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Old 01-09-2018, 09:47 AM
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Mary Pat Campbell
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Fund managers shouldn't try to save the world at pensioners' expense
A few years ago, CEOs came up with a saying to distract people from how much money they make: “Companies that do well need to do good!”

In addition to some precise English-language usage, the sentiment is very sound: If you make a lot of money, you should help others. This charitable attend is nothing new, it’s sort of a modern-day noblesse oblige, and it’s a principle that investors can tap into by sending their money to companies they feel are socially responsible.

An article in Forbes earlier this year declared that such a strategy could even “earn better returns” for investors. They can do well and do good.

But this idea ignores an important group of people: retail investors (like pension fund members or 401(k) holders) who depend on those investments, but don’t have a particularly thorough understanding of the market or perhaps even the capital to indulge in social responsibility.

Shouldn’t they have a say in how their own money is invested?

Yes, they should, according to a new survey from the Spectrem Group, which polled public pension fund members on what they expect from their accounts and their fund managers.

Improving corporate governance and reducing environmental impacts may be worthy causes, but Spectrem found that members almost universally want fund managers to focus on what they pay them for: maximizing returns instead of chasing ego-stroking headlines.

“Members believe pension fund managers should be spending most of their time on performance related objectives and only a small amount of time using fund resources to advance political causes,” the Spectrem Group concluded.

Only 11 percent of those surveyed wanted their pension to prioritize “worthy political and/or social causes,” even if those generate lower returns. By contrast, nearly 80 percent of pension fund members nationwide believe fund managers primary goal should be returns.

Among those close to retirement — age 51 and older — the number increased to 91 percent, even if the pension member supported the particular cause.

People on a fixed income, who are struggling to do well, don’t have the luxury that a CEO does who wants to do good. It’s like Unilever CEO Paul Polman who “put superficial feel good policies ahead of sound business decisions” to the outrage of his shareholders and employees.

Spectrem surveyed various pension funds nationwide, but focused on the California Public Employees’ Retirement System (CalPERS) and the New York City Employees’ Retirement System (NYCERS).

Hailing from two very blue states, these funds have been the most active in so-called “socially responsible” investments, and neither fund is anywhere close to being fully funded: CalPERS is at 68.1 percent, and NYCERS is at 62 percent.

Fund managers’ emphasis on “saving the world” has come at the expense of their fiduciary duties.

Unsurprisingly, 89 percent of CalPERS and NYCERS members expressed at least some concern about how much time fund managers spent on political and social causes. Over 40 percent said they were “very concerned” because every dollar spent on a cause was one less dollar spent providing for a retiree.

Not surprisingly, the only exception Spectrem found was among younger people (age 30-and-under), who were the most likely to support investments in politically favorable causes.

Younger people decades away from retirement again have the luxury of donating to causes they believe in. But even still, those who wanted to advance social causes expect returns to be in line with the broader market.

These findings underscore a bigger problem.

Investment fund managers can do whatever they want with little accountability. Individual retirement account holders want to retire with peace of mind, yet the managers who are tasked with that indulge in playing politics with other people’s money. They do good at the expense of other people doing well.

The solution is not to abandon socially responsible investing. People should have the freedom to choose how to invest their money. But pensioners, 401(k) holders and other retail investors are largely removed from these decisions.

They should have the freedom to challenge fund managers who side with activist investors on social causes. Institutional investors are voting on shareholder proposals that directly impact workers’ future retirement. Shouldn’t those future retirees have a say in how their own money is being managed?

At the very least, there needs to be more accountability for fund managers. (Ironically, corporate accountability is frequently held as a metric of social responsibility!) Educating retail investors will help level the playing field by making sure managers focus on fund performance.

If those managers want to prioritize activist investing instead of chasing the best returns, the people who depend on those returns can provide the oversight they deserve.

Fund managers are tasked with managing retirement accounts on behalf of working families, but as the Spectrem Group survey shows, they often seem to be serving their own sanctimoniousness more than anything else.

Until the retail investors are brought more into the fold, institutional investors will continue to play politics — even at the expense of future retirees’ well-being. This has to change. Those who want to do good need to do good for the people struggling to do well.

Jared Whitley is a senior communications consultant for Capital Policy Analytics, a consultancy that provides economic analysis to businesses both in the U.S. and abroad on how government policies affect markets and the broader economy. He worked as a press assistant for Sen. Orrin Hatch (R-Utah) in 2006-2008, as an associate director for rapid response in the George W. Bush White House in 2008-2009 and as a government and media coordinator in the defense industry.
and here's an example...

CalSTRS, JANA urge Apple to study tech impact on kids
CalSTRS and JANA Partners are calling on Apple Inc. to study the impact of frequent cellphone and tablet use on children and teenagers, and provide more choices for parental control.

In a letter to Apple's board of directors on Jan. 6, executives from the $221.7 billion California State Teachers' Retirement System, West Sacramento, and JANA point to several studies that found the frequent use of digital technologies by children and teenagers can lead to negative consequences on their health and well-being, including depression, sleep deprivation and a limited ability to focus on educational tasks in the classroom.

The letter also cites a survey of more than 3,500 U.S. parents by the American Psychological Association, which found that 48% of parents said regulating their child's screen time was a "constant battle," 58% of parents said they feel like their children are attached to their phones or tablet, and 58% worry about social media's influence on their child's physical and mental well-being.

While Apple already has some parental controls in place, these are "limited largely to shutting down or allowing (parents) full access to various tools and functions," CalSTRS and the activist hedge fund manager argued in the letter. Furthermore, "while there are apps that offer more (parental control) options, there are a dizzying array of them; it is not clear what research has gone into developing them; few if any offer the full array of options that the research would suggest; and they are clearly no substitute for Apple putting these choices front and center for parents."

"There is a developing consensus around the world including Silicon Valley that the potential long-term consequences of new technologies need to be factored in at the outset, and no company can outsource that responsibility to an app designer, or more accurately to hundreds of app designers, none of whom have critical mass," the letter states.

To address these issues, CalSTRS and JANA suggested Apple, among other things, form a committee of experts to study these issues and monitor ongoing developments and trends; partner with additional experts to enhance research efforts; enhance parental choices on mobile devices; and assign a high-level executive to monitor these issues and prepare annual progress reports. CalSTRS and JANA's recommendations for enhanced parental controls include changes to the initial setup menu that would allow parents to enter the age of the user and receive age-appropriate setup options such as limiting screen time and reducing the number of available social media sites.

CalSTRS and JANA own about $2 billion of Apple shares combined.

A copy of the letter can be found on, a new website set up by JANA.

An Apple spokesman could not immediately be reached for additional information.

So... I go to their website:

and it comes with a disclaimer before I can even look at the page:


The information contained on this website is made available by or on behalf of JANA Partners LLC and certain of its affiliates (collectively “JANA PARTNERS”, “we” or “us”) for informational purposes.

This website is not affiliated with, or endorsed by, Apple Inc. (“Apple”).


Cautionary Statement Regarding Forward-Looking Statements
The information herein contains “forward-looking statements.” Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our objectives, plans or goals are forward-looking. JANA Partners; forward-looking statements are based on its current intent, belief, expectations, estimates and projections regarding Apple and projections regarding the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

Terms of Use of Website
By entering our website, you acknowledge your understanding of, accept, without limitation or qualification, and agree to be bound by, the Terms of Use herein and all applicable laws. These Terms of Use constitute a binding agreement between you and JANA Partners and govern your access to and use of our website. JANA Partners may add to, change or remove any part of these Terms of Use at any time or from time to time, without notice, and any such modifications will be effective immediately upon posting.

This Terms of Use and any additional terms posted on this website constitute the entire agreement between JANA Partners and you with respect to your use of this website. If any part of these Terms of Use is held invalid or unenforceable by a court of competent jurisdiction, that part of the Terms of Use will be deemed modified to the extent necessary to make it effective and the remaining provisions of this Terms of Use will remain in full force and effect.

Disclaimer Regarding Materials
These materials do not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive these materials, and should not be taken as advice on the merits of any investment decision. The views expressed herein represent the opinions of JANA Partners, which opinions may change at any time and are based on publicly available information with respect to Apple. Opinions expressed herein are current opinions as of the date appearing in these materials only. JANA Partners disclaims any obligation to update the data, information or opinions contained herein except as required by law. Unless otherwise indicated, financial information and data used herein have been derived or obtained from filings made with the applicable regulator by Apple or other companies that JANA Partners considers comparable, and from other third party reports.

There is no assurance or guarantee with respect to the prices at which any securities of Apple will trade, and such securities may not trade at prices that may be implied herein. The estimates, projections, pro forma information and potential impact of the proposals set forth herein are based on assumptions that JANA Partners believes to be reasonable, but there can be no assurance or guarantee that actual results or performance of Apple will not differ, and such differences may be material.

JANA Partners currently holds a substantial amount of shares of common stock of Apple. JANA Partners may from time to time sell all or a portion of its shares in open market transactions or otherwise (including via short sales), buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls or other derivative instruments relating to such shares. Neither these materials nor anything contained herein is intended to be, nor should it be construed or used as, investment, tax, legal or financial advice, an opinion of the appropriateness of any security or investment, or an offer, or the solicitation of any offer, to buy or sell any security or investment.

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This website and the materials contained herein are not intended to be, nor should they be construed as, an offer to sell or a solicitation of an offer to buy any security. This website and the materials contained herein do not recommend the purchase or sale of any security.

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Under no circumstances, including but not limited to JANA Partners negligence, shall JANA or any of our affiliates, agents, partners, members, employees or consultants, including any person or entity involved in creating, producing or distributing this website (collectively, the “JANA Parties”), have any liability for any damages, liabilities or injuries, including, but not limited to, indirect, incidental, special, punitive or consequential damages, however caused, arising out of or relating to your use of, or inability to use, this website. THE AGGREGATE TOTAL LIABILITY OF THE JANA PARTIES TO YOU FOR ALL DAMAGES, INJURY, LOSSES AND CAUSES OF ACTION (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING FROM OR RELATING TO THESE TERMS OF USE OR THE USE OF OR INABILITY TO USE THE SITE SHALL BE LIMITED TO PROVEN DIRECT DAMAGES IN AN AMOUNT NOT TO EXCEED ONE HUNDRED DOLLARS ($100). SOME JURISDICTIONS DO NOT ALLOW THE LIMITATION OR EXCLUSION OF CERTAIN LIABILITY OR WARRANTIES, IN WHICH EVENT SOME OF THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU. In such jurisdictions, the JANA Parties liability is limited to the greatest extent permitted by law. You should check your local laws for any restrictions or limitations regarding the exclusion of implied warranties.


