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  #2001  
Old 12-26-2018, 11:35 AM
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NEW YORK

https://www.osc.state.ny.us/press/re...c18/122118.htm
Quote:
DiNapoli and NY State Pension Fund Reach Agreements with Major Companies on Executive Pay
Companies to Consider Wages of Entire Workforce When Proposing Executive Compensation

Spoiler:
New York State Comptroller Thomas P. DiNapoli today announced that the New York State Common Retirement Fund has reached agreements with Microsoft Corp., CVS Health Corp., Macy's Inc., The TJX Companies Inc. and Salesforce.com to reexamine their CEO and executive pay and adopt policies that take into account the compensation of the rest of their workforces. In response to the agreements, the Fund withdrew its shareholder resolutions with the companies.

"We've seen a growing disparity in corporate income in the United States for years, with CEO pay rising dramatically while wages for most other company employees have remained flat," DiNapoli said. "We are encouraging companies to adopt policies that take their entire workforce into consideration rather than setting CEO pay solely by benchmarking it against other CEOs. Overall employee compensation and executive pay has been and will continue to be a key factor for how we engage with companies going forward."

According to the Economic Policy Institute, CEOs of America's largest firms earned $271 for every dollar their employees earned in 2016. In 1995, the CEO-to-worker pay ratio was 123-to-1; in 1978, it was 30-to-1; and in 1965, it was 20-to-1.

Many companies' compensation committees use peer group benchmarks to set their target CEO compensation. These target pay amounts are then subject to performance adjustments. Although many companies target CEO compensation at the median of their peer group, certain companies have targeted their CEO's pay well above the median. In addition, peer groups can be "cherry-picked" to include larger or more successful companies where CEO compensation is higher.

DiNapoli has long advocated for disclosure of CEO pay ratio, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and implemented by the SEC in 2015.

Companies may disclose supplemental information about their workforce to provide context and explain their company's pay ratio data.

DiNapoli believes the Fund's portfolio companies should align CEO pay practices with their pay practices for other employees and provide supplemental information that helps investors. The Fund has previously come to agreements on this issue with the following corporations:

2018
CVS Health Corp. (filed with Zevin Asset Management)
Macy's Inc.
Microsoft Corp.
Salesforce.com,
The TJX Companies Inc. (filed with AFL-CIO Equity Index Fund and Zevin Asset Management)

2017
BB&T Corporation (filed with AFL-CIO Equity Index Fund)
Discovery Communications Inc. (filed with AFL-CIO Equity Index Fund)
Regeneron Pharmaceuticals Inc. (filed with AFL-CIO Equity Index Fund)

The Fund currently has a similar proposal at Archer-Daniels-Midland Company and will file with several other companies in the coming year.

About the New York State Common Retirement Fund
The New York State Common Retirement Fund is the third largest public pension fund in the United States, with an estimated $207.4 billion in assets under management as of June 30, 2018. The Fund holds and invests the assets of the New York State and Local Retirement System on behalf of more than one million state and local government employees and retirees and their beneficiaries. The Fund has a diversified portfolio of public and private equities, fixed income, real estate and alternative instruments.


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  #2002  
Old 12-26-2018, 11:37 AM
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KENTUCKY

https://www.jdsupra.com/legalnews/no...pension-79137/

Quote:
Novel Suit by Kentucky Pension Beneficiaries Continues
Spoiler:
A Kentucky court decided in favor of the beneficiaries of Kentucky's Public Retirement System by striking down a motion to dismiss their suit, which alleges that administrators and their advisors breached their fiduciary responsibilities.

In December 2017, Kentucky public pension system ("KRS") beneficiaries sued various KRS trustees, officers, advisers and investment managers in state court; Mayberry, et al. v. KKR & Co., L.P., et al., No. 17-CI-1348 ("Mayberry"). Recently, the Court denied the defendants' motion to dismiss, rejecting arguments that plaintiffs lacked standing. We have previously discussed the heightened scrutiny of active management of public pension assets in our Alert "PA Commission Scrutinizes Active Management of Public Pension Assets."

Mayberry is a novel case where plan beneficiaries directly sued to hold public pension officials, as well as their advisors and investment managers, responsible for KRS's liabilities. Plaintiffs—members of KRS—have asserted various claims, including breaches of fiduciary duties, aiding and abetting those breaches, joint enterprise and civil conspiracy.

Defendants moved to dismiss, challenging plaintiffs' standing to sue derivatively on behalf of KRS or as taxpayers, among other arguments. Notably, both KRS and Kentucky's Attorney General declined the opportunity to pursue the claims now being brought by plaintiffs. The court, however, found plaintiffs had standing both "derivatively as members and beneficiaries of KRS" and as taxpayers. As against the third-party advisors, the Court held the "complaint . . . alleges facts sufficient to imply a common law fiduciary relationship between the [advisors] and KRS's members," specifically noting allegations of "superior skill, experience and expertise . . . ."

