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  #1561  
Old 10-17-2018, 12:20 PM
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Mary Pat Campbell
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CALIFORNIA
CALPERS

http://www.latimes.com/opinion/op-ed...017-story.html

Quote:
Why is CalPERS still a top investor in Russia's sovereign debt?

Spoiler:
These are grim days in Moscow. Sanctions imposed by the Trump administration continue to tighten the vice on the Russian economy. Foreign capital is fleeing the country, increasing its economic isolation.

But there remains a major source of funding upon which the Kremlin can still reliably depend: California state workers and retirees.

The retirement savings of nearly 2 million current and former California firefighters, police officers and state employees are hard at work — in Moscow. As of the end of June, the California Public Employees’ Retirement System, or CalPERS, held $460 million in Russian government bonds, according to data provided to Bloomberg News.

Since purchases of Russian government bonds are effectively loans to Vladimir Putin’s government, this means CalPERS has extended nearly half a billion dollars to a regime that sought to hack our election system in 2016 and is still attempting to undermine American democracy and the U.S.-led Western alliance.

The retirement savings of nearly 2 million current and former California firefighters, police officers and state employees are hard at work — in Moscow.

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If that isn’t bad enough, there’s also reason to believe it’s a risky investment. Relations between the two countries could very well get worse. If U.S. sanctions against Russia are extended to debt, as two bills before the Senate propose, the bonds would lose significant value and CalPERS would see a steep loss.

It would be one thing if CalPERS were trying to unwind its position in Russian government debt. Foreign investors have unloaded about $7 billion worth of Russian sovereign bonds since April because of the threat of sanctions and mounting tensions between the United States and Russia. Not CalPERS. The California pension giant has increased its holdings in Russian debt by 8% since last year, Bloomberg reported.

It’s easy to see why ruble-denominated bonds are so attractive to the money managers at California’s giant pension. These bonds, known as OFZs, yield 7% or more, a rarity in today’s low-yield environment.

But there’s a good reason why many investors steer clear of Russian debt. It turns out that some of the dollars loaned to the Russian Treasury are used to recapitalize the heavily sanctioned banking sector, or they wind up, through an opaque process, back in the accounts of sanctioned Russian companies.

In 2016, the Obama administration tried to warn U.S. banks not to take part in a potentially lucrative Russian bond deal because it would undermine sanctions, according to the Wall Street Journal. Also, Russian government bonds figured in a $234-billion money-laundering scandal at Danske Bank.

The bottom line is that CalPERS either doesn’t know or doesn’t care what the Kremlin does with California retirees’ money.

Critics are quick to point out that CalPERS' holdings of Russian debt are a minute fraction of the $326-billion pension fund's investments. But those holdings matter very much to Moscow, where the size of California’s stake in Russian debt generated a flurry of news coverage last week.

“Surprisingly, the State of California has entered the top 10 of foreign holders of Russian debt obligations,” the Moscow-based website pravda.ru noted. Topping the list was BlackRock Inc., the giant New York money manager that advises CalPERS, with $2.5 billion worth of Russian debt.

There’s more at risk than just the reputation of the state’s pension giant. Two bills pending before the Senate — including one that South Carolina Sen. Lindsey Graham calls the “sanctions bill from hell” — would bar purchases of new issues of Russian sovereign debt in the United States. Enacting this so-called nuclear option could make all Russian debt radioactive to investors. Bond prices would plummet, leaving CalPERS with a large loss.

By contrast, CalSTRS, the giant state teachers’ retirement fund, appears to be far more leery about lending money to the Kremlin. It holds about $9.5 million in Russian bonds. To some, any amount lent by a U.S. public pension fund to the Kremlin is too much.

Enter the Fray: First takes on the news of the minute from L.A. Times Opinion
“I can think of no credible reason why U.S. public pension funds and savings vehicles should fund a government that is actively violating our sovereignty,” Daleep Singh, a former U.S. Treasury official who helped draft sanctions on Russia, said last month in testimony before the Senate Banking Committee.

State and local employees need not sit idly by while their money goes to work in Russia. They have a say in how the retirement savings they earned over decades of public service are invested.

CalPERS generally resists divestment, although both it and CalSTRS divested years ago from tobacco. More recently, the California teachers’ fund divested from firearms. If CalPERS won't divest from Russia, the California legislature can force it to do so, as it did in the case of companies doing business with Iran and Sudan.

Former educators, police officers, firefighters, municipal workers and state employees should let it be known that their retirement dollars can’t be used to bankroll a regime that continues to sow division and unrest in America.

Seth Hettena is a freelance investigative reporter based in San Diego and the author of “Trump/Russia: A Definitive History.”

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  #1562  
Old 10-17-2018, 12:21 PM
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FIDUCIARY DUTY

https://www.ilnews.org/news/state_po...69240885d.html
Quote:
Legal scholar says public retirement stewards should prioritize taxpayers over retirees

Spoiler:
A legal scholar who studies public and private investment funds says the people who are managing taxpayer-funded retirement plans are looking out for pensioners when they should be focused on what’s best for taxpayers.