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I AGREE - I have read and agree to these terms

I DISAGREE - I have read and disagree

(No access to this website will be granted without agreeing to the above terms.)

I don't feel like agreeing, so somebody else can go and look at the website.

Also, they hold about $2 billion in Apple shares; Apple's market cap is about $900 billion

and more

IPhone addiction may be a virtue, not a vice for investors
NEW YORK (Reuters) - Apple Inc (AAPL.O) investors are shrugging off concerns raised by two shareholders about kids getting hooked on iPhones, saying that for now a little addiction might not be a bad thing for profits.

Hedge fund JANA Partners LLC and the California State Teachers’ Retirement System (CalSTRS) pension fund said on Saturday that iPhone overuse could be hurting children’s developing brains, an issue that may harm the company’s long-term market value.

But some investors said the habit-forming nature of gadgets and social media are one reason why companies like Apple, Google parent Alphabet Inc (GOOGL.O) and Facebook Inc (FB.O) added $630 billion to their market value in 2017.

“We invest in things that are addictive,” said Apple shareholder Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management.

He also owns stock in coffee retailer Starbucks Corp (SBUX.O), casino operator MGM Resorts International (MGM.N) and alcohol maker Constellation Brands Inc (STZ.N).

“Addictive things are very profitable,” Gerber said.

Still, the investment community is increasingly holding companies to higher social standards, and there is some concern that market-leading tech companies could draw attention from regulators much like alcohol, tobacco and gambling companies have in the past.

Alphabet and Facebook could not immediately be reached for comment on Monday. Facebook has said social media can be beneficial if used appropriately.

In a statement to Reuters, Apple said it has offered a range of controls on iPhones since 2008 that allow parents to restrict content, including apps, movies, websites, songs and books, as well as cellular data, password settings and other features.

“Effectively anything a child could download or access online can be easily blocked or restricted by a parent,” Apple said in the statement.

Apple shares fell marginally on Monday. CalSTRS holds $1.9 billion in Apple stock, a sliver of the company’s nearly $900 billion market value, while JANA declined to disclose the size of its smaller stake.

“Before Apple speaks, I think it’s too early to change the narrative” for investors, said Peter Jones, vice president of research for Ferguson Wellman Capital Management, which has about 350,000 Apple shares.

Social media companies, not hardware makers, are more deserving of any addiction-related scrutiny, some said.

Jordan Waldrep, who invests in alcohol, tobacco and gambling stocks as manager of the USA Mutuals Vice Fund (VICEX.O), said blaming Apple for its customers’ addiction was analogous to blaming makers of cigarette packs instead of tobacco companies.

“The social media, the cigarettes, are the addictive product,” he said. Waldrep’s Vice fund does not own Apple, but Waldrep said he would consider including social media companies.

Kim Forrest, senior portfolio manager and vice president at Fort Pitt Capital Group, agreed that companies like Facebook, Twitter Inc (TWTR.N) and Snap Inc (SNAP.N) might be more at risk than Apple if investors and regulators push back on how much time people spend on mobile devices.

“Apple is just the delivery device,” said Forrest, who said Fort Pitt has limited Apple holdings. “It’s only compelling with software. Software is the dopamine releaser that keeps you coming back.”

Twitter declined to comment and Snap could not immediately be reached.

The letter from JANA and CalSTRS recommends Apple set up a committee of child-development experts and make more new tools available to parents.

In its statement, Apple did not directly respond to the investors’ demands but said changes are in store for its parental controls. It did not provide details.

Apple Inc
“We are constantly looking for ways to make our experiences better,” Apple said. “We have new features and enhancements planned for the future, to add functionality and make these tools even more robust.”

The addiction issue gained notoriety when former Disney child star Selena Gomez said she canceled a 2016 world tour to go to therapy for depression and low self-esteem, feelings she linked to a social media addiction.

Fears about smartphone addiction have already kicked off regulatory backlash. In December, the French education minister said mobile phones would be banned in schools, and draft legislation in France would require children under 16 to seek parental approval to open a Facebook account.

Even tech insiders are among the vocal critics of social media and its addictive potential.

“Apple Watches, Google Phones, Facebook, Twitter - they’ve gotten so good at getting us to go for another click, another dopamine hit,” said Tony Fadell, a former Apple executive, on Twitter.

John Streur, chief executive of Calvert Research and Management, an Apple shareholder that focuses on social responsibility, said it is plausible that tech devices may some day be understood to hold risks we do not currently understand well.

That would hurt investors if evidence later emerged that companies intentionally built features that create dependency and had evidence that doing so was unsafe.

For the time being, John Carey, a portfolio manager at Amundi Pioneer Asset Management in Boston, said concerns over the human impacts from being glued to screens are not likely to cut into profits. The company holds Apple stock, but the funds Carey manages do not.

“I doubt there will be any impact on the use of smartphones,” he said. “We’re already addicted to them.”

(Adds statement from Apple)

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Last edited by campbell; 01-09-2018 at 10:30 AM..
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Old 01-09-2018, 10:49 AM
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Mary Pat Campbell
Join Date: Nov 2003
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Public pension funds look more to alternatives
Both state and local pension plans saw their alternative asset exposure increase at the end of 2015, according to data released by the Center for Retirement Research at Boston College last week. State plan alternative asset allocations increased to 25.5% from 24.1% in the year. and local plan allocations rose to 20.2% from 19.2%.

The report also highlighted how local plans are closing the gap in funding ratios with state plans attributing more aggressive allocations along with stricter funding policies as sources of the improvement.

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Old 01-09-2018, 11:40 AM
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Mary Pat Campbell
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CalPERS Launches Illegal, Corrupt, Unjustified and Beneficiary-Damaging Private Equity “Strategic Partner” Search Obviously Designed to Favor BlackRock
The brazenness of CalPERS’ corruption is breathtaking. And CalPERS’ captured board is all too happy to play along rather than do its job of protecting beneficiaries and taxpayers.

These statements may sound like hyperbole, but in light of the history and evidence we present in this post, it is difficult to reach any other conclusion. CalPERS is planning to hand over much if not all of its $26.2 billion private equity program (over $40 billion if you include committed funds) to an outside manager in a flagrantly uncompetitive process that flouts California government rules for procurement as well as CalPERS’ own requirements. We’ve previously estimated that this move would cost $50 million a year, with no reason to expect an improvement in returns beyond what CalPERS could obtain on its own at much lower cost. 1

We’ve embedded the vendor documents at the end of this post and will discuss them shortly.

As a Harvard Business School contemporary who has spent his career in investment management said, based on reviewing CalPERS’ materials:

For a public pension fund well known for corruption and “pay for play” activities, this under-the-coat activity is astounding. Every current and future pension recipient should question the Watergate-like behavior of CalPERS.

Last July, at a board offsite, CalPERS staff, with no explanation whatsoever as to why it was necessary or desirable to entertain this line of thinking, held a panel discussion on “private equity business models“. We have urged CalPERS to bring more private equity activities in house to save costs and increase the fund’s bargaining leverage with private equity funds, a direction that has been taken by many family offices, some sovereign wealth funds, and some Canadian pension funds.

But that is not what CalPERS set in motion. Instead, the discussion focused on creating a new “independent” legal entity to manage what was presented as a portion of CalPERS’ $40 billion private equity program. But even simple questions from the board, which was clearly not comfortable with the idea, exposed that even the thin sketch staff offered was incoherent.

Staff made it sound as if they were going to move deliberately, and said they would come back to the board hopefully by year end with a further discussion of legal structures. Instead, staff has moved aggressively, illegally, and in private to advance this plan as rapidly as possible. There is no legitimate explanation for such hurry. The only conceivable reason for the rush is to strong arm the board with a fait accompli.

As we describe in detail below, CalPERS is flagrantly violating both the spirit and the letter of state statutory requirements for purchasing third party services. Even worse, the process is obviously designed to steer this massive contract to a pre-selected vendor, which is almost certainly BlackRock.

Yet under state contracting rules, a party that has in any way influenced the design of a contracting process is barred from participating as a prospective vendor. BlackRock’s head of private equity, Mark Wiseman, was a participant in the July panel without his conflict of interest having been disclosed to the board. Bloomberg reported in September that:

The California Public Employees’ Retirement System is in discussions with New York-based BlackRock about managing some or all of its $26.2 billion in private equity investments…The discussions are preliminary…

So understand what happened:

CalPERS illegally entered into negotiations with BlackRock, without board knowledge or approval, and in violation of state contracting laws

CalPERS is now attempting to tidy up its lawbreaking by setting up a sham competitive process that is still flagrantly illegal

CalPERS has not obtained board approval for this solicitation, let alone for running a sham process. The published timetable shows that staff has no intent of doing so. This is a massive power grab by staff, since the amount of funds at issue is vastly in excess of the investment office’s “delegated authority”

While we have chronicled many examples of CalPERS’ disregard for regulations, laws, and its beneficiaries over the years, ranging from lying to board members and the public about its ability to get fee information and its own costs, to running a non-secret election that violated the California constitution, to running a kangaroo court to try to silence its lone board member who dared challenge bad practices, the stakes and dollars involved here are far greater than in any past abuse.

This course of action is not merely reckless. CalPERS has a history of criminal conduct with private equity managers. Its CEO is now serving a four and half year sentence in Federal prison for taking bribes and four current and former board members were implicated in a private equity pay to play scandal involving Apollo and four other fund managers. Instead of making sure it observes the law punctiliously in dealing with private equity managers, CalPERS is about to make its biggest private deal in history its dirtiest.

CalPERS Has Given No Reason Whatsoever for Handing Over Its Private Equity Program to a Pricey and Unnecessary Middleman….

One reason for CalPERS to move quickly and in secret for the biggest action it will have taken in its entire history appears to be to escape basic accountability. CalPERS has made no attempt to explain why it is pursuing such a radical action that is contrary to its beneficiaries’ interest as well as the behavior of other major investors in private equity. The fact that CalPERS has been unwilling to explain what it thinks it is accomplishing strongly suggests that its actual motives are illegitimate. CalPERS offered no rationale at its board meeting last July nor has it deigned to try to justify an unheard-of effort to shirk its basic investment responsibilities, which will cost beneficiaries dearly.

Not only has CalPERS’ board not approved this radical, indefensible experiment, the “Request for Information” embedded below shows that CalPERS board will not be given the opportunity to reject this program, but merely only to ratify one of staff’s nominated vendors.