With one exception, the court ruled that all claims may proceed against all defendants.

We will continue to monitor future developments.


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  #2003  
Old 12-26-2018, 11:38 AM
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GEORGIA

https://www.ajc.com/blog/get-schoole...R0SXduZh7T9XM/
Quote:
Opinion: Kemp's promised teacher raise comes with hidden costs

Spoiler:
In this guest column, the Reason Foundation’s Evgenia (Jen) Sidorova examines how Governor-elect Brian Kemp's pledge to award state's teachers a $5,000 raise would also impact the teachers' retirement system.

She says the retirement system has nearly $25 billion in unfunded liabilities and is increasingly eating up money intended for students and classrooms. Sidorova is a policy and quantitative analyst with Reason Foundation's Pension Integrity Project. The foundation is a non-profit, libertarian think tank.


By Evgenia (Jen) Sidorova

One of the interesting things to watch as Governor-elect Brian Kemp prepares to take office is going to be his promise to give every teacher in the state a $5,000 raise. To do so, Kemp would need to find $600 million in the state budget and he’d also have to figure out how to pay for the long-term impact the pay increases would have on Georgia’s teacher pension system.

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The Georgia Teachers Retirement System, which administers the state’s teacher pension plan, already has $24.8 billion less than it needs to fully pay for the pension benefits that have been promised to teachers. An unplanned increase in teacher salaries, as Kemp has promised, would also likely increase the amount the state government must contribute to teachers’ pensions.

Because of the way teachers’ pensions and salaries impact one another, they need to be discussed simultaneously. When teacher salaries increase, their pension benefits increase as well. That means that for those who are nearing retirement—perhaps within a decade or so¬—the contributions made toward their pensions to date may not be enough to cover the full actuarial cost of the new benefit post-pay-increase. So, in the end, a pay increase could potentially drive unfunded liabilities even higher than today's $24.8 billion. It would be unfortunate to, on the one hand, increase teachers’ earnings through a pay increase while simultaneously harming their retirement security.

As it stands, nearly 18 percent of the state’s education payroll goes to making its annual contributions into the pension system. By 2020, more than 21 percent of payroll is expected to be eaten up by pension contributions. As recently as 2010, the employer contributions were still in single digits.

This is happening in part because TRS’ actual investment experience has consistently varied from its assumptions. TRS has assumed it would generate a 7.5 percent investment return on its assets since 2001. In reality, its returns have averaged 5.5 percent over that period. As a result, the system’s overly optimistic investment return assumptions have added nearly $9.7 billion of debt.

Another significant contributor is negative amortization. Basically, that means the pension system’s debt has increased due to its failure to make payments that cover the interest that’s accruing and due. This category alone contributed $3.7 billion to TRS’ total unfunded liability.

So what needs to be done?

In order to fully fund any future salary increases for teachers, get the pension system out of debt, and provide for future sustainable growth of the state’s education system, Georgia policymakers need to pursue reforms guided by three objectives. First, they need to ensure that 100 percent of all pension benefits that have already been earned are delivered to teachers. Second, policymakers need to provide a more efficient way to manage the state’s existing pension debt to reduce interest payments and long-term costs. Third, the amount of financial risk the current pension plan is undertaking needs to be minimized to avoid the continued growth of unfunded liabilities.

Fortunately, as states like Michigan, Pennsylvania, and Colorado have demonstrated through successful pension reforms over the last few years there are a number of ways to achieve these objectives. The reform in Michigan, for instance, simultaneously stabilized the state’s long-term costs and improved how the system is funded. This was done while providing reasonable retirement plan options for new hires and ensuring the ability to responsibly pay down pension debt.

Gov.-elect Kemp said he wants to raise teachers’ salaries to help Georgia keep “the best and the brightest in the classroom.” Unfortunately, pay increases are just one part of the equation. The Georgia TRS has nearly $25 billion in unfunded liabilities. And as pension costs eat up a larger and larger part of the state’s education budget in coming years, the result will be less money making its way to classrooms and students. The best thing lawmakers can do for students is to implement reforms that get the pension crisis under control.


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  #2004  
Old 12-26-2018, 11:43 AM
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NEW JERSEY
https://www.nj.com/politics/2018/12/...ion-costs.html
Quote:
Murphy calls for changes — but no cuts — to drive down N.J.’s soaring pension costs

Spoiler:
Gov. Phil Murphy on Friday began rolling out recommendations for how to drive down New Jersey’s ever-ballooning costs for government-worker pensions and health benefits — but stopped short of suggesting the cuts that some top state lawmakers are considering.

Instead, the Murphy administration says the state’s health care plans should leverage its size and shorten contract lengths to save taxpayers money, according to an interim report from a task force the rookie governor convened.

Murphy, a Democrat, called the 12-page report “an excellent starting point in our ongoing pursuit of innovative solutions to improve the way we provide health benefits to public employees.”

