to ‘make as much money as possible’.

Agitating for the next shareholder revolution are three groups I refer to as social shareholders. The first of these are ethical activists, who use stock to push corporations on environmental issues, reducing high executive pay and human rights protections. Recently they have included nuns pressuring US gun manufacturers to account for mass shootings and a coalition calling for drug companies to address the opioid epidemic. British activists have pushed at least 4,000 companies to adopt living wage policies.

Next are pension funds, which have the ability and, increasingly, the inclination to use their trillions of dollars in assets to nudge businesses towards social responsibility; For as long as pensions have existed, they have used the retirement savings of workers more or less politically. But in recent decades, particularly in the US, pensions have expanded their investment offices and focused their holdings on a broader set of issues in business, notably tackling skyrocketing CEO salaries.

Finally, there are advocates of sovereign wealth funds (SWFs), publicly managed pots of money that pay back into the commonweal. To date, many existing SWFs owe their existence to oil revenues. But calls have multiplied among progressives for publicly owned funds that might distribute their dividends universally. Notably, Hillary Clinton considered adding the idea to her 2016 presidential platform, inspired by Alaska’s SWF success.

Unlike other social shareholders, the purpose of SWFs is primarily distributional, a fact apparent in recent SWF proposals of the American policy analyst Matt Bruenig and economist and financial journalist Stewart Lansley in the UK. Elected officials are also flirting with SWF-like ideas. British Shadow Chancellor John McDonnell’s Inclusive Ownership Fund would require large companies to transfer stock to worker funds. US Senator Cory Booker proposed a fund that would collect assets to be distributed to low-wealth young adults, a proposal that resembles a SWF.

This grouping of social shareholders reflects their mutual advantages, not any existing alignment. Social shareholders have the potential to realise radical aims to the extent that they embody a new power structure power within global markets. Smaller, disassociated shareholders gain leverage when they meet with larger allies, as pension funds have done for activists. If SWFs and other public vehicles take on the new role of centralisers, around which others cohere and magnify their voices, the combined power might finally provide a counterweight to financial capital within the ambit of finance.

History of the Social Shareholder

The corporation emerged as a tool of conquest. European governments needed a way to finance trade ventures while decentralising risk. In 1602, the Dutch East India Company became the first company to sell shares to the public. Other colonial powers soon followed, chartering what came to be known as joint-stock companies. By the Industrial Revolution, as production grew in size and complexity, these enterprises begin resembling modern corporations.

These financial innovations soon inspired radicals. Among them was John Francis Bray, a pamphleteer who influenced early Anglo-American radical movements. Bray saw in joint-stock enterprises “the best exemplification of the power which man may wield”. In Bray’s utopia, the economy would be “one great joint-stock company”, subdivided into numerous subsidiaries. Communities would “universally produce or distribute wealth, and exchange their labour and their productions on one broad principle of equality”.

Bray left the details vague, but his ideas prefigured later arguments about the socialising potential of corporations. By dispersing ownership claims, joint-stock companies encouraged a more fluid distribution of profits. If the economy were a single corporation and every citizen a shareholder, two of the chief goals of socialism would be met. Nor was Bray the only early socialist to build a utopia on the foundations of the joint-stock company. In 1842, for instance, the pseudonymous Aristarchus proposed a system of ‘Interchanging Joint-Stock Companies’, which would form a ‘community of profits’ to supersede the ‘community of property’.

Few socialists better appreciated the revolutionary potential of corporations than Karl Marx. For him, the divorce of ownership from control represented ‘a mere phase of transition to a new form of production’. The single, private capitalist was being supplanted by collective, ‘social’ capital, which was ‘distinct from private capital’. The joint-stock company became ‘the abolition of the capitalist mode of production within the capitalist mode of production itself’.

Marx had some experience in this department. ‘I have, which will surprise you not a little, been speculating’, he wrote to a friend after coming into a windfall in 1864. Betting on a bubble in English stocks, Marx made a purported 400 – nearly 50,000 today. His justification: ‘It’s worthwhile running some risk in order to relieve the enemy of his money’.