The closest we have in the way of a rationale is an emotional, incoherent speech by CalPERS Chief Investment Officer Ted Eliopoulos last June. Eliopoulos he made clear he was very upset about being criticized and was unable to keep his staffers from being bothered.2

The wee problem is that Eliopoulos and CalPERS generally are unwilling to admit that the criticisms are fully warranted and they need to shape up. It is hardly uncommon for companies and other groups in the public eye like sports teams to be faulted when they make mistakes. The solution is to fix the problem, not wallow in self-pity and worse, set out to waste hundreds of millions of beneficiary and possibly ultimately taxpayer money so their feelers will no longer be hurt.

CalPERS’ response instead is to try to misrepresent what it is doing as something other than outsourcing or hiring a fund of fund manager. Anyone who has been in the investment business will see that despite CalPERS’ attempts to snooker its beneficiaries and state officials, the “partner” scheme meets the “if it walks like a duck and quacks like a duck” test. From the “Private Equity Strategic Partner” document:

It is important to note that with this strategic partnership initiative (Strategic Partnership or Partner) CalPERS does not intend to create a standard “Fund of Fund” relationship or consider this to be an outsourcing of responsibility. Instead, CalPERS desires to create a collaborative partnership where the Partner has investment discretion, but works with CalPERS PE Staff in the development of an annual allocation plan that CalPERS will approve.

Help me. So the fig leaf that makes this arrangement “not exactly a fund of fund” is that the fund of fund manager is required to preserve some employment among current CalPERS private equity staffers by having CalPERS staff work on an “annual allocation plan”.

Keep your eye on the money. The “Partner” has investment discretion. CalPERS is handing the keys to the kingdom over to them. Everything else is a ham-handed effort at improving the optics.

…Because There is No Legitimate Reason for CalPERS to Outsource Private Equity

Let us stress that there is no justification for CalPERS to outsource private equity, save perhaps for exotic, niche strategies. In its other activities, CalPERS correctly fetishizes minimizes costs, since any extra expenses multiplied over the long time horizon of pension fund investments creates a large drag on performance. Private equity is far and away CalPERS’ most costly investment strategy, where the giant pension fund has confirmed that fees and costs amount roughly to a staggering 7% per annum.

Astonishingly, CalPERS is out to make this bad situation worse. Hiring an outsourcing firm will create another layer of fees and costs, hurting performance.

Even worse, CalPERS will have even less accountability and control than before, by being one step further removed from private equity manager selection and oversight. However, this anti-transparency, anti-accountability feature is perversely a plus for CalPERS staff, since they will be able to do an even better job than now of refusing to provide information and hide from public oversight.

CalPERS is deciding not just to be a laggard but to regress. Other investors, even famously cautious and often clueless public pension funds, are embracing strategies to reduce fees and dependence on private equity middlemen. They are strengthening their internal skills, a precursor to doing more in house, reducing fees further, and improving their bargaining power. This is the most obvious way to improve performance, since those whopping 7% per annum costs make a massive dent in net returns. If an investor were to bring these activities in house, it would easily lower annual private equity costs to below 3%, and more likely 2%.

Moreover, any claim that CalPERS could improve performance more through an outsourcer than it could on its own is false.3

Given the size of CalPERS’ private equity program, the best it can reasonably expect to achieve over time is to meet index-level performance. While CalPERS has fallen short in recent years, its own consultant, Meketa, explained that it was the result of a self-inflicted wound: choosing to greatly reduce the number of managers, with the result that CalPERS invested primarily with large and mega buyout funds. They’ve underperformed, dragging CalPERS’ results down.

CalPERS does not need to incur the unnecessary cost of hiring a third party manager to reverse this error. Smaller and less well resourced public pension funds, such as those of Washington and Oregon, run bigger private equity portfolios than CalPERS does with smaller staffs. Does CalPERS really expect us to believe it is too dumb or too incapable to get back to where it was not all that long ago?

Finally, there is a reason, besides the higher cost, to expect CalPERS’ outsourcer to underperform. The best regarded large-scale funds of funds players also have well-regarded private equity funds. It’s one thing for KKR to allow JP Morgan’s fund of fund get its nose into the tent when JP Morgan is representing primarily high net worth individuals and small endowments. It’s another thing entirely when that fund of fund manager is representing a CalPERS and will use that to try muscle for more competitive insight. The result that unless CalPERS were to consider only boutique fund of funds (ones with seasoned professionals but no competing private equity investment business), CalPERS will be limiting itself to firms that are second-tier players in the fund of funds business. Hence, there is no basis for expecting better than index results.

CalPERS’ Board Has Not Approved This Move, and Staff Clearly Plans to Illegally and Greatly Exceed Its Authority

The “Private Equity Strategic Partner” and “Proposal Questionnaire” documents at the end of this post make clear that staff is in such a hurry that it hasn’t sorted out exactly what it wants except it wants out of private equity. 4 This sort of “fire, aim, ready” that leads to massive self-inflicted wounds.

CalPERS is letting the supposed respondents define all of the critical elements of the arrangement, making CalPERS a stuffee. It also puts CalPERS at a disadvantage to the extent that it actually bothers trying to negotiate the agreement, since the “partner” will presumably provide the investment agreement, when any competent attorney would insist that CalPERS draft it (one of the cardinal rules of negotiating is “he who controls the document controls the deal”).

Needless to say, the fact that there is no proposal that “partners” are bidding on, but instead a “tell me what you think I should want” means the board has not approved this process. We have confirmation from inside sources.

As you can see, the schedule has the board approving vendors when it hasn’t even approved the content of the proposal!

The Timetable Makes Clear the Process is Cooked to Favor One Vendor

Anyone with an operating brain cell can reach an even more obvious conclusion from the schedule above: that CalPERS isn’t even making a credible pretense of running a competitive process. No one launches a major or even minor procurement process right before the Christmas/New Year holidays unless the intent is to hand the deal over to a pre-selected party.

As a contact who has been a top-level professional in the fund of funds business for nearly 30 years wrote:

Who did BlackRock buy off – clearly someone is getting a new Mercedes.

Moreover CalPERS also makes clear it is discouraging interest. The “Strategic Partner Review” document states: “The process is very targeted, and will only be open to those that CalPERS invites to participate in the process.” When caught out by Sam Sutton of Buyouts Magazine, CalPERS then tried to take the position that it would consider unsolicited proposals. That is an insult to intelligence. The response required is a ton of work. Who is going to bother when CalPERS has clearly done the equivalent of putting up signs that say, “Only tall white men need apply”?

Our fund of funds expert pointed out that the respondents may run into regulatory problems overseas:

Many of the pre-selected firms should worry about the UK governments lawsuit against “consultants” not being independent in judgement.

As if this isn’t obvious enough, CalPERS has biased the process in other ways to favor BlackRock. For instance, it requires respondents to have offices all over the world and to have been in the investment business for more than ten years. Yet there are private equity firms with assets under management comparable to or larger than CalPERS’ program that operate only out of the US, yet invest globally. Leonard Green fits that profile and has only a single Los Angeles office.

Similarly, the relevant criterion for longevity is not how long the firm has been in business, but the depth of experience of the individuals who will be tasked to the business. Specifically, while BlackRock has been an investment manager for decades, it is a newbie to alternative investments and hired Mark Wiseman, the head of its private equity investment area, less than two years ago.

How CalPERS’ Process for Hiring a Private Equity Outsourcer Violates State Laws

Most California state bodies are subject to regulations on contracting overseen by the Department of General Services. It has an entire chapter on “Competitive Solicitations“.

CalPERS will no doubt contend that it is not subject to state contracting laws5. But those state laws set forth the legal standard that the legislature has deemed necessary to prevent fraud and assure that taxpayer monies are spent prudently. CalPERS, as a fiduciary, is held to a higher legal standard of care than other state bodies. Thus while the state laws may not be directly applicable, they set a minimum standard for CalPERS given its more stringent requirements, including an explicit Constitutional requirement to minimize expenses.

It is painfully obvious how crooked this “private equity partner” solicitation process is. Consider these overarching requirements from the Department of General Services:

Competition is one of the basic tenets in State procurement….Procurement activities must be conducted in an open and fair environment that promotes competition among prospective suppliers.

Buyers conducting competitive procurements shall provide qualified suppliers with a fair opportunity to participate in the competitive solicitation process,…emphasizing the elimination of favoritism, fraud, and corruption in awarding contracts.

If you skim the Department of General Services’ rulebook for competitive bidding, you will see other ways in which CalPERS is playing fast and loose. For instance, CalPERS is attempting to depict its stealthy-as-possible proposal process as a RFI, presumably a Request for Information. As Section 4.A2.3 explains, RFIs are used to survey the marketplace to see what vendors and services could be accessed, and as a result, RFIs are also typically short. But that isn’t even remotely what CalPERS is doing. It clearly thinks it knows all it needs to know and is going to entertain proposals only from pre-selected providers.

Similarly, the Department of General Services also sets forth what a request for proposal looks like. One of the critical elements is a price for services, which is absent here, since among other reasons, what the services will be is bizarrely being left up to the bidders.

So not only is the board being railroaded into picking providers for a process it hasn’t approved where its approval is clearly required, but the sham competitors aren’t even going to be put through a process requiring them to provide a price, let alone their best price.

The board is thus sitting pat as staff engages in flagrant violations of governance and fiduciary duty:

Allowing staff to vastly exceed its delegated authority

Falling greatly short of state government standards for contracting. Given both its status as a fiduciary and its history of corruption at the highest levels, CalPERS should adhere to the state’s guidelines and have good reasons for when it deviates (like “bidding out for paper clips would cost more in staff time than any conceivable savings”)

Failing to understand its investment costs. One of the basic requirements of a fiduciary is evaluating the costs and risks of an investment strategy relative to its returns. CalPERS’ own consultant, CEM Benchmarking, found that most public pension funds, and CalERS was one of them, were recording only about half their private equity costs. Inserting another middleman and layer of fees further increases this opacity, running counter to the board’s and beneficiaries’ interests. We’ve published an estimate of what the costs are likely to be. 1 It’s a disgrace that nothing similar has been presented to the public or the board.

* * *
If Ted Eliopoulos is unhappy about how the press is treating CalPERS, launching a process that looks designed to hand the private equity keys over to BlackRock is only going to make his PR problems worse. As a story in Axios yesterday, CalPERS asks for private equity help, concluded: “Bottom line: Never mistake big money for smart money.”

But as we have pointed out, the idea that CalPERS is merely incompetent is the most charitable conclusion one can reach from this fact set. The seasoned investment management professionals that contacted us see this “partner” program as explainable only if some sort of payoff is involved. It may not be a car or bags of cash, but the sort of reward our society perversely tolerates, like a highly-paid post-CalPERS sinecure.

We’ve long said that staff being in control of $300 billion with no budgetary checks and obviously inadequate supervision is a governance disaster in the making. This “partner” selection process is so clearly rancid that CalPERS board and beneficiaries need to put a halt to it and demand real answers, not the facile brushoffs that staff routinely provides. If not, the legislature needs to wake up and hold hearings.