“This is a Goliath of a task, but the blue print laid out today provides sound, actionable items that are achievable in the immediate future while we work towards long-term solutions,” the governor added in a statement.


New Jersey’s pension system provides retirement benefits to more than 810,000 state and local government workers. But its debt is an annual drain on the state budget — which is largely the result of numerous past governors, Democratic and Republican, failing to fully fund the system.

The state’s pension liability currently sits at about $152 billion. By comparison, the state budget for the current fiscal year is $37.4 billion.

Sweeney's plan: Public worker benefit cuts, merging schools, more toll roads
Sweeney's plan: Public worker benefit cuts, merging schools, more toll roads

State Senate President Stephen Sweeney released a report with dozens of recommendations to reduce the cost of government and taxes in New Jersey.


Murphy convened this task force in May to find solutions. It includes state and national health policy and purchasing experts, union leaders, and experts from within the administration.

Among their chief suggestions in this report:

Leveraging the $7 billion the system spends a year on health care to “drive better health outcomes at lower costs.” That includes creating pilot programs, directly contracting with providers or vendors to test and evaluate “care delivery and payment innovations,” and more.
Shortening contract lengths with third-party administrators and network providers that “provide little to no opportunity for innovation or re-negotiation.” The panel recommends reducing contracts to three years with a one-year extension option.
Making sure health plans set “clear expectations for clinical quality improvement” and that the provider includes “metrics, goals and penalties for achieving or failing to achieve these expectations.”
Setting “detailed parameters for what constitutes network adequacy" for mental health and substance abuse.
Making sure committees that design health plans make “evidence-informed decisions” based on “payment data.”
The approach is much different than Murphy’s Republican predecessor, Chris Christie, who bolstered his national profile by cutting a deal in 2010 and 2011 with Democratic leaders of the state Legislature to overhaul New Jersey’s pension and health benefits.

That included workers agreeing to pay more for benefits and Christie promising to eventually make full payments. Though Christie did funnel more into the system than previous governors, he later slashed payments and never kept that vow.


Christie also began calling for more cuts before he left office. Union leaders recoiled and Democratic leaders were never on board.

Murphy, a progressive Democrat who won election last year with heavy labor support, has vowed to finally fully fund the pension system.

At the same time, New Jersey’s top state lawmaker, state Senate President Stephen Sweeney — a more moderate Democrat — has convened his own, bipartisan panel to find ways to save the state money.

Its final report — called the “Path to Progress” and released in August — suggests new tolls, merging school districts, and making cuts to pension and health benefits.

State Assembly Speaker Craig Coughlin, D-Middlesex, New Jersey’s third-highest-ranking state official, has not publicly endorsed Sweeney’s plan. But he, too, has called for state leaders to find ways to make spending cuts to rein in the budget.



Still, Sweeney and Coughlin would need Murphy’s support to enact those plans. And Murphy would need Sweeney and Coughlin to help install his pension recommendations.

It’s unclear what the outcome will be, especially because Murphy and Sweeney have often butted heads in the governor’s rookie year.

Murphy also said last week that another round of tax hikes are “on the table” for next year. The governor instituted a set of tax increases last year to help pay for increases to pensions, education, and transportation.

But Sweeney and Coughlin have already said they won’t consider any tax hikes and want spending cuts instead.

At least one Republican, state Sen. Steven Oroho, dismissed Murphy’s suggestions Friday as “abstract.”

“It seems like another attempt to kick the can down the road, while ignoring real proposals in our Path to Progress report,” said Oroho, R-Sussex.



https://www.nj.com/atlantic/index.ss...ves_feedb.html
Quote:
N.J. pension fix crucial as stock market dives | Feedback

Spoiler:
Since I started working for the State of New Jersey 20 years ago, I have heard about the problems of its pension funds. Enough is enough!

There may be only one governmental leader who is realistic enough to see that the general public-employee pension fund will never become solvent without serious reform. That is why, as a lifelong union member, I fully support state Senate President Sweeney's pension reform plan.

Under his plan, every current state employee with at least five years service would retain his or her pension. No promises to them will be broken. (Newer and future state workers would be shifted to 401(k) type-plans.) Those who are considering public-sector jobs would know exactly the type of retirement plan they'll have, so that they can make an informed decision on whether or not to take these jobs. This is fair.

N.J. public-worker pension fund suffered losses as stock market tanked this fall
N.J. public-worker pension fund suffered losses as stock market tanked this fall

State investment officials said the fund bounced back thanks to the recent market rally.


I am sick and tired of the naysayers who have no realistic plan of their own to fix the pension system. What also bothers me is that many of the opponents to proposed changes, such as activist organization leaders, are not even public employees.

The stock market is dropping, the economy will soon slow down, and the pension system is in horrible shape. The future is bleak, too.