Publicly funded retirement boards are responsible for directing pension investments. Historically, they’ve acted on behalf of the pensioners and soon-to-be-retirees that are paying into the fund. Ohio State University professor Paul Rose, who is Associate Dean for Academic Affairs at the Robert J. Watkins/Procter & Gamble Professor of Law, proposes that they should be acting on behalf of taxpayers because taxpayers are largely responsible for contributions and would be expected to foot the bill for any funding shortfalls.

In an article for the Illinois Law Review, titled “Public Wealth Maximization: A New Framework for Fiduciary Duties in Public Funds,” Rose said the shift of focus may not ultimately result in higher pension funding levels, but it would be acting at the behest of those who would ultimately face exposure to a fiscal downturn.

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“Fiduciary duties should flow to the true risk-takers: the public – the current and future citizens and residents – who will ultimately benefit or suffer from the investment choices of the public fund trustees,” Rose wrote.

“The real residual risk bearers for the failure of the pension funds are really the taxpayers,” Rose said.

On one hand, this could be seen as a call to reduce liability on taxpayers. On the other, it should also mean investing in the public good.

“You have this broader view of ‘what’s going to affect citizens? What’s going to affect taxpayers, now and in the future?’” Rose said, steering more equity toward socially responsible investments, like renewable energy over fossil fuels to reduce negative side effects, for example.

Pertinent to Illinois, Rose said a shift in focus to taxpayers would suggest pension fund managers would advocate more toward responsible rewarding of benefits at the potential cost of political support from vested public beneficiaries.

“You’d have the government making sure that you weren’t writing checks that you couldn’t cash later,” Rose said.

Illinois’ minimum required pension payment is one quarter of the entire state budget.


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  #1563  
Old 10-17-2018, 12:21 PM
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NEW HAMPSHIRE

http://www.unionleader.com/article/2...1019664/0/NEWS

Quote:
$5B+ public pension liability nearly as large as state's entire annual budget

Spoiler:
CONCORD — On the campaign trail, Gov. Chris Sununu frequently refers to the state’s balanced budget and the millions of dollars in surplus funds he distributed in his first two years in office.

But when you look beyond the two-year operating budget to the state’s long-term financial obligations, the picture is not so rosy.

According to a new report from the conservative Truth in Accounting organization, the state’s finances are far from sound as New Hampshire grapples with $5 billion in unfunded pension liability for state and municipal employees like firefighters, police and teachers. To put that in scale, the entire 2018 state budget spends about $5.9B, according to New Hampshire Fiscal Policy Institute.

“New Hampshire officials have failed to disclose significant amounts of retirement debt on the state’s balance sheet,” according to the analysis of the 50 states published on Sept. 24. “Residents and taxpayers have been presented with an unreliable and inaccurate accounting of the state government’s finances.”

It’s not as if the state’s underfunded public employee pension plan has been kept a secret, as its solvency and funding sources are debated every legislative session. The impact of the shortfall goes well beyond the 48,000 active public employees and 35,000 already receiving pensions.

Every taxpayer in the state is affected, as the local government share of the bill continues to grow and is funded through local property taxes.

“What’s going on right now is there is a generation of taxpayers paying for the sins of the 1990s,” said Marty Karlon, spokesman for the state retirement system, “and because we are pretty much a property tax state, you feel it on your block.”

Bad policy decisions

Strong returns on pension fund investments are helping to close the gap but it will take decades to erase the shortfall, which is based on a complicated set of actuarial assumptions. Actuaries look at a database of employees (names redacted) and using certain assumptions calculate when they will retire, how much they will be owed and how long they will live.

When those estimates are compared to the funding for the system, the state comes up about $5 billion short.

“This liability was created as a result of some short-sighted public policy decisions made more than 25 years ago and exacerbated by the global economic dips in 2001-02 and 2008-09,” says Karlon.

Simply put, lawmakers built unrealistically high rates of return into the pension plan projections and accepted what are now acknowledged as unrealistically optimistic actuarial assumptions.

“Bad policy decisions created a structural under-funding and the actuarial methods papered over that so you didn’t see it,” says Karlon. “The 1990s were good for everyone, so throughout that decade policy-makers and everyone else thought we were better off than we were.”

The deficit was first identified at $2.4 billion in 2007 and started growing from there. When the Great Recession hit, the system lost $650 million from 2008-2009.

Reducing benefits

In response, the legislature in 2011 reduced benefits for newly hired employees and those not vested at the time and increased employee contributions by 25 to 40 percent. Employer contributions for teachers have grown 175 percent.

The retirement system put a plan in place in 2009 to effectively pay off the unfunded liability like a mortgage over 30 years. Starting this year, the liability is expected to begin a slow and gradual decline with a final payment scheduled for 2039, according to fund managers.

Meanwhile, the fund has adopted more realistic predictions of investment returns. The retirement board lowered the assumption to 7.75 percent a year in 2011 and again to 7.25 percent in 2016.

Last week, the fund reported its return on investment for the past fiscal year at 8.9 percent. That’s not quite as exciting as 20-percent recorded in the 1990s or even the 13.5 percent in fiscal year 2017, but it’s realistic for the long-term ups and downs of the market.