The Gilded Age

Perhaps no country took to corporations as energetically as the US. Following the Revolutionary War, the young states issued a flurry of corporate charters. These entities served a range of purposes both civic and commercial, from schools to banks to cotton manufacturers. Nearly all of them promised some ‘public utility’ beyond that of profit-making.

But US corporations soon shook off their civic attire. By the mid-1800s most operated under the control of a small coterie of shareholders who appointed close associates as managers. Towards the end of the century, tycoons like David Rockefeller enacted a wave of mergers through complex stock manoeuvres and, occasionally, outright fraud. The corporation, once an expression of democratic impulse, became the locus of gilded-age plutocracy.

A similar process took place in Germany. Its highly concentrated banking system consolidated industry, bank loans to corporations supplanted stock issues, and the three large banks owned so much stock that exchanges atrophied. To Rudolf Hilferding, theorist and Weimar Republic finance minister, this evolution betokened a new stage in capitalism: that of ‘finance capital’. For Hilferding, it was not the corporation that held revolutionary potential, but the banks. “Taking possession of six large Berlin banks would,” he wrote, “greatly facilitate the initial phases of socialist policy”. Just as German bankers feared.

Banks were also ascendant in the US, where the likes of Andrew Mellon and J.P. Morgan helped forge twentieth-century US capitalism. But unlike in Germany, Wall Street’s rise empowered the small shareholder, as companies made use of burgeoning exchanges to mass-market their shares. Between the start of World War I in 1914 and the end of the 1920s, the portion of US households owning stock rose from around 3 per cent to nearly one quarter. Then came 1929.

The Golden Age

The regulatory response to the Great Depression altered the face of corporate governance for generations. In essence, executives were professionalised as banks and big shareholders were marginalised.

This was the age of managerialism. In the 1930s, economists Adolf Berle and Gardiner Means described how buccaneering investors had given way to staid careerists in navigating big business. Looking ahead, they suggested a ‘purely neutral technocracy’, control the corporations, resolving disputes and distributing income ‘on the basis of public policy rather than private cupidity’. Marxist economists Paul Baran and Paul Sweezy declared that shareholder control was ‘for all practical purposes a dead letter’.

Although some of this was overstatement, major financiers had indeed had their wings clipped just before the golden age of capitalism took off. But the New Deal legislation that reigned in Wall Street also empowered small shareholders in new ways. Thus, in the nadir of financial power, the corporate gadfly was born.

Gadflies reflected the social currents of their time. In 1949 Wilma Soss began gate-crashing annual meetings and lobbying for the inclusion of women on corporate boards. (One-fifth of listed US companies still have no women directors.) In 1948, Civil Rights activists James Peck and Bayard Rustin bought one share each of Greyhound Corporation and proposed that it consider desegregating its southern bus lines.

While companies could generally secure regulatory approval to block such proposals, by 1970 regulators sided with the gadflies. The floodgates opened, particularly environmentalists and Vietnam war protesters, as long as their proposals avoided ‘ordinary business operations’. Progressive activists like Ralph Nader and Saul Alinsky used shareholder campaigns to build publicity and hit companies in the soft spot.

The golden age of capitalism also produced attempts to build public vehicles to invest in financial assets and deliver social dividends to citizens. The most ambitious application of such a fund took place in Sweden. Authored by economist Rudolf Meidner, the plan proposed to transfer corporate stock into publicly owned ‘wage-earner funds’ until they were majority owners. What took effect, however, was a watered-down compromise; from 1984 to 1991 only 5% of Sweden’s equity entered the funds.

This was, after all, the age of Thatcher and Reagan. After a period of relative quiescence, the forces of financial capitalism had been gearing up for a counter-revolution. In the 1980s, they pounced.

Maximising Shareholder Value

In 1976, business theorist Peter Drucker warned that the rise of pension funds – which then held around a quarter of US equities – would produce ‘pension fund socialism’. Wrote Drucker: ‘If “socialism” is defined as “ownership of the means of production by the workers” . . . then the United States is the first truly “socialist” country’.