1 From a September post:

BlackRock would be acting as a “middle man” standing between CalPERS and private equity managers, and this role doesn’t come cheaply in the marketplace. Even if CalPERS is able to negotiate heroically and ends up paying BlackRock 20 basis points (0.2%) in annual management fees, that would amount to more than $50 million a year. On top of that, BlackRock would typically receive a cut of profits.

These costs would be substantially larger than the approximately $5 million annual expense of the internal CalPERS private equity team that BlackRock would replace. In addition, it is likely that BlackRock’s compensation will rise over time, as CalPERS will likely pay a much lower fee for BlackRock to monitor legacy investments made by the CalPERS team compared to the compensation paid for new investments sourced by BlackRock. Over time, the CalPERS-sourced investments will be harvested and replaced by BlackRock-sourced ones, likely leading to large cost increases.

This estimate was confirmed via CalPERS’ response to a Public Records Act request on its real estate outsourced manager, GI Partners. GI gets a minimum of $10 million annually for acting as the oversight manager, plus potential success fees, one of which is related to cash yield on the portfolio and the others of which are for achieving process-oriented goals. That portfolio is roughly $5 billion. Extrapolating from that puts the PE portfolio oversight cost for BlackRock or whomever CalPERS hires right at the $50 million base fee estimate (the private equity portfolio is roughly $25 billion).

2 As North Carolina’s former Chief Investment Officer, Andrew Silton, observed, one of the jobs of a CIO is to keep employees focused on their work. He viewed Eliopoulos’ complaint as additional evidence of leadership problems at CalPERS.

3 That admittedly assumes that Eliopoulos would be willing to make the effort. He clearly isn’t. Outsourcing a $26 billion program is an unjustifiable solution to the real problem: that Eliopoulos is clearly out of his depth, has been handing off the “investment” work of being a Chief Investment Officer and has turned it into an administrative role that does not deserve anything approaching his current pay level. But rather than see this private equity outsourcing scam as the final, indisputable proof the Eliopoulos is willing to sell out CalPERS to save his hide, and he therefore needs to go, CEO Marcie Frost and the captured board are willing to let him do even more damage to beneficiaries and California taxpayers.

4 It looks silly to put out such an up-in-the-air request as this:

As a result, the responses to this Solicitation should include a proposal for a partnership that only covers co-investment opportunities as well as a proposal that would allow the
partnership to invest in a full breadth of investment opportunities (funds, separately managed accounts, secondaries and co-investments).

5 CalPERS will likely invoke on its so-called “plenary authority” pursuant to Article XVI, Section 17 of the CA Constitution. CalPERS has taken the position that the provision exempted it from the state budget and procurement and personnel processes. The argument was that the CalPERS board could not have plenary authority over administration of the fund if its authority in these areas was subject to the authority of other parts of the state bureaucracy. However, the state controller sued and won a challenge arguing that CalPERS’ plenary authority did not allow CalPERS to pay higher than civil service scale to our employees. While CalPERS was arguably on the thinnest ice in claiming it was exempt from state personnel laws, after the controller’s successful suit, CalPERS and the other California public pension funds went underground with their “plenary authority” argument. However, it appears that other parts of the state bureaucracy have continued to allow CalPERS to exercise independent budget and procurement authority when it might not survive a formal legal challenge.

* * *
If Ted Eliopoulos is unhappy about how CalPERS is being treated by the press, he’s only digging his PR hole deeper. As Axios said in an article titled CalPERS asks for private equity help: “Bottom line: Never mistake big money for smart money.”

But this interpretation that CalPERS is merely being incompetent runs the risk of being charitable. The seasoned investment professionals who’ve contacted us are shocked at CalPERS’ conduct. It is so indefensible that the only justification they can fathom is that someone is getting a payoff, if not a car or cash in paper bags, maybe a handsomely-paid post CalPERS sinecure. The fact that this process looks so rancid to seasoned industry professionals means the board needs to put a stop to it and ask some very tough questions and not accept evasive and incomplete answers.

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High hurdle for pension cuts in new court ruling

An appeals court yesterday ruled that the pensions of current employees can be cut without providing an offsetting new benefit, but only if there is “compelling evidence” that a reduction is needed for the successful operation of the retirement system.

The new ruling in three consolidated county cases is a much higher hurdle than an appellate ruling in a well-publicized Marin County case two years ago that said pensions can be cut if the employee is not deprived of a “reasonable” pension.

Unions are challenging “anti-spiking” rules in a pension reform pushed through the Legislature by Gov. Brown that were applied to current workers, not just to new employess hired after the reform took effect on Jan. 1, 2013.

In the fourth recent appellate ruling on pension cuts, the consolidated cases were sent back to the trial court to determine, in each county system, if the impact of the relatively minor pension cuts for workers hired before the reform is justified without offsetting new benefits.

Justice Reardon

The state Supreme Court agreed in December 2016 to hear an appeal of the Marin case — but not until an appeals court rules on the consolidated cases in Alameda, Contra Costa and Merced counties.

In January last year, the Supreme Court agreed to hear a firefighters union challenge to the Brown reform ban on employee purchases of up to five years of additional service credit, called “airtime” because no work is performed.

Brown’s attorney intervened in the firefighter case last November, replacing the state attorney general. Some think the high court may hear the firefighter case first. An appellate ruling in the county cases reportedly was delayed by scheduling conflicts among the 37 lawyers.

The main issue in the cases is a series of state court decisions known as the “California rule”: The pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a comparable new benefit, which could erase any savings.

As a result, most pension reforms are limited to new hires, like the main parts of the Brown reform that lower pension formulas. It can take decades to yield significant savings that lower costs for state and local governments.

To get immediate savings, an influential report by the Little Hoover Commission in 2011 recommended legislation allowing cuts in the pensions current workers earn in the future while protecting pensions already earned, a direct challenge to the California rule.

The California rule was cited when a superior court overturned a key part of a pension reform approved by San Jose voters in 2012, giving current workers the option of a lower pension or paying more for their current pension. The ruling was not appealed.

The California rule was cited in 2015 when an appeals court overturned a part of a pension reform approved by San Francisco voters in 2011 that eliminated supplemental cost-of-living adjustments.

“This diminution in the supplemental COLA cannot be sustained as reasonable because no comparable advantage was offered to pensioners or employees in return,” said a ruling in 2015 by Justice Henry Needham in division five of the 1st District Court of Appeal.

Ruling in 2016 in the Marin case, Justice James Richman in division two of the same appeals court said: “There is no absolute requirement that elimination or reduction of an anticipated retirement benefit ‘must’ be counterbalanced by a ‘comparable new benefit.”

Richman’s ruling, mentioned several times in the firefighter case ruling by Justice Martin Jenkins of division three, could undermine or eliminate the California rule, if upheld by the Supreme Court.

“While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension,” Richman wrote.

“And the Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pension. So long as the Legislature’s modifications do not deprive the employee of a ‘reasonable’ pension, there is no constitutional violation.”

The new ruling by Justice Timothy Reardon in division four of the appeals court in San Francisco, joined by two other justices for a unanimous panel as in the previous rulings, takes a long look at the Marin ruling.

“Much of Marin’s vested rights analysis — including its rejection of the absolute need for comparable new advantages when pension rights are eliminated or reduced — is not controversial, and we do not disagree with it,” Reardon wrote.

“However, we must respectfully part ways with our colleagues in Division Two when it comes to their application of the law to this specific dispute.”

Reardon said the “Marin court improperly relied on its general sense of what a reasonable pension might be, rather than acknowledging that the Supreme Court has expressly defined a reasonable pension as one which is subject only to reasonable modification.”

After finding that a key state court ruling (Allen v. Long Beach in 1955) said a pension cut “should” not “must” have a comparable new benefit, Reardon wrote, the Marin court acknowledged that “should” means “really ought to” rather than “don’t have to.”

“Thus when no comparative new advantages are given, the corresponding burden to justify any changes with respect to legacy members (hired before the reform) will be substantive,” said the ruling.

The Marin ruling cites growing pension debt and reports by the Little Hoover Commission and others on the need to cut growing pension costs that are crowding out funding for basic government services.

A “total pension system collapse” might meet the “substantive” standard for providing no new benefit to offset a pension cut, Reardon wrote. But the Marin ruling and the consolidated county ruling did not determine the local impact of the pension cuts.

Since there is no new advantage, Reardon told the trial court, “application of the detrimental changes to legacy members can only be justified by compelling evidence establishing that the required changes ‘bear a material relation to the the theory . . . of a pension system,’ and its successful operation.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 9 Jan 18


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CPS pension crisis leads to controversial tax hike
Taxes will be on the rise for Chicago residents in 2018 since the Chicago Public School (CPS) system will hike up taxes to $225 million to help teachers with their pensions.

In a press release, former-CPS CEO Forrest Claypool, who resigned from his position in December, lauded the legislators who “courageously fought for and won a historic victory for education funding reform that creates more stability in schools and will continue the trailblazing academic growth that has attracted the attention of top academic researchers and experts throughout the

Claypool credits the efforts to lawmakers and significant management reforms.

“CPS is putting the cloud of uncertainty behind us,” Claypool said. “Chicago students will directly and immediately benefit from legislators’ victory in the form of lower interest rates and the ability to refinance high cost debt.”

CPS has a budget of $450 million for 2018. Of this, $130 million will go towards teacher pensions while $80 million will be used for school security and student safety costs.

Since 2011, according to the Chicago Sun-Times, the school board has received more money by raising property taxes to the cap allowed under state law, and through a capital improvement tax.

Assistant principal Minh Nguyen of Roald Amundsen High School, a public school on the North Side, says the pension crisis has to be solved for CPS to continue operating.

“Teacher pensions should be paid,” Nguyen said. “I’m looking at the bigger picture, and one of the primary constraints of the CPS budget is teacher pensions. In the long term, in order for the system to be solved, they need to address it in some way.”

The city has been dropped the ball time and time again on pension reform, and Nguyen has had enough.

“(CPS) has been doing a lousy job because we would not be in this position if they had been paying all along instead of pushing it down the road,” Nguyen said. “And now they are just trying to scramble and pay off these pensions the very last minute.”

DePaul University business manager Joe Bertolli has been a Chicago resident his whole life but does not support raising taxes to help pay off teacher pensions.

“Anyone older than 40, if you ask them if you agree or disagree with the hike in taxes they are going to tell you, ‘No you should not going to raise the taxes,’’’ Bertolli said. “But anyone under 40 they are going to say, ‘Oh yeah, go ahead because they are going to get a better education.’”