“As long-term investors, we know that we will see returns above and below our assumed rate of return in any given year,” said NHRS Executive Director George Lagos. “We continue to emphasize that our primary focus is to meet or exceed the assumed rate of return of 7.25 percent over the long term.”

A ‘path to progress’

Sununu’s budget director, Mac Zellem, takes issue with the Truth in Accounting claim that the state has not been transparent about its pension liability.

He points out that the state discloses its pension liabilities in its annual Official Treasurer’s Statement and in the Comprehensive Annual Financial Report (CAFR).

“None of this diminishes the importance of the unfunded liabilities of the retirement system,” he said. “Since 2011, the legislature has worked to shore up both our pension system and retiree health care system and we are on the path to progress in both.

“There is still more to work to do to ensure that we work to close these liabilities. Having a strong economy nationally is the best way to resolve these issues, and the federal tax reform package that took effect in January has helped substantially in that regard, as has the repeal of many regulations that have shackled our economy, leading to strong returns on our pension investments.”

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  #1564  
Old 10-17-2018, 01:10 PM
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ILLINOIS
https://www.forbes.com/sites/ebauer/.../#55c2099d7b41
Quote:
Pritzker, Rauner, And Illinois' Pension Trouble

-state contributions to pension funds and debt service on pension obligation bonds constitute 27% of all state spending
-the only way for Illinois to resolve its pension underfunding crisis is by means of a constitutional amendment




Spoiler:
For Illinois readers, here's an update on our public pension crisis. For the rest of you, well, an opportunity for schadenfreude and/or a cautionary tale, depending on your perspective.

Illinois, come election day, will almost certainly elect J.B. Pritzker as its next governor -- the latest poll shows he's up by such a margin (49 - 27) that it would take an Act of God for the incumbent, Republican Bruce Rauner, to pull off such an upset.


And what's Pritzker's plan to deal with the state's monumental pension debt -- $130 billion in underfunded liability, or a 40% funded ratio, using the standard government pension accounting method, or perhaps nearly double that using the bond-rate method a corporate pension plan would be obliged to use?

Fundamentally, he has no plan. This is no surprise considering his use of primary opponent Daniel Biss's support of pension reform as a source of attack ads but one might have hoped this was nothing more than the usual mudslinging.

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But he repeats this at the most recent gubernatorial debate (see this Burypensions Blog update):

Well, under Governor Rauner, the pension liabilities increased by $15 billion and it's continuing on the wrong path. Look, he made a proposal late last year that I think everybody needs to be aware of and that's to bankrupt the state of Illinois. That was actually his proposal at the federal level to deal with the pension issue. Bankrupt the state of Illinois. Think about what that would do. It would cost the taxpayers of Illinois billions of dollars for decades to come because we would have an even worse credit rating in the state and we would pay incredibly high interest rates. The fact is that we do need to deal with our pension challenge in the state and that means we've already dealt with it with a Tier II system that's bent the cost curve. But remember that the Supreme Court of the State of Illinois has ruled that we have to pay the pensions that are owed and it's a moral obligation. People took jobs with a promise of a pension. We owe them that pension. We should step up to the plate. And there are plans and proposals out there that we should be looking at to actually pay them. One of them of course is to step up the payments into the system a little earlier and flatten out that amortization schedule going forward so that we can manage the budget of the state. The governor has proposed nothing that would manage our pension liability.

Which is a bit rich coming mere seconds after Rauner outlined his approach, in which he hopes that he can bypass Illinois' restrictions on changing future pension accruals for existing employees by means of a "consideration model" in which employees can opt out of future accruals with an incentive in the form of current compensation. To be sure, it is still an unknown whether the Supreme Court would deem that approach acceptable, but it's an idea that has its roots in a bipartisan proposal.

And what of Pritzker's proposal to "flatten out that amortization schedule"? While former governor Jim Edgar notoriously created the "Edgar Ramp" in 1996 with artificially low contributions for the first 15 years of a 50-year amortization schedule, the damage has already been done, and the current funding schedule (page 111 of the Commission on Government Forecasting and Accountability report) -- assuming the legislature sticks to it -- has year-over-year increases in scheduled state contributions that conform, most years, anyway, to a somewhat reasonable inflationary increase (about 3%). But that's at a cost -- in the current 2019 state budget, state contributions to pension funds and debt service on pension obligation bonds constitute 27% of all state spending -- not 27% of all spending on compensation, but 27% of the entire operating budget. How on earth is this sustainable?

And Pritzker is right that the Tier II reform -- a change in pension formula for new entrants beginning in 2011 -- "bent the cost curve," by increasing the vesting age and the retirement age, reducing the COLA, and capping benefit-eligible salary. But the benefits for Tier I employees, benefits that the current interpretation of the state constitution mandates these employees receive for all future years of employment, are far more generous than the typical private sector plan would have been, even back in the day when private sector plans were common. The Tier I benefits provide, for most employees, an accrual rate of 2.2% of pay (1.67% for state employees who participate in Social Security), unreduced retirement eligibility as early as 30 years of service (for university employees) or 85 age + service points (for state employees) and a guaranteed 3% compounding cost of living adjustment.