It is ironic, then, that the neoliberal power shift back towards finance was abetted by US pensions. In the 1960s and 1970s pensions (both public-sector and those operated by private-sector unions) emerged as powerful investors. With their newfound financial might, labour-backed pensions sometimes deployed their funds in the service of workers. Yet the primary purpose of the funds was pecuniary.

Institutional shareholders – insurance companies, mutual funds, pensions, etc. – had grown from marginal players in the 1960s to major forces by the 1980s. This growth coincided with a crisis of capitalist profits, amid oil shocks and stagflation. By the 1980s, institutions were agitating for management to trim their bureaucracies and get cash flowing again.

Pension funds made their influence known in the wave of hostile corporate takeovers in the 1980s. When companies felt targeted, they often attempted to ward off corporate raiders using measures seen as harmful to shareholders. Pension funds were initially divided over these tactics. Public pensions stood with other shareholders against the measures, arguing that they had a fiduciary duty to protect beneficiaries’ returns. But union-backed private-sector funds faced a conflict: takeovers often entailed layoffs and even the capture of pension assets. Nonetheless, labour-run pensions soon fell in with the rest of the shareholding class.

The evolution of pensions reflected shifts in economic thought. The idea that businesses should operate exclusively to reward investors required a new intellectual framework: shareholder value theory. Michael Jensen argued that corporations could act sensibly only if they focused entirely on maximising shareholder returns. Milton Friedman pondered, ‘If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is?’

As pension funds matured, their approach grew more nuanced. Throughout the 1990s and 2000s pensions launched the majority of proposals seeking to increase accountability among corporate management. A recent pension-led campaign pushed the number of S&P’s 500 companies allowing proxy access – a policy that allows investors more easily to challenge board incumbents – from 1 per cent in 2014 to nearly two-thirds today.

Potentially more consequential, however, have been the ripple effects created by the emergence of institutional investors as power centers within the stock ecosystem. Their rise gave the previously hodgepodge ethical activists more powerful and concentrated targets for their campaigns. The confluence of these factors holds lessons for social shareholders in the future.

Looking Ahead

Three broad themes emerge from the history of social shareholders. First, there has always been, as John Maynard Keynes put it, “the tendency of big enterprise to socialise itself”. For as long as the corporate form has undergirded industrial capitalism, radicals have recast that form in an egalitarian or democratising light. There is, arguably, a real socialising potential inherent in the form of equity finance.

The second lesson is the importance of legal frameworks in regulating shareholder power. Activist investors won new rights in the mid-twentieth century, yet remain limited in their influence over corporate affairs. Pensions have similarly expanded their ambit, but remain hamstrung by law (and their own beneficiaries) to prioritise the bottom line. For these groups to approach real control over corporate affairs would require a legal regime change.

Finally, size matters. Few developments have been so decisive in the power of the social shareholder than the growth of institutional shareholders, which fundamentally changed the nature of corporate governance. As researchers have found, the more institutional ownership a stock has, the more likely it is to be targeted by activists.

Yet even if we classify pension funds unambiguously among them, social shareholders still control just a fraction of the stock market. Their antagonists include hedge funds and others whose activism focuses primarily on disgorging cash and ousting board members. The structure of a firm’s stockownership, particularly its institutional makeup, matters for how it is run. Researchers have found that funds with more ‘transient’ institutional ownership (e.g., hedge funds) invest less and offload more cash to shareholders.

Dominating the markets are gargantuan asset managers like Vanguard, Amundi and Aberdeen. It is here that stock markets have most evolved since the financial crisis. Asset managers’ passive trading vehicles, such as exchange-traded index funds, have attracted trillions of dollars and reoriented shareholder power. Everyone from individual speculators to major institutional investors utilise passively managed index funds to some degree. While these investors still technically own the underlying stocks, it is the asset managers that take responsibility for prerogatives such as voting in corporate elections.

The shift into passive has contributed to changes in the way markets operate. Passive ownership means that large index-fund investors do not sell when they are upset with a company, since that would mean selling every other stock in the underlying index as well. Instead, somewhat paradoxically, passive investors engage, through board votes and shareholder resolutions. Asset managers also constitute vectors for activism: getting BlackRock or Vanguard on your side can often turn the tide in a shareholder battle.