Rhetoric must stop and action must occur. Sweeney's proposed changes are good for the workers who are currently in the plan. That is why I fully support these reforms and urge all current government workers to educate themselves and, hopefully, come to the same conclusion.

Time is running out. Those of us who currently are in the Public Employee Retirement System in the plan must take control. Reform this pension plan now.

Michael J. Makara, Mays Landing


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  #2005  
Old 12-26-2018, 11:44 AM
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KENTUCKY

https://www.wpsdlocal6.com/2018/12/2...ension-reform/
Quote:
Stymied in 2018, GOP looks to try again on pension reform

Spoiler:
FRANKFORT, Ky. (AP) — Kentucky’s Republican majorities in the state legislature will try again to change the state’s troubled public pension systems when they return to the state Capitol in January.

Republicans have controlled state government for nearly two years. But they have not been able to enact structural changes to the state’s pension systems, which are at least $38 billion short of the money required to pay retirement benefits over the next three decades.

The most recent failure came this week when Republican Gov. Matt Bevin called lawmakers back in session in an effort to pass a pension proposal recently struck down by the state Supreme Court on procedural grounds. But lawmakers adjourned without passing anything.

Republican leaders say they are committed to passing pension changes in 2019.


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  #2006  
Old 12-26-2018, 11:53 AM
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NEW YORK
DIVESTMENT

https://www.nydailynews.com/news/pol...223-story.html
Quote:
EXCLUSIVE: Ex-top state controller official calls on DiNapoli to divest pension fund $$$s from fossil fuel companies

Spoiler:
ALBANY — A former top official in the state controller’s office says its time Controller Thomas DiNapoli begins considering divesting billions of dollars in pension funds from fossil fuel companies.

Thomas Sanzillo, an ex-first deputy controller who is now with the Institute for Energy Economics and Financial Analysis, says DiNapoli’s approach of shareholder resolutions to get gas and oil companies to change their practices is not working.


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“What Tom is doing is largely ineffective and I would say really undermines the otherwise good work they’re doing on climate change,” Sanzillo said.

He argues that the gas and oil companies, which once were a sound and profitable investment, are no longer so. Where once seven of the top 10 S& P companies were gas and oil companies, now just Exxon/Mobil is on the list, he said.

“There is a long term decline and you can see it in the stock returns and you can see it in the balance sheets of the company—and it ain’t going to get better,” Sanzillo said.

There is $13.1 billion that activists say the pension fund has tied up in fossil fuel companies. DiNapoli's office says the total fossil fuel company investments are closer to $7 billion.

Sanzillo says “it’s time for fiduciaries, when confronted with that level of risk, to ask their professionals to devise a portfolio that is fossil free. Do a study of asset allocation programs so you can be positioned to get out of fossil fuels and not be caught short and not be caught off guard.”

DiNapoli, even if he continues to push shareholder resolutions, like one he recently announced with the Church of England’s investment fund involving ExxonMobil, should concurrently have his investment team devise a potential divestment strategy, he said.

“The lapse, and it is a lapse of Tom’s, is not asking the question, not being prepared for such a large segment of the fund,” Sanzillo said. “It’s not proper fiduciary (responsibility).”

Sanzillo has spoken out on the issue before but hopes with DiNapoli elected to a new four-year term, “this is a time for reconsidering about how he is approaching the future and maybe making some changes. We would hope that he might consider this a little further.

“I think he’s making a mistake,” he said of DiNapoli. “The correct fiduciary position at this time is to have a plan where he can divest, make some demands on the companies that are reasonable and give a timeframe to meet them. And if they don’t, it’s time to move out of the stock. I think that is the most effective next step.”

He called shareholder resolutions “a half step and we need a lot more.”


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DiNapoli spokesman Matthew Sweeney argued the $204.7 billion state pension fund “remains ahead of its peers in studying climate risk to its long-term value and in having actually shifted assets away from the worst carbon emitters.”

“The controller is widely recognized for his leadership among institutional investors addressing climate risk,” Sweeney said. “The Decarbonization Panel (created by DiNapoli and Gov. Cuomo) is studying all of these issues and the controller looks forward to its input.”

DiNapoli earlier in the month was in Poland for a United Nations conference on climate change. He also recently announced a $3 billion increase to the fund's existing $7 billion Sustainable Investment Program.

Sanzillo served in the controller’s office from 1994 through July 2007. He was appointed first deputy in 2003 by then Controller Alan Hevesi. He served as acting controller for several months beginning in late 2006 after Hevesi resigned in disgrace after having been re-elected to a second term.

DiNapoli upon taking office in February 2007 kept Sanzillo on as first deputy until he resigned to head into the private sector that July.