What is the right way forward? I am personally convinced that the only way for Illinois to resolve its pension underfunding crisis is by means of a constitutional amendment removing that future-accrual guarantee, giving the state flexibility in future pension accruals the same way as for any private sector employer, in combination with moving public sector employees onto Social Security. Of course, even this might not make a significant dent since so much has been promised already in terms of past accruals, but the only step beyond this would be what truly is a last resort, that of bankruptcy and retiree benefit haircuts.


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  #1565  
Old 10-18-2018, 03:47 PM
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POINT:

https://protectpensions.org/2018/10/...cal-economies/
Quote:
DEFINED BENEFIT PENSIONS SUPPORT LOCAL ECONOMIES

Spoiler:
During the month of October, we at the National Public Pension Coalition are celebrating retirement security. Next week is National Retirement Security Week. We’ll have more to say about that in a series of blog posts next week. This week, we want to focus on the economics of pensions, the most secure form of retirement savings. On Monday we examined why defined benefit pensions cost less than 401(k)-style defined contribution plans. Today we want to highlight how public pensions support local economies and provide needed tax revenue for state and local governments.

One fact about pensions that critics conveniently ignore is that pension benefits are spent and that money goes back into local economies. This is a very important point, so it’s worth elaborating on. Public pension funds receive revenue from three sources: employee contributions, employer contributions, and investment earnings. The employer contribution — paid by school districts, fire departments, state government agencies, etc. — is the only source of taxpayer dollars that goes into a public pension fund. On average, taxpayers contribute less than a quarter of every dollar in benefits paid out from a public pension fund. The majority of revenue in a public pension fund comes from investment earnings.

When the money in a public pension fund is eventually paid out to retirees and other beneficiaries, they don’t just save that money or keep it stashed away somewhere. They spend it on food, medicine, housing, and other daily expenses. Many retirees live on a fixed income. They depend on their pension benefit to cover their daily needs. When retirees spend their pension benefit, where does that money go? Into their local economy. When pensioners spend their benefit, they are buying groceries at the local grocery store, purchasing their prescription drugs at the local pharmacy, paying their mortgage on their home (which supports the local real estate market). This money stays in place and can provide a strong countercyclical effect when the economy takes a downturn because pension benefits will continue to be paid and pensioners can help buoy local economies during rough times.

The National Institute on Retirement Security (NIRS) has run the numbers in their Pensionomics report. Using numbers from 2014 (the latest available figures), NIRS found that nearly $519.7 billion in pension benefits were paid to 24.3 million retired Americans in that year alone. This produced $1.2 trillion in total economic output nationwide, which supported 7.1 million jobs.

When reading those numbers, keep in mind that taxpayers only contribute about a quarter of revenue to a public pension fund. NIRS found that for every dollar taxpayers contribute through the employer contribution to the pension fund, that dollar eventually generated $9.19 in total economic output nationally. That single taxpayer dollar goes so far because it is combined with the employee’s own contributions and then invested by professionals. Those investments then earn additional revenue for the fund and when that money is eventually spent as a pension benefit by a retiree, it helps stimulate local economies. Taxpayers are getting a tremendous return on investment for their contributions to public pensions.

It’s not just local economies and the businesses operating in them that benefit from public pensions. State and local governments also benefit from public pensions through additional tax revenue collected. The National Conference on Public Employee Retirement Systems (NCPERS) recently asked the question: on net, do state and local governments receive more tax revenue from public pensions than they contribute? The answer, in almost all states, is yes.

According to the NCPERS report, in 38 states, those states collect more in tax revenue generated by public pensions than taxpayers contribute to the public pension plans. Some of the states where pensions are net-revenue-generators may surprise people who only read the doom-and-gloom coverage of public pensions: California, Illinois, Kentucky, New Jersey, Oregon, and Texas all receive more in tax revenue created by public pensions than taxpayers contribute to those same pension plans.

Public pensions support local economies and provide needed tax revenue to state and local governments. The economics are not hard to understand. Pension plans are not glorified savings accounts where employees and employers put money in and all they get at the end is what they put in. Their contributions are invested and they grow and this investment activity alone stimulates the economy and produces tax revenue. But it doesn’t just stop with investment. That money is paid out as pension benefits to actual human beings who spend it on things they need. Purchasing goods and services is the very basis of a consumer economy.

Protecting pensions is not just about protecting the retirement security of public employees who have earned their pensions through their service to their communities. It is also about protecting the health of local economies and the businesses that thrive in them. Protecting pensions is about protecting community and the idea that service to the community benefits everyone in the end.


COUNTERPOINT [from 2 years ago]

https://www.forbes.com/sites/andrewb.../#261bb18a3dea
Quote:
Do Public Employee Pension Benefits Stimulate the Economy?

Spoiler:
The National Institute for Retirement Security (NIRS), an advocacy group for the public employee pension industry, today release an update in its “Pensionomics” series – the claim that the pension benefits paid to retirees stimulate the U.S. economy and create jobs by being spent and re-spent throughout the marketplace.