Rudolf Hilferding wrote that capturing the six largest banks would pave the way for socialism. Today he might advocate capturing the the six largest asset managers. In the absence of a citizens’ takeover of BlackRock, however, the focus falls on the social shareholders.

Ethical Activists

Ethical shareholders have eclipsed the motley gadflies of the 1970s. Numerous non-profits devote their efforts to boardroom advocacy. The number of proposals filed by such shareholders have doubled since the mid-2000s, and they have rubbed off on large asset managers. To get a sense of the zeitgeist, see the recently penned Activist Manifesto, a nearly word-for-word rewrite of the Communist Manifesto aimed at socially responsible investors.

Yet ethical activism has its limits. Most importantly, proposals must avoid the day-to-day functioning of a business. Climate activists, for instance, have pushed energy companies to issue reports outlining their plans for policies that would keep global warming below 2C. When ExxonMobil succumbed to such a proposal, the result was, in the words of one financial research firm, ‘a finely crafted public relations piece’.

Of course, not all activism is impotent. A 2011 study found that shareholder agitation at US chemical companies reduced certain toxic emissions by more than 3% annually. But this kind of result is an exception. Ethical activism depends largely on developments in the surrounding shareholder ecosystem.

Pension Funds

Pension funds have long grappled with tension between the interests of workers today and retirees in the future. In the 1980s, labour-aligned institutions made bedfellows with corporate raiders. Today, pension funds push governance reforms that increase both boardroom accountability and stock prices. Ironically, pension funds now play a signal role in ensuring the orderly flow of profits.

Yet pensions have also heightened their activism on matters like board diversity and climate preparedness. One area where pension funds’ efforts seem to have paid off has been CEO pay. For years, pensions have dominated protest votes against outsize compensation. One study found that when CEOs with abnormally high pay are targeted, their compensation falls by an average $2.3 million. (Other studies have found more muted effects.)

Pension funds have undeniably achieved enormous influence, but they have fallen short of the ‘pension fund socialism’ Drucker envisaged. This is due in part to the worker–saver paradox, as well as a problem of coordination. Though there are groups that coordinate pension activism, there is no larger structure around which pension funds might gravitate.

Sovereign Wealth Funds

Here is the great unknown among social shareholders. Although there are more than 50 wealth funds worldwide, we cannot generalise about their operations. Still, SWF advocates have taken inspiration from examples like Norway’s massive complex of publicly owned funds and the Alaska Permanent Fund, which pays at least $1,000 a year to each citizen in the state.

Yet the impact of SWFs on corporate governance remains unknown. Norway’s funds have only recently increased increased their activism. Were the US to institute a fund on the scale of Alaska’s or Norway’s, it would hold assets in the tens of trillions of dollars – easily half of the current stock market capitalisation. But SWFs would face the same contradictions as pension funds. Would a SWF support a CEO laying off thousands of workers or shifting production abroad?

Regardless, SWFs would almost certainly invite a structural shift in power among investors. The emergence of pension funds and other institutional investors concentrated and magnified the power of activists. SWFs could serve the same function for the relatively uncoordinated institutional actors and ethical activists out there today.

For some, the idea that that the financial building blocks of capitalism could undo its worst excesses might seem over-optimistic. Yet the history of the finance is one of large, unexpected swings. Half a century ago, Marxists and capitalists alike pronounced the death of the shareholder. Since then, shareholder power has only grown – mostly to the benefit of the rich. If there ever was a time for the social shareholder, it is now. The confluence of sovereign wealth funds with an emboldened pension fund community and widespread ethical investor-activists could, more than ever before, uncover the egalitarian potential of the stock certificate.