The Daily News reported last week that environmental groups are planning an aggressive campaign in 2019 to pressure DiNapoli into following the lead of 1,000 institutions worldwide that are divesting from fossil fuel companies, including the New York City pension fund, which this year began divesting itself of $5 billion in such investments.


http://thechiefleader.com/news/news_...7c30c906a.html

Quote:
City, State Comptrollers Take Different Approaches on Pension-Fund Pressure

Spoiler:
The elected officials responsible for the city’s and state’s pension-investment portfolios agree that addressing climate change is vital for the future of the planet. There is also consensus that their respective investments should be leveraged to favor companies that promote long-term environmental sustainability.

But there is a major parting of the ways between the city and the state systems when it comes to whether they should divest from Big Oil and other fossil-fuel-dependent stocks.

Stringer, DiNapoli Clash

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On one side of the debate are Mayor de Blasio and City Comptroller Scott M. Stringer, who are charting a course to divest from these companies. On the other side is State Comptroller Thomas P. DiNapoli.

Come next year, that debate is likely to get hotter.

Environmental activists have said they plan to target Mr. DiNapoli with protests to convince him to move toward divestment. “DiNapoli is in danger of becoming a real joke on the greatest issue of our age,” environmentalist and writer Bill McKibben told the Daily News.

On the legislative front, State Sen. Liz Krueger and Assemblyman Felix Ortiz have announced plans to introduce legislation that would mandate that the state pension fund divest from the fossil-fuel companies.

While some of the city’s public-employee unions, led by District Council 37 and the United Federation of Teachers, have expressed enthusiastic support for its divestment strategy, several unions are more reluctant to embrace the approach for fear of the impact on the long-term rate of return for the funds.

“As fiduciaries on the pension fund, we want to act socially and economically responsible,” Jake Lemonda, president of the Uniformed Fire Officers Association, said in a phone interview earlier this year. “Many of these companies have performed well for our members and the trustees will have to take a good hard look at this. It can’t be done with the snap of the fingers.”

Don't Play Politics

Michael Carrube, president of the Subway Surface Supervisors Association, which represents 4,000-plus subway supervisors, was less diplomatic. “Our pensions are and should be protected from ambitious politicians who would try to use them as policy experiments or as part of some broad political agenda that ultimately affects our members and other working families,” he said.

Mr. DiNapoli maintains that the state pension fund can be more effective in achieving major environmental goals by having a “seat in the boardroom” as an activist investor prepared to use shareholder resolutions to push for change from the oil companies.

He pointed to last year’s win when the state helped lead a successful shareholder-resolution fight that directed Exxon to “analyze how worldwide efforts to adopt the Paris Agreement goals for reducing global warming might impact its business.”

A Complete Reversal

A year earlier that same resolution went down to defeat, with only 38 percent of Exxon’s shareholders supporting it. Last year, 62 percent of the proxy-holders supported it.

A similar shareholder-resolution strategy helped convince Dunkin Donuts to pledge to use only palm oil that’s produced without a link to de-forestation.

“Comptroller DiNapoli will continue to address climate risk, while holding to his priority of protecting the retirement security of New York’s public workers,” Matthew Sweeney, a spokesman for the State Comptroller, said in a phone interview.

This month Mr. DiNapoli traveled to Poland to participate in the United Nations conference on climate change and announced a $3-billion increase to the state pension fund’s then-$7 billion Sustainable Investment Program. Of that portfolio, $4 billion is earmarked for low-emission equities. The remaining $6 billion is spread across all asset classes that advance a “sustainable” economy but are not restricted to climate issues.

High International Rating

The Asset Owners Disclosure Project, based in London, rates and tracks the world’s 100 largest public pension funds for their effectiveness in addressing climate change. AOPD ranks the state’s pension fund as the best in the U.S., and third globally, in terms of addressing climate change.

But boosters of fossil-fuel divestment think that continued investment in oil companies poses an unacceptable ecological risk, as well as economic liability for pensioners.

“There seems to be this undercurrent that a lot of people who hear us talking about climate solutions think it some kind of leftist utopian view of the world, when in reality it is real,” Henry Garrido, executive director of DC 37 and a pension trustee, said last year. “As trustees we did the responsible analysis and we looked at just what one degree of global warming would mean and what two percent means and what it would mean for our investments.”

On Dec. 18 Mr. de Blasio and Mr. Stringer announced their “next big step” in “divesting from fossil-fuel-reserve owners” was the release of a request for proposals to “recommend prudent fossil-fuel divestment strategies” for the city.

‘Prudent Divestment’

The RFP will help chart a divestment strategy for the New York City Employees’ Retirement System, the Teachers' Retirement System, and the Board of Education Retirement System, which represent 70 percent of the total assets of the City’s $200-billion pension funds. “This analysis—the first-of-its-kind of a pension fund of this size—will inform the development of a comprehensive and prudent divestment strategy to preserve the retirement funds of city employees and address climate change risks, consistent with fiduciary duty,” according to a joint statement put out by the Mayor and Comptroller.