“Retiree spending of pension benefits in 2014 generated $1.2 trillion in total economic output, supporting some 7.1 million jobs across the U.S. Pension spending also filled government coffers with retirees paying a total of $190 billion in federal, state and local taxes on their pension benefits and spending 2014.”

Each dollar of pension benefits, NIRS claims, creates $2.21 of economic activity as that dollar is passed around the economy.

But these claims, which NIRS back with impressive-seeming figures on where the economy grows and why types of jobs are created, are entirely fictitious. They depend upon counting only one side of the equation: that is, pension benefits boost the economy but the taxes necessary to fund those pensions – that is, billions of dollars that can’t be spent because they’re instead flowing into government pension plans – have no negative effect. If you count both sides of the equation, the rough effect of public sector pensions on the overall economy is zero. NIRS, and the various retirement plans, unions, investment managers and actuarial firms who support its work, should be embarrassed that this quality of work continues to be produced.

But NIRS should know this, because their own studies basically admit it. On the second-to-last page of the paper, NIRS finally acknowledges – however obliquely – that there’s another side to the story:


"This study measures the gross economic impacts of pension benefit expenditures only, rather than the net economic impacts. Pension payments are a form of deferred compensation, meaning that employees and employers contribute to the pension trust over the course of an employee’s career as a portion of the employee’s total compensation. Had that employee received that compensation in another form—for example, a slight increase in gross pay each month—s/he would have seen higher disposable income, and presumably would have spent a portion of that income in the local economy at that time."

In other words, the money paid into pension plans could have been put to other uses and those uses also would have stimulated the economy.

So why doesn’t NIRS count both sides of the equation? Because public pensions are prefunded, they say, the contributions made to the program in a given year aren’t directly tied to the benefits paid in that year. Rather, today’s benefits were funded by contributions made in past years. “Due to these limitations and possible misinterpretations, the analysis we present here assesses gross economic impacts, rather than net impacts.”

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The NIRS study is about nothing other than limitations and misinterpretations, so I’m not buying it. The reality is that we can easily account for the net effects of a pension system over time because the benefits paid out are, by definition, equal in present value to the contributions paid in.

For instance, over their careers government employees and taxpayers paid money into their state’s retirement system. That money otherwise would have been either spent or saved. Had it been spent, it would have stimulated the economy in the past. Had it been saved, it would have stimulated the future economy by funding factories or research or investment in human capital. That’s the economic boost we gave up. Is there any reason to believe that the economic boost we’re enjoying from pension benefits today is larger than the economic loss we experienced by giving up money to pension systems in the past? No. Why would it be?

And if you're thinking about the short term, the picture may be even worse. Since 2001, the average state or local pension plan's annual require contribution has more than tripled as a percentage of employee payroll, rising from 8.6 percent of payroll to 27.2 percent. That constitutes billions of dollars that can no longer be used to pay for public services or remain in the economy to create jobs. Does NIRS believe those rising costs have no negative impact on economic growth or jobs?

This isn’t an argument over the size of the Keynesian economic multiplier. It’s not anything as sophisticated as that. It’s merely acknowledging that a) the economic multiplier must apply to pension costs as well as pension benefits, and b) that over the long term pension costs are equal to pension benefits, because pensions can’t pay out money that they haven’t collected. Once you acknowledge those two facts – and you’d have to be pretty intellectually incoherent not to do so – then the net economic effects of public sector pensions are right about zero. Not $1.2 trillion and not 7.1 million jobs. But zero.


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  #1566  
Old 10-18-2018, 05:54 PM
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OHIO
VALUATION ASSUMPTIONS

http://perspective.opers.org/index.p...t-assumptions/

Quote:
OPERS to lower investment assumptions
Downward shift comes in the face of lower return expectations


Spoiler:
Oct. 18, 2018 – Faced with declining market expectations, the OPERS Board of Trustees has lowered the pension system’s investment return assumptions for both the Defined Benefit Fund and Health Care Fund.

Beginning with the 2018 calendar year, the assumed actuarial rate of return will be 7.2 percent for the Defined Benefit fund and 6.0 percent for the Health Care Fund. The current rates are 7.5 for the Defined Benefit Fund and 6.5 percent for the Health Care Fund.

The expected rate of return for the defined benefit plan is a key actuarial assumption that influences the way OPERS calculates its liabilities. The move is expected to lower our funding level and increase the time in which we can pay off liabilities.

Lowering the actuarial rate of return could affect benefits for retirees and working members, so OPERS does not take this step lightly. Determining what steps to make after changing the rate will be a challenging decision.

This action reflects worsening expectations in the capital markets since OPERS’ last five-year experience study in 2016, which prompted the Board to reduce the assumed rate of return for the Defined Benefit Fund from 8.0 percent to 7.5 percent. Investment consultants have told us to expect to earn half a percent less annually on our investments than they forecasted during the experience study.

Further, the present value of OPERS’ future benefit payments to current retirees stands at $117 billion, and more than 60 percent of that liability is due to be paid within the next 15 years. While it’s true that we are long-term investors, market returns over the next 10-to-15 years are very important to our plan.

The rate of return adjustment is part of OPERS’ continuing effort to keep the pension plan healthy and sustainable. It determines how much money we need to have on hand now to pay future obligations.