This is an edited version of an essay that originally appeared in State of Power 2019, an annual anthology published by Transnational Institute (TNI).
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Old 02-19-2019, 06:05 AM
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OKLAHOMA
COLA

https://www.normantranscript.com/new...e79c291cf.html
Quote:
Lawmakers to consider raising public pension

Spoiler:
OKLAHOMA CITY -- With complaints mounting among retirees, lawmakers are considering if the state's public pension systems are finally healthy enough to give tens of thousands of retirees their first cost-of-living-adjustment in over a decade.

Advocates for the adjustment say living and health care costs have soared over the past decade, and many retirees are now quietly struggling to survive on their meager pension checks. Most are aging and fear that they can't afford to wait another decade or two for the state's pension systems to be 100 percent funded before the next boost is provided.

"I think [older retirees] are saying that the system will not be fully vested for at least 14 more years," said state Sen. Dewayne Pemberton, R-Muskogee. "A lot of those people won't be there, and they're living on very meager wages."

Pemberton is among a growing number of lawmakers filing legislation to award retirees their first permanent cost-of-living adjustment -- or COLA -- in 11 years.

Pemberton has proposed a 2 percent adjustment. Legislative budget officials haven't yet calculated the total cost, but Pemberton said it would cost the Teachers' Retirement System, which serves about 63,000 retirees, about $218 million.

But such proposals in recent years have faced stark resistance in a Legislature that some observers note used to be in the habit of handing out COLAs to curry electoral favor even if it wasn't financially prudent.

After years of neglect in paying into the system, lawmakers eliminated the perk to help shore up the ailing pension systems. Nearly a decade ago, they were the worst funded liability and threatened to harm the state's credit rating.

"One of the biggest things [Republicans] have done since we've taken control of the Senate is shore up those funds," said Senate President Pro Tem Greg Treat, R-Oklahoma City. "So anything that erodes the viability of those funds -- anything that cuts into the corpus and makes those less legitimate -- we don't want to go back into the mindset where you give a COLA, but you don't fund it."

Many lawmakers have resisted calls to dip into the systems as they focus on fully-funding the state's $40.4 billion in obligations. The pension systems need another $7.8 billion before all seven will be 100 percent funded, according to the state budget officials

Treat said his caucus, which holds a supermajority, hasn't taken a position on COLAs, but members are "extremely strong" on ensuring pensions remain solvent.

Last year, Treat authored a measure granting retirees a one-time stipend.

The amount retirees received varied depending on how well-funded the pensions were.

State Rep. Avery Frix, R-Muskogee, signed on as the House author of Pemberton's proposal, but the legislator also has his own bill to give retirees an 8 percent COLA.

Frix said he realizes 8 percent is a little high but is a "good starting point" for a conversation. Lawmakers would have to invest another $1.5 billion into the pension system to cover the increase, he said.

"I have a retired teacher in my district where their health insurance cost is higher than their retirement check," Frix said. "I felt like the time was right to be able to afford a COLA, and it's definitely and desperately needed out there."

Sabra Tucker, executive director of the Oklahoma Retired Educators Association, said a COLA "is long overdue."

Since 2008 -- when lawmakers last awarded one -- the cost of living increased between 18 and 30 percent. Health care costs rose average of 40 percent, she said.

"Of course, it's senior citizens that use the bulk of the health care," she said. "Their buying power has been decreased significantly."

Tucker said she believes this may finally be the year for retirees. Most of the dozens of new faces in the Legislature realize that retirees need an increase, she said.

"I am optimistic for the first time since 2010," she said. "This is the first time, especially from leadership, that we have seen the desire to do something for retirees."

Her group is calling for the 8 percent adjustment.

House Democrats are also very supportive of Frix's 8 percent proposal, said House Minority Leader Emily Virgin, D-Norman.

"It's far past time," she said. "And the retirement systems are healthy. They are funded, and they can certainly afford that adjustment."

But state Treasurer Randy McDaniel, who authored the stipend bill while serving as a state representative, said in an email that legislators were unable to provide COLAs previously due to a "legacy of unfunded pension liability and budget shortfalls."

State law currently requires new funding to offset the costs of "benefit enhancements," he said.

McDaniel said the state must keep its promises to those dedicating their careers to serving the public.

"It is essential that adequate funds be available to pay those benefits for generations to come," McDaniel said.