“Divestment is a critical part of our strategy to fight climate change while insulating our pension funds,” Mayor de Blasio said in a statement. Mr. Stringer said, “Climate change poses an existential threat. But by moving towards a fossil-fuel-free investment strategy, New York City is planting the seed for a clean, green, and thriving economy that can truly support future generations.”


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  #2007  
Old 12-26-2018, 11:54 AM
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SAN FRANCISCO, CALIFORNIA
ASSET MANAGEMENT

https://www.ai-cio.com/news/three-ma...-pension-plan/

Quote:
Three Managers Put Under Review By San Francisco Pension Plan
AQR, William Blair, and DFA all have seen their international equity strategies reduced by the San Francisco Employees’ Retirement System.


Spoiler:
Investment staff of the $24.4 billion San Francisco Employees’ Retirement System (SFERS) has added three money managers running international equity strategies to its managers under review watch list and has been gradually reducing their allocations because of poor performance.

Investment staff documents dated Dec. 12 show that the AQR international strategy, the William Blair international growth strategy, and the DFA international small cap strategy were all added to the managers under review list.

Four other managers’ investment strategies were already on the list: Advent Capital’s balanced convertible strategy, the Fidelity international small cap strategy, Oaktree Capital Management’s high-yield strategy, and the AFL-CIO Housing Investment Trust.

Companies on the watch list receive in-depth monitoring from SFERS investment staff and are subject to termination.

However, the San Francisco system, the board documents show, has been reducing the managers’ allocations while still keeping their investment contracts in place.

As of Sept. 30, the AQR international strategy was down to $612 million after a $100 million reduction in June 2018. The William Blair international growth strategy was down to $360 million, after a $150 million reduction in March, a $100 million reduction in July, a $50 million reduction in August, and a $50 million reduction in October.

The third investment strategy, the DFA international small cap strategy, was down to $367 million as of Sept. 30, following reductions by SFERS staff of $100 million in March and a second $100 million in June.

The managers all face potential further reductions, according to the staff memo, because the SFERS board in Oct. 2017 approved the reduction in the target allocation to public equities to 31% of the overall $24.4 billion portfolio from 40% (the current weighting is 39%). “Hence, over the next few years, we will be reducing public equity by approximately $2 billion,” the memo said.

It added that the three managers “will be evaluated in the context of the redesigned public equity portfolio.”

The documents show that the AQR international strategy has underperformed its benchmark in the third quarter of 2018 and “over the trailing one- and three-year time periods.”

“Relative to its peer group, AQR’s performance (gross of fees) ranks in the bottom quartile for the one-year time period and in the third quartile for the three- and five-year time periods,” the report said. “Since inception, AQR has outperformed the benchmark by 80 basis points.” The San Francisco pension system hired AQR in August 2006.

In the third quarter of 2018, ending Sept. 30, the AQR strategy had an investment return of 0.1% compared to the MSCI EAFE benchmark of 1.4%. For the one-year period, the AQR strategy had an investment return of -1.5% compared to the MSCI EAFE benchmark of 2.7%. For the three-year period, the AQR strategy had an investment return of 9% compared to the MSCI EAFE benchmark of 9.2%.

“The strategy employs two models seeking to take advantage of three sources of risk: (1) the stock selection model which uses bottom-up analysis to express stock/industry views and (2) the asset allocation model which uses top-down analysis to express country views and currency views,” the San Francisco report stated.

It went on: “a majority of the portfolio’s 3Q underperformance came from the strategy’s global stock selection model, which makes country and currency bets within developed markets, (which)was neutral for the quarter. Over the trailing three years, the negative contribution from the stock selection model and the positive contribution from the asset allocation model have roughly offset each other.”

The report said the William Blair strategy “underperformed its benchmark in the 3Q 2018 and has underperformed over the trailing one- and three- and 10-year time-periods and is in the third quartile for the five-year time periods.”

In the third quarter of 2018 ending Sept. 30, the William Blair strategy had an investment return of -0.1% compared to the SFERS custom international equity benchmark of 1.5%. For the one-year period, the William Blair strategy had an investment return of 2.1% compared to the SFERS custom international equity benchmark of 5.5%. For the three-year period, it had an investment return of 8.9% compared to the SFERS custom international equity benchmark of 9.9%.

“Underperformance relative to the benchmark was primarily driven by negative stock selection,” the report said. “Within the Materials sector, positions in Boliden and Covestro were the biggest detractors. Boliden, a Scandinavian mining company, was hurt by weaker metal prices. Covestro, a chemical spin-off from Bayer, is a global leader in polycarbonate and polyurethane production. The stock dropped despite 2Q results that were ahead of consensus estimates.”

The report went on to say that “M&A Capital Partners, a Japanese company that provides M&A advice to small and medium companies was another significant detractor in the third quarter. The company reported weak 3Q results driven by fewer deals and fewer large transactions.”

One bright spot in the William Blair international portfolio, the report noted, was the money managers holdings in MTU Aero Engines, one of the world’s largest aircraft engine module manufacturers.