Many institutional investors have been lowering their earnings expectations. The median investment return assumption used by 129 public pension plans surveyed by the National Association of State Retirement Administrators was an all-time low 7.45 percent in July.


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Old 10-18-2018, 05:55 PM
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ACTIVIST SHAREHOLDERS

http://www.pionline.com/article/2018...issue=20181017

Quote:
Shareholders push for independent Facebook board chair

Spoiler:
Finance officials in Illinois, Rhode Island, Pennsylvania and New York City co-filed a shareholder proposal Wednesday asking Facebook's board of directors to make the chairman an independent position.

Facebook declined to comment on the proposal, which will be put to a vote at the company's annual shareholder meeting in May 2019.

A similar shareholder proposal presented at the company's June 1, 2017, shareholder meeting was voted down. Facebook said in a proxy filing on that meeting that the current, lead independent director role "ensures effective representation of the interests of all stockholders. We do not believe that requiring the chairman to be independent will provide appreciably better direction and performance, and instead could cause uncertainty, confusion, and inefficiency in board and management function and relations."

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The new proposal, filed by Trillium Asset Management in June and co-filed Wednesday by Illinois Treasurer Michael W. Frerichs, Rhode Island Treasurer Seth Magaziner, Pennsylvania Treasurer Joe Torsella and New York City Comptroller Scott M. Stringer, comes "after years of shareholder engagement," they said, noting that last year's proposal received the support of 51% of the votes cast when excluding the shares of 13 executives and board members.

The proposal highlights that Google, Microsoft, Apple, Oracle and Twitter have separate CEO and chairman roles, and as of April 2018, 59% of the S&P 1500 companies had separated the roles.

The co-filers said their proposal focuses on "Facebook missing, or mishandling, a number of severe controversies," including Russian meddling in U.S. elections, sharing personal data of 87 million users with Cambridge Analytica, data sharing with device manufacturers, allowing the proliferation of fake news, and allowing advertisers to exclude ethnic affinities.

Mr. Stringer, the fiduciary for the five pension funds within the $195.8 billion New York City Retirement Systems, said in the group's statement that due to Facebook's "outsized role in our society and our economy … they have a social and financial responsibility to be transparent."

"We need Facebook's insular boardroom to make a serious commitment to addressing real risks — reputational, regulatory, and the risk to our democracy — that impact the company, its shareowners and, ultimately, the hard-earned pensions of thousands of New York City workers," Mr. Stringer added.

The current governance structure "continues to put its investors at risk," said Mr. Frerichs, who serves as Illinois' chief investment officer, actively managing $28 billion. As Rhode Island's general treasurer, Mr. Magaziner has pushed for more transparency and less risk in the state's $8.4 billion pension fund. Mr. Torsella of the Pennsylvania Treasury oversees more than $100 billion in state funds.


https://www.reuters.com/article/us-f...jezy8xdW5hfbJQ

Quote:
At Facebook, public funds join push to remove Zuckerberg as chairman
Spoiler:
(Reuters) - Four major U.S. public funds that hold shares in Facebook Inc on Wednesday proposed removing Chief Executive Officer Mark Zuckerberg as chairman following several high-profile scandals and said they hoped to gain backing from larger asset managers.

State treasurers from Illinois, Rhode Island and Pennsylvania, and New York City Comptroller Scott Stringer, co-filed the proposal. They oversee money including pension funds and joined activist and original filer Trillium Asset Management.

A similar shareholder proposal seeking an independent chair was defeated in 2017 at Facebook, where Zuckerberg’s majority control makes outsider resolutions effectively symbolic.

Rhode Island State Treasurer Seth Magaziner said that the latest proposal was still worth filing as a way of drawing attention to Facebook’s problems and how to solve them.

“This will allow us to force a conversation at the annual meeting, and from now until then in the court of public opinion,” Magaziner said in a telephone interview.

Facebook's CEO Mark Zuckerberg listens to French President Emmanuel Macron after a family picture with guests of the "Tech for Good Summit" at the Elysee Palace in Paris, France, May 23, 2018. REUTERS/Charles Platiau/Pool
A Facebook spokeswoman declined to comment.

At least three of the four public funds supported the 2017 resolution as well. The current proposal, meant for Facebook’s annual shareholder meeting in May 2019, asks the board to create an independent board chair to improve oversight, a common practice at other companies.

It cites controversies that have hurt the reputation of the world’s largest social media network, including the unauthorized sharing of user information, the proliferation of fake news, and foreign meddling in U.S. elections.

Illinois State Treasurer Michael Frerichs said in an interview that, while an independent chair might not have prevented all the issues, “there might have been fewer of these problems and less of a drop in share price” at the company.

Shares of Facebook have had a rocky year, under pressure from revelations about the privacy and operational issues as well as concerns over slowing revenue growth. They closed Wednesday at $159.42, 10 percent lower than at the start of the year and well off a closing high of $217.50 reached on July 25.

The 2017 resolution received the support of a slim majority of outside investors, according to the public fund leaders’ calculations. Magaziner and Frerichs said they planned to talk with larger Facebook investors in coming months to seek their support.

