Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Pension - Social Security
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions

Search Actuarial Jobs by State @ DWSimpson.com:
AL AK AR AZ CA CO CT DE FL GA HI ID IL IN IA KS KY LA
ME MD MA MI MN MS MO MT NE NH NJ NM NY NV NC ND
OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY

Reply
 
Thread Tools Search this Thread Display Modes
  #1731  
Old 10-08-2019, 07:34 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

DISCOUNT RATE

https://www.pionline.com/pension-fun...andon-8-dreams
Quote:
Public pension funds abandon 8% dreams
Only handful of plans still keep assumed return rate at same level as 10 years ago
Spoiler:
When it comes to public pension plans' assumed rates of return, what is rare today was quite common less than 10 years ago.

Only three of 129 public plans tracked by the National Association of State Retirement Administrators have assumed rates of return at 8%.

In 2010, by contrast, 59 plans had assumed rates of return of 8% and another 30 had rates higher than 8%, said Alex Brown, NASRA's research director. As recently as 2015, NASRA reported that 24 plans had rates of 8% and four had rates exceeding 8%.

A common theme for reducing the assumed rates of return has been the low-interest-rate environment, said Mr. Brown, referring to a February 2019 NASRA report that analyzed trends for assumed rates of return.

"The sustained period of low interest rates since 2009 has caused many public pen- sion plans to re-evaluate their long-term expected returns, leading to an unprecedented number of reductions in plan investment return assumptions," the report said.

From February 2018 to February 2019, the report said 42 plans, or 33% in the NASRA database, reduced their return assumptions. Ninety percent have done so since 2010.

Among the plans tracked by NASRA, the median assumed rate dropped to 7.25% this year from 8% in 2010 and 7.5% in 2015.

"There's wide variations but there is a fair amount of clustering" among return assumptions in the NASRA database, Mr. Brown said. Three-fourths of the state plans have rates ranging from 7% to 7.5%.

8 is enough
The Ohio Police & Fire Pension Fund, Columbus, has had its 8% return rate assumption since Jan. 1, 2017, down from 8.25%. The change "was made as a part of a regularly scheduled five-year review of all actuarial assumptions," David Graham, the $15.5 billion fund's communications director, wrote in an email.

"In the review that resulted in our moving to an 8% assumed rate, our independent actuary and investment consultant agreed that over a 30-year period we would have a slightly better than 50% chance of meeting that return," Mr. Graham wrote.

"While returns in the short term (10 years) may be expected to be lower, the 30-year look provided a better probability," Mr. Graham added. "Our next study of assumptions will be in 2021 and we will take these findings into consideration when discussing a potential change at that time."

The pension fund had a funded status on an actuarial basis of 69.9% as of Jan. 1, 2018.

"We continue to meet the state of Ohio's requirement that all unfunded liabilities be paid within a 30-year time frame," Mr. Graham wrote. "We are currently at 28 years."

For the fiscal year ended Dec. 31, 2018, the pension fund had a net return of -2.4%, which was better than the benchmark of -2.67%.

Three-year annualized returns of 7.16% topped the benchmark of 6.83%. Five-year annualized returns of 5.53% exceeded the benchmark of 4.98%. Ten-year annualized returns of 9.54% outpaced the benchmark of 8.89%.

Reasons for 8%
Texas County & District Retirement System, Austin, has chosen an 8% rate for several reasons, such as investment style, said Kathy Thrift, chief customer officer, in an email.

"When compared to the average public pension plan, our asset mix is very different," Ms. Thrift wrote. "The major difference in our portfolio is that we have a very small percentage — 3% — allocated to investment-grade bonds."

She added that the pension system "has used other asset classes with better return characteristics to offset risk in the portfolio," including hedge funds and strategic credit.

Emphasizing that 8% "is a long-term target," Ms. Thrift wrote that market volatility means the pension system won't hit 8% every year.

The system "has other measures in place to manage risk, including a $1 billion reserve fund — as of Dec. 31, 2018 — that may be used to offset future adverse experience," she explained.

The retirement system's board "in good years," can "set aside earnings rather than pass them through to the individual employer plans," she explained. "The reserves are invested with the plan assets. This tool has helped us keep employer rates stable over time."