Neither Bertolli nor his children attended public schools. He finds it unfair how Chicago residents are taxed more for teacher pensions regardless if they attend public schools in Chicago.

“They are already taking enough money out of those peoples’ taxes and payingfor something else with it,” Bertolli said. “What they need to do is learn how to cut a corner somewhere else instead of charging the people of Chicago. I think it is really wrong.”

The Board of Education voted on the amended budget proposal at its Oct. 25 meeting.

According to the CPS 2016 budget, funding has decreased tremendously to just 52 percent of its 2001 budget, which represents a decrease of almost $9.4 billion.

Freshman Ashley Garbarek wants to become a kindergarten teacher and teach in Chicago. She feels that it should be Chicagoans collective responsibility to make sure these pensions are funded.

“I feel like paying for their pensions is a job that all Chicago residents should do,” Garbarek said.

After Garbarek saw the monumental cuts in the CPS budget, she said the budget should be resorted to its orginal 2001 funding.

“I know a lot of teachers put in a lot of work outside of the classrooms and they are not getting paid much,” Garbarek said. “Teachers spend money out of their own pocket to pay for supplies and they spend a lot of time arranging classrooms to fit the need for other students to make sure each student is catered to specifically.”


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Plan to increase some N.J. politicians' pensions heads to Christie

A controversial bill that would enhance the pensions of well-connected former Camden Mayor Dana Redd and some other New Jersey elected officials is now in the hands of Gov. Chris Christie after being rushed through the state Legislature.

The state Assembly voted 41-19, with three abstentions, at the Statehouse in Trenton on Monday to give final legislative approval to the Democratic-sponsored measure less than a month after it was introduced.

The state Senate -- which, like the Assembly, is controlled by Democrats -- passed the legislation 23-9 last month.

It's now up to Christie, a Republican who has long been allies with Redd, to either sign or veto the bill before he leaves office Jan. 16.

State Senate President Stephen Sweeney, another Redd ally, said he doesn't know if Christie will sign it.

"We passed it," Sweeney, D-Gloucester, told reporters after Monday's vote. "We'll see what he does."

The measure (S3620) would allow some politicians to re-enroll in the state's Public Employees' Retirement System after being kicked out because they switched positions.

The most notable beneficiary would be Redd, a Democrat who just finished two terms as mayor of Camden. Redd -- who is also aligned with influential south Jersey Democratic powerbroker George Norcross III -- often teamed with Christie and Sweeney to push the revitalization of the city over the last decade.

Sponsors say the bill would also benefit some other elected officials -- such as state Assembly members James Beach, D-Camden, and Ralph Caputo, D-Essex -- but they have never specified how many.

The legislation was fast-tracked through the lame-duck legislative session -- with support from a number of Republicans -- before a new set of lawmakers is sworn in Tuesday and Christie is succeeded by Gov.-elect Phil Murphy a week later.

New Jersey's pension liability is more than $90 billion -- among the largest in the nation.

But Democratic leaders say he cost to taxpayers is minor because the legislation would affect a small number of officials in a pension system where more than 80,000 are enrolled.

Still, there was a temporary hold-up Monday when both the current state Senate and Assembly gathered for their final voting sessions.

Only 32 members of the Assembly initially voted for the bill -- nine votes short of the 41 it needed to pass.

Hours later, though, sponsors gathered enough votes to it to pass with the minimum votes needed.

At issue is a 2007 law that mandated all newly elected officials be placed in a less generous "defined contribution" pension plan similar to a (401)k.

Incumbent elected officials were allowed to stay in the traditional pension system, as long as they kept the same office -- with the exception of lawmakers who moved between the state Senate and Assembly.

That meant when when Redd -- then a state senator and Camden councilwoman -- was elected mayor in 2010, the pension she had been collecting since 1990 was frozen.

The bill passed after Politico New Jersey reported last week that Redd is a top contender for a high-paying job overseeing the Rowan University/Rutgers-Camden Board of Governors.

Brent Johnson may be reached at Follow him on Twitter @johnsb01. Find Politics on Facebook.

Chris Christie signs bill requiring stress tests, fee transparency at state pension funds
New Jersey Gov. Chris Christie on Monday signed into law a requirement that the largest pension systems in the New Jersey Pension Fund, Trenton, conduct stress tests to determine how well they can respond to changing market conditions.

The legislation will affect five of the seven pension systems in the $77.5 billion New Jersey Pension Fund — the Public Employees' Retirement System, the Teachers' Pension and Annuity Fund, the Police and Firemen's Retirement System, the Judicial Retirement System and the State Police Retirement System. The teachers, public employees and police/fire systems account for about 97.5% of total New Jersey Pension Fund assets.

"The stress test analyses must provide a forward-looking projection, which considers the effects of long-term conditions and patterns of behavior of the investment market," said the legislation, which codifies practices by the trustees of the pension systems.

The stress-test goal is to "assess how well the investments of each of the state-administered retirement systems are likely to perform in periods when market returns are significantly above or below baseline assumed returns," the legislation said.

The legislation also requires the State Investment Council to report on — and make public — fees charged by external managers to the New Jersey Pension Fund, thus codifying current council practice. The council develops policies for the Treasury Department's Division of Investment, which handles investments for the New Jersey Pension Fund.
The Latest: Bill letting some re-enroll in pension passes
The Latest on the New Jersey Legislature's final day of voting for the current session (all times local):

7:15 p.m.

The New Jersey Assembly approved a bill to allow a handful of public officials to re-enroll in the pension system after being kicked off when elected to a new office.


inRead invented by Teads
The bill now heads to GOP Gov. Chris Christie's desk.

Senate President Stephen Sweeney said the bill that passed corrects an oversight in the 2007 law that established a 401(k)-style retirement plan for newly elected officials

Former Democratic Camden Mayor Dana Redd is among the officials who would benefit. Sweeney confirmed that Democratic lawmakers James Beach, a Camden County state senator, and Ralph Caputo, an Essex County assemblyman, could also benefit from the legislation.

New Jersey has one of the worst-funded pensions in the country, with a liability estimated at about $80 billion to $90 billion.


4:10 p.m.

New Jersey legislators have sent to Gov. Chris Christie's desk a measure authorizing billions of dollars in tax credits to lure Amazon's second headquarters to the state.

The Democrat-led Legislature passed the bill on Monday, as they considered dozens of bills during their final session before a new governor and legislators are sworn in.

Christie, a Republican, has signaled support for the bill. He hands state government over to Democratic Gov.-elect Phil Murphy on Jan. 16.

Aside from the bill aimed at Amazon, lawmakers also considered legislation prohibiting operating a drone while intoxicated and a measure to crack down on reckless driving.

Financial rescue legislation for nuclear power plants appears to be on hold after outgoing Assembly Speaker Vincent Prieto failed to post it for a vote.


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State to save on pension premiums due to good investment returns
West Virginia House and Senate Finance Committee members received a bit of good news Monday, two days before the start of the 2018 legislative session: Thanks to strong investment earnings and more employees in a new benefits tier, the state’s contribution to public employees and teachers’ pension funds will drop by $32.8 million next budget year.

Jeffrey Fleck, executive director of the state Consolidated Public Retirement Fund, told members of the interim Joint Committee on Finance, that the employer pension contributions will drop from 11 percent to 10 percent of employee salary.


“The total expected savings to the state because of investment returns is $26,632,000,” Fleck said.

During the past year, pension investments managed by the state Investment Management Board earned a 15.8 percent rate of return, more than double the 7.5 percent annual growth required to keep the pension funds fully funded.

Additionally, Fleck said, a 2015 law that moved new hires into a new pension tier with a 6 percent employee contribution, instead of 4.5 percent, will reduce the state’s share of pension costs by $9.35 million, with about 6,000 employees — or about 17 percent of the total workforce — already in the new tier.

Fleck also addressed questions about long delays in processing claims for new retirees, with some public employees and teachers last year having to wait months for their first pension checks.

He blamed the combination of the CPRB’s switch to a new computer system in May and an unusually high number of teachers retiring in July for the delays.

“We are addressing it,” Fleck said. “The wait time now is much less than it was previously.”

He said the changeover produced a steep learning curve, not only for the retirement board, but for the more than 800 employer groups under the CPRB.

“There are times when more than 30 days might be a possibility, but not three or four months,” Fleck said of improvements in processing new pension claims.

Also during Monday’s meeting:

Public Employees Insurance Agency Executive Director Ted Cheatham said PEIA is an anomaly among health insurance plans in that its premiums are based on insurees’ salaries.

He said the legislation creating PEIA allows its Finance Board to consider ability to pay when setting premium schedules, a precedent established by the board years ago.

Cheatham said 2018-19 plan year changes approved by the Finance Board in December will mean slight premium decreases for single coverage and for employee and children coverage.

“There are quite a lot of single heads of family, and we’re trying to help them,” he said.

Family coverage and employee and spouse coverage categories will see premium increases, particularly with a newly adopted total-family-income requirement, he said.

Using the example of an employee making $36,000 with a current family coverage premium of $291 a month, if that employee’s spouse also makes $36,000, the premium will increase to $412.

Cheatham said the Finance Board had proposed a pay-by-person premium option, a proposal soundly rejected at public hearings, since it would have hurt lower-salaried employees with larger families.

The suggestion that those employees could see savings by putting their children on the Children’s Health Insurance Plan also was shot down at public hearings, he said.

“The teachers of the state of West Virginia and the employees of the state of West Virginia have a lot of pride, and they look at CHIP as a charity program,” he said.

Administration Secretary John Myers said an internal audit has concluded that the state owns 1,150 structures insured for $500,000 or more.

“It’s quite a portfolio of real estate,” he said.

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Georgia pension systems have good year as stock holdings rise
Gov. Nathan Deal is expected this week to ask lawmakers to pump more than $350 million extra into teacher pensions, but the state’s two biggest retirement systems had a pretty good year because of the strong stock market, according to new reports.
The Teacher Retirement System and the Employees’ Retirement System provide pensions to teachers, university staffers and state employees, and both showed stronger financial positions at the end of fiscal 2017. That fiscal year ended June 30.

The news is significant to taxpayers because the state and school districts pump more than $2 billion into the two retirement systems each year.

According to its annual report, at the end of fiscal 2017, the TRS had 79.33 percent of the assets needed to pay what it owes to pensioners in the future, up from 76 percent the previous year.

The ERS’ position improved from 72 percent to 76 percent.

While pension experts typically prefer to see the ratio above 80 percent, it’s an improvement from recent years, and Georgia’s pensions are stronger than similar retirement systems in many other states.

Lawmakers approved pumping an extra $200 million into the teacher system this fiscal year, and Deal will seek to add $350 million to $375 million more next year.