Slideshow (2 Images)
Among funds that are Facebook’s largest investors, the Vanguard Total Stock Market Index Fund and Fidelity Contrafund voted against the 2017 proposal, securities filings show, while the American Funds Growth Fund of America supported it.

American Funds representatives did not reply to requests for comment on Wednesday. Spokespeople for Fidelity and Vanguard declined to comment. Contrafund manager Will Danoff was supportive of Facebook’s response to problems in an investor note in August.

In opposing the 2017 proposal, Facebook said an independent chair could “cause uncertainty, confusion, and inefficiency in board and management function and relations.”

Zuckerberg has about 60 percent voting rights, according to a company filing in April.

The New York City Pension Funds owned about 4.5 million Facebook shares as of July 31, while Trillium held 53,000 shares.

The Pennsylvania Treasury held 38,737 shares and the Illinois Treasury owned 190,712 shares as of August. Rhode Island funds hold 168,230 Facebook shares, a spokesman said.


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Old 10-18-2018, 06:10 PM
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CALIFORNIA

https://www.bakersfield.com/opinion/...e48ce244d.html

Quote:
Weatherby: Why are local governments asking voters to approve more taxes?

Spoiler:
When Californians vote in the November election, they will choose a new governor, decide 11 statewide propositions and face hundreds of local tax measures.

On the November ballot alone, there are 254 local tax measures – a 65 percent increase compared to the 2014 gubernatorial election – along with more than 100 bonds that would be repaid with property tax increases. Voters in Kern County will decide the fate of 14 tax and bond measures.

Earlier this year, voters approved 55 of 85 local tax measures statewide.

The influx of local taxes comes during a time of steady economic growth and fiscal prosperity in California. Since July 2009, the beginning of the economic recovery, California’s general fund budget has grown from $89.5 billion to $138.6 billion, an increase of 54.8 percent. During the same period, California built up a $19 billion rainy day reserve.

The benefits of economic expansion have filtered down to local jurisdictions as increased property and home values resulted in more property tax revenue.

According to the California Association of Realtors, the median home price grew from a 2011 low of $286,040 to $502,250 in 2016, a 75 percent increase. During the same period, there were 2.5 million home sales in California.

With Proposition 13 property taxes based upon a property’s acquisition value, the activity in the real estate market resulted in higher property tax revenue that can be used by local government to support police, fire, parks, libraries and other vital local services.

In 2010, voters approved Proposition 26, which strengthened the definition of a tax. Yet local taxes and fees still increased by $47 billion, a 36.9 percent increase, according to data compiled by the California Tax Foundation.

With increased tax revenue and economic growth, why are local governments asking voters to approve more taxes?

A report by the League of California Cities notes that city pension costs will increase more than 50 percent by the fiscal year 2024-25, and will reach “unsustainable levels.” The report states: “Often, revenue growth from the improved economy has been absorbed by pension costs.”

Rising pension costs will require cities to nearly double the percentage of general fund dollars they pay to the California Public Employees’ Retirement System. Cities are expected to spend approximately 15.8 percent of their general fund budgets on pensions, with a quarter of cities anticipated to spend more than 18 percent by 2024-25.

Looking ahead, local governments will have to prioritize spending and improve efficiency. There are no guarantees that taxpayers will authorize additional taxes.

Of the local taxes on the November ballot, 171 are general taxes, meaning local governments have full discretion on how to spend revenue generated by the tax.

The recent California Supreme Court ruling in Upland v. California Cannabis Coalition left open for interpretation the vote threshold for local taxes. While taxpayers believe the existing thresholds – a two-thirds majority for special taxes or a simple majority for general taxes – are still the law of the land, some local governments are trying to get around the taxpayer protections. For example, the San Francisco city attorney interpreted the ruling to mean that any tax measure placed on the ballot via the local initiative process requires a majority vote regardless of how the revenue would be used.

It’s time for taxpayers to work together to ensure tax dollars are spent wisely, and make sure the next gubernatorial election ballot doesn’t include even more local taxes with even fewer safeguards for the hard-working Californians who pay the tab.

Dustin Weatherby is a research analyst for the California Taxpayers Association, the state’s largest and oldest organization representing taxpayers.


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Old 10-19-2018, 10:07 AM
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CALIFORNIA
CALPERS
GOVERNANCE
ESG


https://www.wsj.com/articles/califor...ism-1539904066
Quote:
California Public Employees Vote Against Pension-Fund Activism
Playing politics with other people’s savings is never popular.
Spoiler:
The California Public Employees' Retirement System this month said no thank you to pension-fund activism. Government workers unseated Priya Mathur, the sitting Calpers president. She was defeated by Jason Perez, a police-union official who criticized Ms. Mathur's focus on environmental, social and governance investing, or ESG. Mr. Perez emphasizes the agency's fiduciary duty to maximize investor returns.

Calpers represents almost two million California public employees, retirees and families. Yet it mostly makes headlines for its activism, such as divestiture from the tobacco industry. "It's been used more as a political-action committee than a retirement fund," said Mr. Perez. "I think the public agency [employees] are just sick of the shenanigans."