The $31.9 billion retirement system completed its most recent review in December 2017 to assess its economic and demographic assumptions.

"Two independent outside actuarial firms both concurred that the investment return assumption is reasonable," Ms. Thrift wrote. "We conduct a full review of our assumptions every four years."

Ms. Thrift illustrated the system's long-term investment strategy by noting that members work an average of 18 years and are retired for 20 years or more. The 30-year return is 8% and the benchmark is 6.9% as of the fiscal year ended Dec. 31.

"Every year, we update our capital market assumptions, which are forward-looking expectations of the return, risk and correlation of each of our asset classes," she wrote.

"We then model a portfolio targeted to meet our long-term expected return goal with an acceptable level of risk," she added. "If we do not think our portfolio can be constructed to achieve our goal with an acceptable level of risk, we will adjust our expectations."

The system has a funded status of 88.5% on an actuarial value basis, or 91% when reserves are included, as of Dec. 31.

The return, net of fees, for the fiscal year ended Dec. 31 was -1.86%, but still better than the benchmark of -3.31%. The three-year annualized return was 6.57%, topping the benchmark of 6.16%. The five-year annualized return of 5.13% surpassed the benchmark of 4.1%. The 10-year annualized return was 9.02%, exceeding the benchmark of 8.06%.

The other plan in the NASRA database with an 8% assumed rate of return is the Arkansas State Highway Employees' Retirement System, Little Rock. The plan had $1.5 billion in assets and a funding ratio of 83.51% as of June 30, 2018, according to the latest actuarial valuation report

Additional details were not available. Robyn Smith, executive director, didn't respond to requests for information.

‘Unrealistically high'
The latest plan to leave the 8% club is the Connecticut Teachers' Retirement Fund, Hartford. Thanks to a law signed in late June by Gov. Ned Lamont, the plan's assumed rate dropped to 6.9% effective July 1, the beginning of its fiscal year, as part of a major restructuring.

"Eight percent was unrealistically high," Shawn T. Wooden, the state treasurer, said in an interview. He is the principal fiduciary of the $36 billion Connecticut Retirement Plans & Trust Funds, Hartford, of which the teachers' pension fund is the largest component at $18.4 billion as of June 30.

The lower assumed rate and the restructuring "will move the plan to something that is more realistic and sustainable," Mr. Wooden said. "We will move the fund on a long-term path to fiscal responsibility. Inflated assumptions distort unfunded liabilities."

The restructuring includes a special capital reserve fund "to serve as adequate provision for bondholders, to meet the requirements of the bond covenant, which allowed for the re-amortization of the Teachers' Retirement unfunded pension liability over 30 years," said an email from the treasurer's office.

The teacher's retirement fund had a funded ratio of 51.7% on an actuarial valuation basis as of June 30, 2018.

For the fiscal year ended June 30, 2019, the pension fund had a net return of 5.85% vs. a benchmark of 6.84%.

Annualized returns over three years were 9.03%, just below the 9.23% benchmark. The annualized five-year return of 5.96% lagged the benchmark of 6.09%. The 10-year annualized return of 8.84% trailed the benchmark of 9.01%.

Alaska Public Employees' Retirement System, with $16.9 billion in defined benefit assets, and the Teachers' Retirement System, with $8.3 billion in defined benefit assets, both cut their assumed rates of return this year to 7.38% from 8%. Both are managed by the Alaska Retirement Management Board, Juneau.

The board and its actuaries "review actuarial assumptions annually and the investment return assumption was reduced to 7.38% in 2019 to reflect lower prospective investment returns," Stephanie Alexander, the board's liaison officer, wrote in an email.

The board approved the rate change on Jan. 11.

The board "has adopted an asset allocation consistent with this long-term return assumption," she said.

For the 12 months ended March 31, the public employees' pension system had a net return of 5.25%. Three-year annualized returns were 9.34% and five-year annualized returns were 6.58%, according to the website of the Alaska Retirement Management Board, which uses the new 7.38% assumed rate of return as a comparison. The Alaska Public Employees' Retirement System had a funding ratio of 64.6% on an actuarial valuation basis as of June 30, 2018, according to a June 2019 report to the trustees of the Alaska Retirement Management Board.