“The William Blair team believes that as air traffic increases and capacity improves, the demand for spare parts and maintenance services should also increase,” the report noted.

For DFA, the San Francisco system’s investment staff said the manager had “underperformed its benchmark in the third quarter and over the trailing one- and three-year time periods. Relative to its peer group, DFAs performance (gross of fees) is in the third quartile for the one-year, three-year and five-year time-periods.”

In the third quarter of 2018 ending Sept. 30, the DFA International Small Cap strategy had an investment return of -1.1% compared to its benchmark, MSCI World ex USA Small Cap, of -0.9%. For the one-year period, the DFA International Small Cap strategy had an investment return of 1% compared to its benchmark, MSCI World ex USA Small Cap, of 3.4%. For the three-year period, the DFA international small cap strategy had an investment return of 11.9% compared to its benchmark, MSCI World ex USA Small Cap, of 12.2%.

“DFA applies insights from theoretical and empirical research to identify systematic differences that can be exploited to achieve higher returns,” the report said. “This results in a portfolio that is tilted toward smaller caps versus larger caps, value companies versus growth companies and more profitable companies versus less profitable companies.”

“In the third quarter, DFA’s tilt towards smaller companies hurt absolute performance while their stock selection in the large cap segments hurt relative performance,” the San Francisco report went on. “Additionally, holdings in the materials sector hurt performance relative to the benchmark.”


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Old 12-26-2018, 11:55 AM
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KENTUCKY

https://www.ai-cio.com/news/moodys-t...n-reform-mess/

Quote:
Moody’s Takes Dim View of Kentucky Due to Pension Reform Mess
Ratings agency doesn’t downgrade the state but puts it on ‘credit negative’ status, which could portend trouble ahead.


Spoiler:
Kentucky’s botched attempts at pension reform is going to cost the troubled state dearly, as one of America’s top credit rating agencies has deemed it “credit negative” for its inaction.

This is not the same as a downgrade, but puts the state on notice that the agency looks at its situation with concern. Moody’s submitted its warning to the Bluegrass State because of a state Supreme Court ruling that struck down Governor Matt Bevin’s controversial pension law. The firm said the motion “delayed reforms to the state’s severely underfunded pension plans that were set to provide modest savings over the long term.”

The move does not change Kentucky’s credit rating, but addresses Moody’s uncertainty about the state’s ability to pay its $43 billion liability. Of that total, the rater said Kentucky is about $39 billion short, as the debt is 332% of the state’s revenue. At present, Moody’s gives the state government an Aa3 rating, which is high-quality.

Bevin’s law would have put new teachers into a 401(k)-style retirement system, doing away with a traditional defined benefits plan. It also would have limited the number of sick days that can be accrued toward their retirements.

The law was tucked into a sewage bill at the end of the 2018 legislative session, then passed the following morning. Attorney General Andy Beshear sued Bevin on grounds that the pension law and how it was passed violated the state constitution.

Then the Kentucky Circuit Court struck down Bevin’s pension law, which the governor appealed, taking the matter all the way up the state’s judicial ladder. Last week, the Supreme Court’s decision seemingly ended the issue, but the high court’s dismissal only fueled Bevin’s fire as he called a special reform-focused legislative session almost immediately.

But that went nowhere. The special session was adjourned with no resolution barely a day later. The governor’s top reason for calling the special session was fear of a credit downgrade, which would be another sour note for the badly funded state.

Pension reform will still be a top priority when the 2019 session begins, and assuming that lawmakers can agree on some form of benefit changes, Moody’s said Kentucky would “stand to reduce its pension contribution requirements, or at the very least enable its current contribution levels to go further toward reducing its unfunded liabilities.”

However, the credit rating agency is also expecting Beshear, a Democrat seeking to de-throne the Republican Bevin next year, to “challenge the laws on substantive grounds.”


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RHODE ISLAND

https://www.providencejournal.com/ne...asurers-office

Quote:
Pension fund positioned ‘defensively,’ says R.I. treasurer’s office

Spoiler:
The administrators of Rhode Island’s $8.1-billion public employees pension fund see no reason at this point to “react″ to the stomach-churning drops in the stock market heading into Christmas.


PROVIDENCE — The administrators of Rhode Island’s $8.1-billion public employees pension fund see no reason at this point to “react″ to the stomach-churning drops in the stock market heading into Christmas.

Asked on Monday what, if any, action state Treasurer Seth Magaziner was taking in response to the market plunge, his spokesman Evan England emailed this response:

“While it is unfortunate to see markets responding to the Trump Administration’s actions in recent weeks, we do not anticipate changing our investment strategy.”

U.S. stocks have dropped sharply in recent weeks on concerns over weaker economic growth, with the S&P 500 index headed for its biggest percentage decline in December since the Great Depression.

Asked why Magaziner, a Democrat, was blaming President Donald Trump for the collapse of the market, England said there is a “long list” that includes: starting a U.S. trade war with China and the partial shutdown of the federal government.