Teachers say the money is worth it to the state because the pension system is a great recruiting tool that attracts educators and keeps the best on the job for decades. Some lawmakers, on the other hand, would like to see the state offer portable 401(k)-like plans for new teachers rather than solely pensions, which guarantee a monthly income for life.

The teacher retirement system had 84 percent of its pension liability covered in 2014. At the end of 2016, that had fallen to 76 percent.

Both the TRS and ERS have been hurt by poor stock performances in past years, but a strong market in fiscal 2017 provided a boost.

In addition, the TRS has suffered from fewer teachers and university staffers paying into the system and a rising number of retirees receiving pension checks.

The teacher system had 447,000 active members and more than $70 billion in assets at the end of fiscal 2017. Many of its biggest stock holdings are in the tech industry.

As of the end of the fiscal year, the biggest single stock holding for the TRS and the ERS — in terms of the value of the stock — was Apple Inc., with $1.09 billion worth of shares. Alphabet Inc., the parent of Google, came in second at $962 million in shares, followed by Microsoft, Amazon and Facebook.

Alibaba, the Chinese e-commerce, retail and tech company, ranked among the top 20 TRS holdings at $353 million worth of shares.

Two companies dropped out of the top 10 stocks for the teacher retirement fund: pharmaceutical giant Pfizer and energy company Chevron.

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California Appeals Court Says No to Taking Away Pension Benefits
Case will ultimately end up in California Supreme Court.
A California appeal court panel has ruled that using unused vacation time to increase public workers’ defined benefit pensions is not a guaranteed right, but at the same time said depriving workers of the pension increase would not be “equitable.”

The ruling by the three-member court panel sitting in San Francisco on Monday comes as public-sector workers in three California counties—Alameda, Contra Costa, and Merced—had challenged California Gov. Edmund Brown Jr.’s 2013 pension reform law, which outlawed so-called pension-spiking.

Public pensions payments in retirement are usually based on the compensation made in the last year or last several years of employment. The California Supreme Court has already said, even before Monday’s ruling, that it plans to hear an appeal of the decision. It is one of three cases the court has said it will review that will ultimately decide whether the pension benefits guaranteed to public workers at the time of employment can be changed.

The so-called California rule, which dates to a ruling by the California Supreme Court in 1955, has held that the accrued and future benefits of public workers are protected and cannot be altered.

Variations of the law have been used in at least 12 other states. While a ruling or rulings by the California Supreme Court would not be binding on other states, it is being carefully watched for its potential to protect or erode DB plan benefits across the US.

The issue is coming as pension plans wrestle with billions of dollars in unfunded liabilities due to poor investment returns, less active workers on the payroll compared to retirees, and longevity increases. Public pension plans in California have an unfunded liability of more than $350 billion.

The appeal panel Monday also concluded that the governor’s 2013 law “impairs a vested right” that the public-sector workers could use pay they received while being on call towards determining their final pension benefit. But the panel ordered a lower trial court to review whether taking away the benefit was “reasonable.”

Brian Ferguson , a spokesman for Brown, did not respond to an emailed response for comment. Attorney Timothy Talbot, who represented the Contra Costa Deputy Sheriff’s Association, said in an interview, “we gained a victory for our clients in the three counties.”

While the appeal panel in Monday’s ruling had said that using the unused vacation time towards the final payout was not a guaranteed benefit, it reasoned that workers expected the benefit, so it would be unfair to take it away from them.

Another California appeal panel in Marin County had ruled last year that public sector workers in that county were only entitled to a “reasonable pension,” not a set guarantee of benefits. That case involved workers covered by the Marin County Employee’s Retirement Association.

The Supreme Court has said it plans to consolidate the Marin case with the case in Alameda, Contra Costa, and Merced counties.

Court briefs have been submitted to the California Supreme Court in a third case involving workers covered by the California Public Employees’ Retirement System (CalPERS) in Sacramento. In that case, public sector workers covered by CalPERS are contesting a portion of the governor’s pension legislation that outlawed the selling of pension credits, that could add up to five years to a public worker’s retirement.

Brown is intervening in several of the court cases. His lawyers filed briefs in the Marin case in November, and in December argued before the appeals panel in the Alameda, Contra Costa, and Merced counties’ case that employees were only entitled to a “reasonable” pension.
California Pension Battles Play Out in Court

SAN FRANCISCO (CN) – A state appeals court ruled that overtime, severance pay and on-call pay cannot be included in pension formulas for public employees in the latest in the seemingly ceaseless battle over pensions in California.

A three-judge panel of the First Appellate District in the California Court of Appeals attempted to strike a balancing act on Monday between a lower trial court ruling that set forth a rigid interpretation of the state’s pension reform and public employee unions that wanted to give discretion entirely to County Employee Retirement [CERL] boards.

“In the end, we believe that the correct understanding of board discretion under CERL lies somewhere in between the expanded notion of discretion espoused by appellants and the constrained, arithmetical approach endorsed by the trial court,” Judge Timothy Reardon wrote for the panel in a 73-page opinion.

The opinion sets forth the complexities of the issue, which pits public employees – who believe they are entitled to pension after years of service – against public entities that worry the rising costs of retired employees will render them less able to address the pressing concerns of their institutions and constituents.

In 2013, on the heels of The Great Recession, Governor Jerry Brown signed the Pension Reform Act into law.

Part of the law’s purpose was to end what many viewed as pension abuses. In California, the formula for an annual pension is based in part on the salary earned by an employee in his or her final year of employment.

Investigations found that many employees were padding their final salary with items like equipment or vehicle use, overtime and on-call pay, sick leave and vacation time cash-outs, and other related pay variables.

In the aftermath of pension reform, several public employee unions sued in state court seeking court declarations about exactly what was and was not permissible under the new law.

In the present instance, the Alameda County Employees’ Retirement Association and other related unions sued in Contra Coast Superior Court.

The first of their two main points was that overtime, vacation and sick leave cash-outs, and on-call pay should be included in the employee’s final salary and thus incorporated into the pension formula.

Second, they asked whether legacy employees – or those who were hired prior to the 2013 Pension Reform Act – should be subjected to the changes or guided by the law as it previously stood.

The appellate court agreed with the superior court’s ruling that overtime pay should not be included in pension equations.

The unions had argued that CERL Boards should have the discretion to decide what does or does not get included. The court shot this notion down, saying boards cannot decide to include items explicitly rendered impermissible by law.

“An item of compensation is either includable in compensation, compensation earnable, and final compensation under the CERL statutes, or it is not,” Reardon wrote.

However, the unions were not entirely without victory, as the court ruled vacation and sick leave cash-outs should be included in final salary formulas.

“Moreover, many such premiums and incentives—including the in-service leave cash-outs here at issue—can be understood simply as increased salary payments, specially designed by employers to encourage certain employee behaviors, such as longevity, foregoing time away from work, and the development of special employment enhancing skills,” Reardon wrote.

However, terminal pay and on-call pay are not included, according to the appellate court.

Terminal pay is when an employee is fired or laid off, but is entitled to the rest of his or her salary for a given year. On-call pay is when an employee may not be working, but needs to be available in case of emergencies, as is often the case for firefighters and police officers.

The appellate court remanded the question of whether legacy employees should be exempt from the 2013 law’s major changes back to superior court, citing insufficient briefing from both sides.


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Kentucky Pension Reform Bill Could Be Imminent
Bill is being analyzed in accordance with impact on state budget.
Although a Kentucky pension reform bill has yet to be signed, it appears as if the mood is set to change, WDRB News reports.

According to WDRB, lawmakers are expecting a bill to be filed “within days.”

“We’ve had some issues that have kind of knocked us off the track, but we’re ready to get back on the track now,” House Majority Whip Kevin Bratcher told the publication.

The issues Bratcher is referring to are regarding a sexual harassment scandal involving Speaker Jeff Hoover, which derailed chances of a special session at the end of last year, as well as consuming the first week of legislation.

According to WDRB, the bill is being analyzed in accordance with how it will affect the state budget, which goes into effect July 1. It also seems that Kentuckians will be getting a very different bill than what Gov. Matt Bevin proposed in October, such as dismissing the idea to transfer current employees into a 401(k)-style plan after 27 years of service.

“I’m hopeful that sometime this week, we can get a bill filed,” Senate Majority Floor Leader Damon Thayer told WDRB. “It’s going to be watered down from the original proposal, there’s no getting around that.”

The bill will need 51 votes to pass, and while Democratic support may be a challenge, Bratcher remains optimistic.

“It’s something we have to tackle,” Bratcher said. “We cannot continue to kick the can down the road, and we’re not going to.”

Judge blasts Bevin's 'ill-advised' tactics but allows reorganization of pension board to stand

FRANKFORT, Ky. — Franklin Circuit Court has dismissed the lawsuit challenging Gov. Matt Bevin's 2016 reorganization of the Kentucky Retirement Systems board but scolded the Bevin administration for its early tactics to enforce that order.

Judge Phillip Shepherd ruled on Monday that the once high-profile challenge to the governor's reorganization powers is now moot because the 2017 Kentucky General Assembly passed a bill affirming Bevin's order restructuring the board.

The lawsuit was filed by Tommy Elliott, a board member appointed by former Gov. Steve Beshear, who was removed from the board by Bevin's order. Joining Elliott in filing the suit was Mary Helen Peter, a member of the board who was not removed by Bevin's order.

Elliott had argued that the term of his appointment by Beshear had not expired and Bevin lacked the power to remove him. And after Elliott initially ignored Bevin's order, the governor's chief of staff and the Kentucky State Police went to the next board meeting and threatened to arrest Elliott, Shepherd said.

More: Kentucky pension reform bill's funding method may kick 'kids in the teeth,' critics say

See also: A Kentucky pension bill has yet to be filed, but there are a few hints on its contents

More: Mayor Fischer calls for Kentucky to adopt 'luxury' tax to tackle pension crisis

Shepherd described this action by Bevin to enforce his order as "wholly unjustified ... rash and unprecedented ... ill-advised and extra-legal."

"The Commonwealth of Kentucky is not a police state," Shepherd wrote.

But the judge said that the legislature's passage of a law adopting Bevin's reorganization made the lawsuit moot, and dismissed it. He also dissolved a prior order that has allowed Elliott to continue to serve on the board while the case was pending.

Democratic Attorney General Andy Beshear joined the case early, arguing Bevin had exceeded his authority. And Republican Treasurer Allison Ball joined the case to challenge payment by the retirement systems of the legal fees of Elliott and Peter.

Shepherd ruled Monday that Elliott and Peter are entitled to have the retirement systems pay their legal fees.

"The legislature has provided for payment of attorney's fees to board members who in good faith bring or defend legal actions concerning the discharge of their statutory and fiduciary duties. This action brought by Mr. Elliott and Ms. Peter is just such a case," Shepherd ruled.