Americans have always invested to achieve personal goals, such as saving for a house or their kids' college tuition. Some find that an ESG or issue-specific approach to investing accords with their personal philosophies. There is nothing wrong with people investing their own money however they like. But Calpers has a fiduciary duty to California public employees, who rely on it for retirement security.

Hester Peirce, a commissioner of the Securities and Exchange Commission, recently observed, "When a pension-fund manager is making the decision to pursue her moral goals at the risk of financial return, the manager is putting other people's retirements at risk." The danger for Calpers is real: In 2016 a consultant found that the fund's beneficiaries missed up to $3 billion in investment gains from 2001-14. The reason? A divestiture from tobacco holdings for political purposes.

All this happens as Calpers remain underfunded. Worse, its beneficiaries are stuck. They are locked into the system and cannot vote with their feet.

While Calpers beneficiaries are demanding a renewed focus on returns, activists continue to work other channels to impose agenda-driven requirements on public companies. Sen. Elizabeth Warren last month unveiled a bill that would direct the SEC to mandate that all public companies disclose fossil-fuel use and greenhouse-gas emissions. This month a petition signed by 17 law professors and institutional investors, including Calpers, asked the SEC to develop mandatory rules for public companies to disclose ESG information.

The petition argues that since there are already so many requests to the SEC for issue-specific disclosures -- human-capital management, climate, tax, human rights, pay ratios by sex, and political spending -- the agency should impose a broader ESG disclosure framework. The laundry list of possible disclosures underscores the problem. Requiring companies to account for an ever-changing list of hard-to-quantify social issues distracts from disclosure's real, statutory purpose: giving the reasonable investor material information he needs to make investing decisions.

These proposals always tout purported benefits to investors, but mandatory disclosure of additional immaterial information would be harmful. In a 2013 speech, former SEC Chairman Mary Jo White decried the "information overload" in already bloated annual reports that obscures pertinent disclosures for investors amid a sea of extraneous information. She summarized: "What some investors might want may not be what reasonable investors need." Translation: More information is not necessarily better information.

Mandating politicized corporate disclosures doesn't align with the SEC's mission to protect investors and facilitate capital formation. Instead, it would divert resources away from business operations and growth. It is simply an attempt to shame public companies into compliance with activists' demands.

As Mr. Perez put it, criticizing a proposal to divest from some gun retailers earlier this year: "This is nothing more than a political ploy." His push to prioritize performance over politics clearly resonated with California public employees; lawmakers and pension-fund managers should take note.

---

Mr. Atkins, CEO of Patomak Global Partners, is a former SEC commissioner.
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Old 10-19-2018, 02:13 PM
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INVESTMENT FEES

https://www.benefitspro.com/2018/10/...20180919124310

Quote:
Higher fees don’t help pension plans beat benchmarks
The Center for Retirement Research look at the question of how plans perform relative to benchmarks and fees.
Spoiler:
Public pension plans evaluate their performance by comparing returns by asset class to certain benchmarks—and in the quest to beat benchmarks, they seek out external asset managers to do just that.

However, according to a brief from the Center for Retirement Research at Boston College, with fees under scrutiny for what they may or may not help a plan to do, researchers have found that plans paying higher fees aren’t doing themselves any favors in beating benchmarks.
In fact, plans that pay higher fees actually get worse performance relative to those benchmarks.

Asset classes didn’t change whether a plan beat a benchmark or lost ground against it. But alternative asset classes, such as private equity and hedge funds, performed particularly badly under higher fees.

The report points out that plans compare their returns by asset class to specifically chosen benchmarks that reflect their investment goals for the asset class. And that’s what they pay external asset managers for: to beat those benchmarks.
Researchers considered the asset classes of domestic equity, international equity, fixed income and alternatives, that last broadly consisting of real estate, commodities, private equity and hedge funds.

Established indices are generally used as benchmarks, but for alternative asset classes there’s more variation in the benchmark choices, so to benchmark a whole portfolio, the report says, “state and local plans use either a weighted average of asset class benchmarks, the average performance of a selected peer universe, the expected rate of return on investments, or a public index (often, plus a premium).”

And while the report found that the annualized return from 2002–2016 in plans outperformed their blended benchmark by 31 basis points on average, individual plan experience wasn’t anywhere near that consistent.

About a third of plans underperformed their benchmark, a third outperformed within 50 basis points, and another third outperformed by 50 basis points or more.

It highlighted the fact that the range in performance stems from both differences in net returns and differences in benchmark choices for each asset class.

And then there’s the question of how they perform relative to benchmarks and fees.

Data from 2011–2016 indicate that higher fees correlate to lower net-of-fee performance relative to benchmarks, and that plans that underperform their benchmarks pay higher fees across all major asset classes—particularly for alternative assets such as private equity and hedge funds.

In addition, research indicates that “it is clear that alternatives charge much higher fees than traditional asset classes such as public equities and fixed income” and that “plans that underperformed their blended benchmark from 2011–2016 reported higher expense ratios than plans that outperformed their benchmark, particularly within alternative asset classes.”

The report concludes that “investment fees—in particular, outsized fees on alternatives—may play a meaningful role in plan underperformance.”


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