LATEST AUDIO

(Trump tweeted an alternative explanation that put the blame on the Federal Reserve: “The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”)

England said the Rhode Island treasurer’s office will not know until the end of the month how much value the pension fund portfolio lost in this latest rout.

But he said Magaziner’s “back-to-basics strategy was designed for long-term growth along with the markets and stability during inevitable times of market volatility. In fact, under Back to Basics, nearly half of our investments are positioned defensively.”


Put another way, he said: about 45 percent of the investments were in the global equity market as of Nov. 30; the other 55 percent is made up of what he described as “defensively positioned assets,″ such as fixed-income bonds, real estate, and bank loans that were “specifically chosen″ to protect against different types of risk.

The state’s pension investments represent one of the three sources of income for the pensions promised in the future — or currently being paid — to close to 60,000 past and present public employees, including state workers, public school teachers and municipal employees. About half are currently pensioners. The fixed-rate contributions of the employees are a second funding source.

Taxpayers are ultimately responsible for making up the difference between the state’s pension obligations and the money available to pay them.


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CALIFORNIA

https://www.santacruzsentinel.com/20...and-dmv-fixes/

Quote:
Editorial: Newsom must deal with pensions and DMV fixes

Spoiler:
California’s broken system of funding public employee pensions and our state’s impossibly inefficient and outdated Department of Motor Vehicles are problems our next governor quickly will have to face.

At least concerning the DMV, incoming Gov. Gavin Newsom’s 2019 wish may already have been granted, when Director Jean Shiomoto announced her retirement earlier this month.

ADVERTISING


With her departure, Newsom doesn’t have to fire her and has an opportunity to remake this troubled agency.

After numerous reports from customers about long waits for service, rude or absent employees (including one found habitually asleep while on the job), along with broken computer systems, the DMV suffered another black eye after news reports about how nearly 25,000 people were erroneously registered to vote, including some non-citizens.

Many of the DMV’s issues predate Shiomoto’s tenure that began in 2013, but the wait times and the department’s overall response have only worsened since then. It hasn’t helped that Congress and state legislators have added duties that have furthered the DMV’s institutional breakdown.

The DMV not only is charged with managing the licenses and vehicle registrations for California’s 24 million drivers and 30 million vehicles, but the agency also has to license undocumented immigrants and enroll millions of Californian’s in the federally mandated “Real I.D.” program by 2020.

ADVERTISING


inRead invented by Teads
The DMV simply has not been able to keep up.

Newsom has spoken forcefully about the DMV’s problems, including saying that a governor who proves unable to fix the agency “should be recalled.”

One place to start is to allow state Auditor Elaine Howle to do a complete review of the agency, a move Democrats have blocked .


Newsom also has written about his ideas on improving the DMV’s legendarily abysmal performance. In a 2014 book, Newsom suggested a “RateMyDMV” website where people could rate the agency on wait times and customer service. He also advanced the idea of using 1-5 star ratings that would encourage government departments and agencies to compete to see which could garner the highest ratings.

At the least, he’ll get to bring in new leadership to lead the way to bring the DMV into the modern world in terms of technology and accountability in how it treats taxpaying customers.

DMV employees are among the Californians working toward public worker pensions. Unfortunately, the state’s pension system is horribly out of whack and many local cities and counties, such as Santa Cruz, have to had to ask voters for tax increases to stave off financial ruin from unsustainable pension obligations.

The abuses and spending seem to have no end. Most recently, a government watchdog group, Transparent California, that tracks the salaries and benefits paid to public employees found that the state’s biggest pension systems are breaking IRS rules regarding excessive pensions.

Contributions to a pension fund are not taxed, and neither is a fund’s investment income, but to prevent excesses, the IRS limits the amount a pension fund can pay a retiree to $220,000 per year.

Recipients of lavish pensions have led agencies to establish an “Excess Benefit Plan” to pay what the pension system cannot legally cover, using money that could otherwise be tapped to fix sidewalks, fight homelessness or hire more cops, the Los Angeles Times reported this month.

Moreover, outgoing Gov. Jerry Brown has warned that the state’s cities and counties still face a financial catastrophe unless the so-called “California Rule” is overturned by the California Supreme Court. The rule refers to the precedent that forbids public agencies from reducing pension benefits for current employees and retirees unless they provide additional compensation to offset the loss of income.

Despite Brown’s claim to be a pension reformer, the state’s retirement debt increased during his eight-year tenure. Newsom will inherit an almost unimaginable $257 billion shortfall in state and school employee pension and retiree health care funds.

Newsom will be under pressure from Democrats, who hold a supermajority of seats in both houses of the Legislature, to spend a dubious state budget surplus on new programs. He should resist and use the money to instead bring down the rising pension-obligation debt. The longer he and legislators wait, the greater the cost to taxpayers.








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