In a budget briefing earlier this month, Gov. Kevin Stitt's administration noted that the Teachers' Retirement System at 72.9 percent funded and the Firefighters system at 68.1 percent still need "many more years" to achieve financial soundness.

"Attempts to weaken previous reforms or add additional costs to the system will negatively affect progress and could harm the state's bond rating," budget officials wrote in a briefing packet released to the media.

Still, Tom Dunning, a spokesman for the Oklahoma Public Employees Association, said he's hopeful that 2019 will be the year the Legislature finally gives retirees a COLA.

He said last year's stipend was "a nice one-time influx," but it doesn't help retirees down the road.

"The vast majority of state employees, they're not running off and living the high life," he said. "They're trying to make ends meet, but at the same time, we don't want to do anything to jeopardize the pension system."


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ILLINOIS

https://www.rrstar.com/news/20190218...ension-reforms

Quote:
Chuck Sweeny: Hynes previews Pritzker’s pension reforms

Spoiler:
Illinois’ deputy governor delivers sobering message

We’re all waiting to know: What will the new governor say? Gov. J.B. Pritzker will give his first budget speech Wednesday, and everyone concerned about Illinois’ dreary financial condition is waiting to see what he will say.

We have a clue, however. On Valentine’s Day, Deputy Gov. Dan Hynes delivered a speech to the City Club of Chicago outlining some of the new administration’s priorities — specifically how to fix the state’s pension crisis. Illinois’ unfunded pension liability is nearly $134 billion, Hynes said. Local governments throughout the state are straining to meet a stiff state requirement that public pensions be 90 percent funded by June 30, 2045.

You remember Hynes — he was the state’s comptroller, first elected at age 30 in 1998, then re-elected in 2002 and 2006. A Democrat, he ran unsuccessfully for U.S. senator in 2004 and for governor in 2012.

Hynes made it clear he had not shown up to deliver Valentine’s Day cards to Chicagoland’s movers and shakers.

Illinois has a $3.2 billion structural budget deficit and is nearly $15 billion in debt. Late payment interest penalties resulting from the 2015-2017 budget impasse exceeded $1.25 billion, Hynes said.

“The state has been hit with eight credit downgrades, and five universities fell to junk credit status. We now pay more in interest on our lower-rated bonds — enough to give another 25,000 students MAP grants every year. That’s enough to provide scholarships to every undergrad at SIU Carbondale and Illinois State University — combined,” Hynes said.

“That’s devastating, and most of it was avoidable,” he said, placing the blame squarely on the shoulders of former Gov. Bruce Rauner, although the state’s fiscal mismanagement has been a bipartisan production for decades.

Most of Hynes’ City Club speech dealt with the pension crisis, how it happened and how we can get out of it. In the mid-1990s, lawmakers passed and Gov. Jim Edgar signed a pension reform bill designed to have pensions 90 percent funded in 50 years. But for a number of reasons — overestimating the rate of return on investments, skipping payments, borrowing money to make pension payments, the Great Recession of 2008 — the “reform” is failing.

A further huge factor in this failure is that the reform law, which took effect in 1995, was backloaded, meaning the payments rise faster as we get closer to 2045.


“The original architects of this 25-year-old plan calculated that in 2020, Illinois taxpayers would pay only $4.9 billion for pensions. Instead, the plan now requires us to pay $9.1 billion. That’s nearly double what was expected,” Hynes said.

“In 1996, the state spent 3 percent of its General Fund revenues on pensions. Today, the plan calls for us to spend 21 percent of revenues on pensions. Let that sink in. Three percent; 21 percent. It’s unsustainable and frankly it’s not fair,” Hynes said.

Hynes proposed several steps to right our sinking pension ship. He made a pitch for Pritzker’s plan to enact a graduated income tax, which Hynes called a “fair tax,” and to commit $200 million a year from the increased revenue to pension payments — on top of the money the state is obligated to pay.

Passing that tax won’t be an easy lift, though. The General Assembly must pass a bill by a 60 percent majority to put the “fair tax” amendment on the ballot in 2020, and then Illinois voters have to OK it.