The governor's spokeswoman Amanda Stamper said in an email responding to the ruling that the Bevin administration is "glad another one of the attorney general's many politically motivated lawsuits has been dismissed."

Beshear released a statement noting Shepherd said that the case raised important legal questions.

"But, the court ruled that the General Assembly had once again bailed out the governor through new legislation," Beshear said.

Pension in peril puts university at risk
The Kentucky pension reform proposal is scheduled to take place Jan. 16. The budget proposal entails many budget cuts, as well as suggestions for tax reform and revenue boosts.

The pressing question resides in the obvious. How will this affect students at U of L?

There is a section within the released proposal about funding for universities shifting to “outcome based funding.” This means funding will be distributed based on performance criteria.

U of L’s fiscal year budget shows funding decreases across nearly all departments. This could mean tuition increases and additional fees.

Such cuts are unfortunate, especially for certain departments. When budget cuts come down the pike, the arts are usually the first to suffer. This is evident in the university announcing in fall 2017 they were pulling advertising funding for The Louisville Cardinal, the independent school newspaper.

The budget cuts from the Kentucky pension reform proposal, which will total $158 million across the three branches, will undoubtedly have more impacts on the state.

These cuts, though concerning, are crucial to manage Kentucky’s state pension fund, as well as various rainy day funds and potentially secure a halt in the state debt. Currently, Kentucky’s state pension is among the worst funded pensions in the United States, according to

The debt is a problem we have known about for many years. Rather than addressing it, previous administrations have ignored it. Regardless of political affiliation, the problem cannot be solved by ignoring it.

The debt cannot be solved by spending more money than is available through tax revenue. For example, let’s say you make $500 a week at your full-time job. If you spend more than $500 every week, then you will not have any money to survive. This is grossly simplified, but serves as an example nonetheless.

At any rate, something done now can aid our future. Either the system will collapse or its demise can be altered. Ignoring the issue will not make it go away, and neither will throwing money at it. It is time for us to tighten our belts and hope the solution presented will work.

Kentucky Mayor Pushes for State Luxury Tax to Aid Pension Problems
Officials hope reform is adopted before next fiscal year begins.
To help increase funding for Kentucky’s pension predicament, Louisville Mayor Greg Fischer suggested last week that lawmakers tax luxury items, warning that huge pension payments could lead to large city budget cuts in 2018.

“We’re always ready to deal with the unexpected, but this will be difficult for the people of Louisville and force metro government to reduce consistent services,” he told the Courier Journal.

During his annual State of the City Address, Fischer made his proposal and also touched on various issues from investments to creating opportunities for the community.

According to The Journal, Fischer’s officials told Metro Council last month that the city would have to spend $115 million on pensions—$38 million more than this fiscal year—if no drastic changes to the retirement system were made. , TheJournal reports that this is the biggest one-year surge metro government has faced.

City officials say that Louisville is projecting $20 million to $25 million more in budget revenue growth compared to 2016. Fischer urged lawmakers to combine pension reform with tax code changes during the 2018 legislative session, which is now underway.

“Kentucky’s communities have critical needs in terms of education, health, social services, and infrastructure, [and] to meet them, Frankfort must broaden the tax base,” Fischer said. “We need to take a hard look at a tax code that exempts luxury items. It doesn’t make any sense to consider cuts that can hurt a child’s classroom, law enforcement, drug treatment, or our justice system when we don’t tax country club members and limousine rides—that’s just not right.”

The Journal notes that depending on whether a pension reform is adopted before the start of the next fiscal year, Louisville pension payment amounts could change, with city officials optimistic on paying off the obligation in phases if the $38 million sum remains.

When asked if local taxes could be increased should the state legislature not come to a reform, Fischer said that his administration is reviewing its budget, but is also watching to see what happens at the state level.

“We don’t look at taxes until the very last option, (and) the council would have to agree with that as well,” he said.

Kentucky pension reform bill's funding method may kick 'kids in the teeth,' critics say
FRANKFORT, Ky. – An emerging concern over the pension reform bill about to be filed in the General Assembly is that it may call for increased funding for the plans by hundreds of millions of dollars more than necessary.

Those who voice this concern say the funding approach strongly endorsed by Gov. Matt Bevin and fellow Republicans who control the House and Senate will force much deeper cuts to public schools and other priorities in the state budget.

“People who hold this position are going to be accused of kicking the can down the road again on pensions. But it’s a question of how much and how quickly we need to put more money into pensions,” said Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea. “My concern is we will be kicking kids in the teeth if we do the kind of budget cuts” that would be required under the new pension funding approach.

Eric Kennedy, director of governmental relations for the Kentucky School Boards Association, said that without a big boost in revenue through tax reform the new funding method — called "level dollar" funding — is likely to result in draconian cuts at public schools. He said the method would lead to school funding that is “unbearable in every classroom and unacceptable to every business owner that depends on us to educate tomorrow’s workforce.”

More about pension:

A Kentucky pension bill has yet to be filed, but there are a few hints on its contents

Mayor Fischer calls for Kentucky to adopt 'luxury' tax to tackle pension crisis

Gov. Matt Bevin won't call special session on pensions, warns budget will be a 'doozy'

Kentucky pension reform: Beshear says law protects retired teachers' pay increases

Level dollar funding was strongly endorsed by the consultant to the Bevin administration as crucial to correcting the problems that helped create Kentucky's massive retirement system debts that are now officially listed at $43.8 billion.

John Chilton, budget director for the Bevin administration, has said this approach is vital to take an immediate bite out of that debt. Chilton declined to be interviewed.

But House Majority Leader Jonathan Shell, R-Lancaster, said, “We’ve not put the level of funding that we probably should have in those funds. … It’s time we make sure we implement the funding that is necessary, across the board. And we feel that 'level dollar’ does that.”

But Bailey has been arguing for months that while much more money is needed in pension funding, the level dollar approach would require hundreds of millions of dollars more than necessary to make solid progress in paying down the debt.

Moreover, Bailey said most of the new money under level dollar funding will go to the Teachers’ Retirement System rather than the worst-funded state pension plan, the plan for those in non-hazardous occupations. It covers most state workers.

Without new revenue, and unless lawmakers decide to phase in the new funding approach, Bailey said the move is an "overreaction to past underfunding that would set up unprecedented budget cuts.”

He said it "will massively front-load the costs of paying down liabilities while asking relatively little of the budget two and three decades from now.”

More background: Louisville's pension costs to go up a whopping $38M, threatening to wipe out new revenue

More: Pension reform, taxes and the budget: Matt Bevin reaches his defining moment as governor

Bevin and Republican leaders released a pension bill in the fall that called for certain benefit cuts, a gradual transition from traditional benefit plans to 401(k)-like plans, and level dollar funding. But the bill never won enough support among House Republicans, and Bevin’s hope to pass pension reform at a 2017 special legislative session was deferred. Now Republican legislative leaders hope to pass a revised bill early in the regular session.

The revised bill that addresses concerns about benefit cuts is likely to be filed this week. And on Jan. 16, Bevin will propose a state budget for the two-year period beginning July 1. Both are expected to call for the new pension funding approach.

The governor has warned that the budget will include deep spending cuts so that spending matches available revenue. “I think you’re going to see a realistic budget, one that for the first time in a long time encapsulates the true cost of doing business in Kentucky. And it won’t be as pretty as people would like,” Bevin said last week in an interview with Kentucky Today, a Bevin-friendly online publication of the Kentucky Baptist Convention.

Traditionally, the state’s annual required contributions to its pension plans are calculated by actuaries as a percentage of the state’s payroll. Most states use this approach, which anticipates that government contributions grow year-to-year as government payroll and revenues grow.

But the level dollar approach is like a home mortgage payment, requiring the state to pay the same amount per year for each of the next 30 years as it pays benefits while paying down the debt in the retirement plans.

This method is necessary, advocates say, because government payroll growth is weak or flat. But it requires much bigger payments than the current funding method during the early years.

Bailey said some significant funding increase is needed for the main pension plan, the one that covers non-hazardous occupations. It is the worst-funded pension plan in America with only 13.6 percent of the money it needs to pay its obligations.

But he said he believes the current funding method is a responsible one that moves the plans toward recovery if assumptions used by actuaries are reasonable and the legislature fully funds what actuaries say is required. He said Bevin and the legislature took an important step two years ago by boosting state pension funding by more than $500 million per year.

Level dollar funding, he said, will particularly require more state funding than is necessary for the Teachers’ Retirement System.

Bailey said the teachers' system situation improved last year and now reports it is 56.4 percent funded. Its actuary has said an increase of $104 million is needed next year under the current funding method. But a recent presentation by the Legislative Research Commission staff said the level-dollar approach will require $392 million more next year the plan, in addition to the $104 million.

“With the big stride in the last budget, we are well on our way already,” Bailey said. “… Simply slashing K-12 education, making higher education even less affordable and reducing access to services for the most vulnerable is not a viable option.

Brent McKim, president of the Jefferson County Teachers Association, said that “paying under the level dollar approach would be great for the pension plan, but I can’t justify paying more than what is necessary given the other needs we have in a very dire state budget.”

Judge dismisses lawsuit questioning Kentucky governor’s ability to restructure pension fund board
2016 lawsuit against Gov. Matt Bevin's reorganization of the Kentucky Retirement Systems' board was dismissed by a Franklin Circuit Court judge Monday.

Judge Phillip J. Shepherd wrote Monday that while the lawsuit "raised valid legal questions," legislation passed in 2017 ratified most of the governor's reorganization, making the lawsuit moot.

Through an executive order in June 2016, Mr. Bevin disbanded the Frankfort-based Kentucky Retirement Systems board of trustees, replacing it with the Kentucky Retirement Systems board of directors. The new board had 17 directors— the 13 who were on the previous board of trustees and four new appointments by Mr. Bevin, which included the state budget director. On the previous board of 13, six were appointed by the governor. Along with restructuring, Mr. Bevin ordered that any executive director appointed by the board must also be approved by governor and mandated that all investment holdings, fees and commissions, contracts or offering documents be available online.

Shortly after the reorganization, two board members and state Attorney General Andy Beshear filed a lawsuit challenging the governor's power to restructure the board. In early 2017, while a ruling on that lawsuit was pending, the Kentucky Legislature ratified most of Mr. Bevin's order.

One lawsuit plaintiff was ousted board Chairman Thomas K. Elliott. Through a separate executive order in April 2016, Mr. Bevin removed Mr. Elliott as chairman, citing a need for a "fresh start and more transparency." At a board meeting shortly after Mr. Elliott's removal, members of the governor's office and state troopers threatened Mr. Elliott with arrest if he participated in the meeting, according to William A. Thielen, executive director of the $12.1 pension fund at the time. Mr. Shepherd wrote that the use of state troopers to enforce the governor's orders was "ill-advised. ... The commonwealth of Kentucky is not a police state," he wrote.