Hynes also proposed selling state assets and committing the proceeds to paying down pension debt. And he proposed borrowing $2 billion — if the state can get a decent interest rate — and committing the money to pensions. He also suggested expansion of a voluntary plan allowing retiring employees to take a lump sum pension payout.

In addition to these measures, Hynes recommended that the June 30, 2045, deadline for pensions to be 90 percent funded be extended by seven years.

Then he turned his attention to reducing our huge number of local government pension funds.


“We must explore smart ways to consolidate those pension funds. The state is home to 671 separate public pension funds. This results in a fractured system that often duplicates functions across funds, limits the smaller funds to a narrow range of return investments and impedes their ability to negotiate lower fees,” he said.

“These funds manage $170 billion in assets and have accrued liabilities totaling more than $355 billion. These liabilities have placed increased pressure on local governments and the state of Illinois, driving up property taxes and crowding out funding for critical local public services.”


https://finance.yahoo.com/video/illi...164356321.html

Quote:
Illinois may tax private retirement funds to pay public worker pensions
Fox Business Videos•February 18, 2019
FOX Business’ Jeff Flock on the impact of Illinois’ proposal to tax private retirement funds to pay for public workers’ pensions.

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Mary Pat Campbell
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NEW MEXICO

https://www.abqjournal.com/1282402/g...on-issues.html

Quote:
Governor creates task force to study pension issues

Spoiler:
SANTA FE – A legislative solvency fix for one of New Mexico’s large public retirement systems will probably have to wait until next year.

Gov. Michelle Lujan Grisham on Monday ordered that a 19-member task force be created to study possible changes to the pension plans offered by the Public Employees Retirement Association, which cover state workers, municipal employees, judges, State Police and more.


Gov. Michelle Lujan Grisham

“I expect diligent, expedient work from this group of stakeholders,” the Democratic governor said. “My expectation is we will assume this shared burden in an equitable fashion to reach our solvency goals, and this group will, I am certain, assure a steady future for PERA.”

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Legislation intended to shore up the pension fund – in part by trimming the annual inflation-related pension adjustments that retirees get – has not advanced at the Roundhouse since being introduced more than three weeks ago.

That bill, House Bill 338, has generated strong opposition from a group representing retired state employees, whose members say they were not consulted before a divided PERA board endorsed the proposed legislation.

Concerns about New Mexico pension liabilities have intensified in recent years – despite a 2013 solvency fix aimed at putting the retirement fund on more solid ground – and prompted a national credit rating agency to downgrade the state’s bond rating in June 2018.

The Public Employees Retirement Association, which covers roughly 50,000 active workers and 40,000 retirees, had an unfunded liability of $6 billion as of the end of the 2018 budget year. That figure represents the difference between assets and future benefits owed.

Meanwhile, the 19-member task force created by Lujan Grisham will include PERA officials, labor union leaders, retiree representatives and others.

It will be tasked with providing recommendations to the governor by Aug. 30. Those suggestions would form the basis for legislation during next year’s 30-day session.

Lujan Grisham said on the campaign trail last year that she would oppose cuts to benefits, including any reduction in the annual cost-of-living adjustments that retired state workers and teachers receive.


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KENTUCKY

https://whopam.com/2019/02/18/gov-be...nsion-systems/

Quote:
Gov. Bevin says gambling, marijuana aren’t solutions for ailing pension systems

Spoiler:
Governor Matt Bevin believes legalizing sports gambling, casinos and recreational marijuana sales wouldn’t fix the state’s pension woes.

Interviewed by WHOP News Monday morning, Bevin asserted that even if some of the generous projections of revenue generated by marijuana are correct, it wouldn’t be enough

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He says the same goes for expanded gambling in Kentucky.

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Bevin says the General Assembly must pass sweeping reform that gives structural change to the pension systems to address the pension problems.

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Governor Bevin says he would support legalizing medical marijuana, if the legislation was written where patients would be prescribed cannabis like they are other medications.

Listen to our entire interview with Gov. Bevin below:


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