In a statement Monday, the attorney general remained hopeful that a lawsuit about Mr. Bevin's reorganization of state education boards would succeed in the Kentucky Supreme Court. "Today, the court ruled that our lawsuit raised 'profound and legitimate questions concerning the scope of the governor's reorganization power,' and that Gov. Bevin engaged in outrageous and unlawful conduct in sending 'armed officers of the Kentucky State Police' to threaten a board member," Mr. Beshear said. "But, the court ruled that the General Assembly had once again bailed out the governor through new legislation. However, as the court noted, our education board lawsuit is headed to the Kentucky Supreme Court, where we will seek a final ruling that the governor cannot ignore and rewrite Kentucky law. I will continue to defend our constitution and the liberties it provides for our Kentucky families."

Unlike the reorganization of KRS, there has not been legislative action on the reorganization of the education boards.

In a separate statement, Amanda Stamper, a spokeswoman for Mr. Bevin, said: "We are glad another one of the attorney general's many politically motivated lawsuits has been dismissed. It is sad Attorney General Beshear continues to play politics with Kentucky's pension system, which became the worst funded system in the country under his father's administration. After the circuit court denied the attorney general's motion to temporarily enjoin the governor's reorganization of the Kentucky Retirement Systems board, the Legislature confirmed the reorganization into statute, rendering the AG's suit moot."


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State comptroller discusses fiscal outlook
DiNapoli appears at Hearst Media Center to talk about tax reform, state budget deficit

ALBANY — State Comptroller Tom DiNapoli is at the Hearst Media on Tuesday discussing the looming state budget deficit, the potential impacts of federal tax changes and recent calls from Gov. Andrew Cuomo for the state's massive pension fund to divest from the fossil-fuel industry and companies that fail to achieve gender balance in their leadership ranks.
State pension fund

When it comes to Gov. Andrew Cuomo's proposed changes on how the state pension fund invests, namely his desire for the fund to divest from fossil fuels, and to change investment strategies to promote diversity in coporate boardrooms, Dinapoli was measured in his comments.

"At the end of the day, my responsibility is ... to make sure we keep the fund well-funded," he said.

DiNapoli notes that because the pension fund is a public fund, people have opinions on how to invest. "We don't mind the discussion."

"We do like our money to go for good purposes and causes," DiNapoli said. (Recall he has pressed Exxon on climate change as an investor). "What we believe as a long-term investment ... investing in companies that are good corporate citizens on most measures makes sense."

"I'm totally supportive of the Paris agreement," DiNapoli says of fossil fuel investments. "But the notion that we're going to lead the fight on climate change by making the pension fund sell all their energy stocks to me seems like not the smartest strategy."

"We rarely divest, we prefer to be an investor and we engage with companies (like Exxon). We would lose that leverage if we're not at the table anymore as an investor," he said, noting that the process of divesting is a long one.

He also said the last group he wants to dictate pension fund investments is the state Legislature, because the political forces would be dangerous. He asserted that he is an independently elected official and that will not be compromised.

DiNapoli said he doesn't sense a great appetite to raid the pension fund to help fund the state budget, "but I wouldn't put anything past anybody."

NYC taking steps to divest pension funds of fossil fuels
New York City officials are citing climate change as their motivation to join a growing number of investors ridding themselves of financial interest in fossil fuels.

Democratic Mayor Bill de Blasio and Comptroller Scott Stringer are set to announce plans on Wednesday to divest the city's five pension funds of roughly $5 billion in fossil fuel investments out of its total of $189 billion. They say the divestment is the largest of any municipality in the U.S. to date.

"Safeguarding the retirement of our city's police officers, teachers and firefighters is our top priority, and we believe that their financial future is linked to the sustainability of the planet," Stringer said.

Clara Vondrich of the DivestInvest campaign says the city joins a movement that started about six years ago. She says hundreds of institutional investors managing assets of over $5.5 trillion have taken their money out of fossil fuel investments.

Last month, Democratic New York Gov. Andrew Cuomo announced plans to have the state pension funds also divest from fossil fuel investments. He and state Comptroller Thomas DiNapoli are creating an advisory committee to examine the way to proceed with divestment.

In November, Norway's central bank urged the Norwegian government to consider divesting oil and gas company shares held in the $1 trillion oil fund.

Vondrich said other cities and entities divesting of fossil fuel interests have included Washington, D.C., Berlin and Cape Town; insurance companies Swiss Re, Axa and Allianz; and educational institutions such as the University of Oxford in Great Britain, Stanford University in California and Trinity College in Ireland.

Philanthropies have included the Wallace Global Fund and the Rockefeller Brothers Fund, notable because the late John D. Rockefeller grew his wealth as an oil baron.

"The Rockefeller Brothers Fund is proud to stand alongside Mayor de Blasio and Comptroller Stringer in their historic commitment to divest the NYC pension funds from fossil fuels," Stephen Heintz, president of the Rockefeller Brothers Fund said in a statement.

Brian Youngberg, a senior energy analyst at Edward Jones Investments, noted divestment is not entirely altruistic over the issue of climate change. Fossil fuel securities are underperforming and officials say the outlook for fossil fuel investments continues to be negative.

"One issue facing the industry is peak oil demand," Youngberg said. "Growth will slow over the next several years."

Kyle Isakower, vice president of the American Petroleum Institute, has previously said that divestment is a "tactic of misinformed activists" that is incompatible with job creation, affordable energy, and economic prosperity."

"Millions of retirees and pension holders depend on income from oil and natural gas investments to live," he said." Government pension fund managers have a fiduciary responsibility to ensure the greatest return for their investors. Divestment from energy stocks is likely to reduce investment returns and is therefore not in agreement with their fiduciary responsibility."

New York's two largest pension funds, New York City Employees' Retirement System and Teachers' Retirement System, will immediately pursue divesting by 2022, officials said, "consistent with prudent practice and in line with their fiduciary responsibilities." The other three major pension funds will be encouraged to begin divestment as quickly as practical.

Fund trustees also will seek a legal opinion to confirm that carrying out divestment actions would be consistent with trustees' fiduciary duties to beneficiaries.

De Blasio also is expected to announce a lawsuit against five major oil companies, seeking damages for the costs of infrastructure improvements to contend with the effects of climate change.

Your Pension Isn't Safe From NY Governor Andrew Cuomo

Perceptive conservatives will have noticed by now that the self-righteousness of the left increasingly knows no bounds. To put it another way, there are very few people, companies, institutions, bureaucracies, or governments left that liberals have not excoriated, picketed, boycotted, or sued, all in an effort to extirpate from this planet whomever and whatever has the audacity to contradict them. Amusingly, this tendency towards perfectionism/sanctimony often pits leftists against one another. In the end, though, the damage that this epidemic of intolerance does to the fabric of American society is serious and lasting.

Recently, New York Governor Andrew Cuomo unveiled a proposal that would take his fellow New Yorkers, i.e. his dutiful subjects, as he seems to think of us, deeper down the rabbit hole of leftist self-congratulation. He has voiced support for divesting the New York State Common Retirement Fund, directly affecting more than one million New Yorkers, from companies “with significant fossil fuel-related activities.” Presumably this means energy companies, although no one knows for sure how extensive the governor's environmentalist dragnet might prove to be.

The putative goal of such a divestment strategy would be to undercut the operations of some of the primary contributors to climate change. The truth, however, is that Gov. Cuomo is positioning himself for a run for president in 2020, and to that end he must appear to be the purest of the pure in terms of his commitment to leftist ideals. He must therefore demonstrate a level of scorn for non-leftists that exceeds anything else that a Democratic politician has ever conceived. He is well on his way to achieving that objective, since even commonsense Democrats regard his recent proposal as half-baked extremism.

First, there is the obvious problem that the purpose of New York's pension system is not to trumpet the political virtuosity of the state's governor. It is rather to support New York's retired civil servants, police officers, and firefighters in their retirement years by investing the state's pension funds in a way that achieves diversification and a high rate of return. This maintains the solvency of the system, and it eliminates the need for the state to step in and spend taxpayer dollars to make up any shortfall.

Studies have shown that Governor Cuomo's proposed divestment from fossil fuel producers would harm New York's pension system by depriving it of access to the high returns that such companies commonly yield. For example, New York’s Suffolk County Association of Municipal Employees commissioned a report that found that the Common Retirement Fund would lose $2.8 billion over 20 years if it pursued divestment. Cuomo is thus endangering not only the financial futures of New York retirees, and prospective retirees, but also the fiscal health of New York State and numerous local governments, which are ultimately responsible for meeting all pension obligations.

Second, there is no reason to suspect that a divestment of New York's pension fund from major energy companies would have the slightest impact on their operations or on the pace of climate change. Divestment may give leftists a warm glow of self-satisfaction, but it would not obviate the reliance of the American economy on fossil fuels. On the contrary, it is much more likely that such an action would be counterproductive, insofar as the involvement of state pension funds in the energy sector as major stockholders puts pressure on the industry to pursue a gradual transition to renewable energy sources. Indeed, the managers of the New York State Common Retirement Fund have notched notable successes in encouraging energy companies to prioritize countermeasures to the threat posed by climate change. According to New York Comptroller Thomas DiNapoli, who has authority over the Common Retirement Fund, “We believe that we can actively engage with companies in building a cleaner, sustainable global economy.” Cuomo would thoughtlessly throw away this leverage in order to pontificate and grandstand.

Third, Cuomo's proposal suffers from the same logical flaw as every other assault on energy companies: it makes no sense to persecute energy producers, but to ignore energy consumers. To put it another way, if using fossil fuels is a crime against nature, as leftists seem to believe, then the simple truth is that it is a crime of which all of us are guilty, including liberal politicians. Thus, until Cuomo ends his own personal use of electrical power, automobiles, jet aircraft, and all the other accoutrements of modern civilization, he has no right to condemn the energy companies that supply the lifeblood on which these technologies run. Indeed, he is a hypocrite for doing so.

Make no mistake: the career politician Andrew Cuomo wouldn't know a sound investment strategy from a hole in the wall, but he can spot an opportunity for self-aggrandizement a mile away. His latest flight of fancy should be seen for what it is: 100 percent political bunkum, which in the end could do serious harm to the people of New York.

New Yorkers should reject Gov. Cuomo's divestment scheme, which will profit Planet Earth not one iota, but which will surely threaten the profits from investments on which New York's retirees and ultimately its taxpayers depend.

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