The teachers' pension fund had the same returns over the same three periods using the same assumed rate as a benchmark. It had a funding ratio of 76.2% on an actuarial basis as of June 30, 2018, the report to the trustees said.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1732  
Old 10-08-2019, 07:39 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

SAN JOSE, CALIFORNIA

https://sanjosespotlight.com/san-jos...irees-lawsuit/
Quote:
San Jose taxpayers will shell out $1.4 million to fight retirees lawsuit
Spoiler:
Fighting a lawsuit from a group of prominent San Jose retirees who say the city started shortchanging their pensions five years ago could cost San Jose taxpayers $1.4 million — and those costs could keep rising.

The San Jose City Council voted in September to spend up to $1.4 million on an existing contract with law firm Hanson Bridgett LLP, increasing the amount the city will pay the outside attorneys for the fifth time in less than two years.

Twenty former city employees hired Oakland labor lawyer Bob Bezemek to file the lawsuit after they allege the city illegally reduced their benefits by invoking federal limits on the annual amount some retirees can collect from certain types of pension funds.

The retired plaintiffs are a high-profile group of top San Jose leaders, many of whom have widespread name recognition and shaped the policies that govern City Hall today. They include Leslye Corsiglia, a longtime director of the city’s Housing Department who now runs Silicon Valley at Home; former Planning Director Harry Freitas; former Public Works Director Barry Ng; the family of former Planning Director Joseph Horwedel, who died in 2016, and longtime Planning Director Gary Schoennauer.

Schoennauer, who retired in the 1990s after more than 30 years, told San José Spotlight that he and his fellow plaintiffs had hoped the city would settle the lawsuit and pay the retirees what they’re owed, but the city has decided to keep fighting.

“I joined my colleagues in the lawsuit to get what is rightly owed to us,” Schoennauer said, declining to say how much he was shortchanged from his retirement or to discuss the case further.

The lawsuit centers on a change to the Internal Revenue Service code Congress adopted in 1990 that places a cap on the amount some retirees can receive annually from a pension fund. Two other plaintiffs, Wayne Tanda and Joseph Bass, in 2016 were accused of being overpaid in their pension plans by $216,405 and $172,397, respectively, above the IRS limits. Both retirees said it was money they earned and were entitled to, according to a Mercury News article.

Raymond Lynch, a Hanson Bridgett lawyer defending the city, said Friday the federal cap applies to all of the plaintiffs in the lawsuit and the city had no choice but to abide by the IRS code.

“Fundamentally this is a matter of law and how the IRS limits apply,” Lynch said. “And in this case, it is a term of the pension plan and in my view it is completely clear that the limits are part of the plan and they were correctly applied with respect to the plaintiffs.”

Federal lawmakers carved out exemptions for some public sector workers who frequently retire early, such as law enforcement, firefighters and other emergency service workers, and grandfathered in everyone who retired before 1990. A 1996 revision of the IRS code allowed for public sector workers whose pension benefits exceeded the limit to be collected through separate funds. But attorneys representing the retirees have argued in court that many of their clients should have been grandfathered in, and all of them should be allowed to collect their pensions above the federal limits by other legal means.

But the city attorney’s office says the City Council has declined to create such an ‘excess fund’ in the past because it would draw more money from the general fund, which already pays for most of the city’s pension obligations.

“There is a lot at stake,” said Assistant City Attorney Nora Frimann in an interview. “And the reason we hired outside counsel is that everyone who is inside the system has some kind of conflict.”

According to the complaint, the San Jose retirees started working for the city between 1957 and 1991. Most of them were also promoted several times throughout careers that spanned 30 consecutive years before retiring between 1985 and 2015, according to the lawsuit.

“The city, by its unlawful action, is impairing its promises to a number of particularly loyal and long-serving civil servants,” the lawsuit says. “While the city is legally entitled to impose limitations on newly-hired employees, it is forbidden by law… from imposing such limitations retroactively.”

Bezemek is asking the court to force San Jose to turn over more than $470,000 — the amount he says his clients have been shortchanged since 2014 — and require the city to create a preservation fund, to ensure that retirees who earn pensions above federal limits are allowed to collect everything their contracts entitle them to.

“Nearly every public jurisdiction in California and in Santa Clara County has created such an ‘excess’ or ‘preservation’ fund,'” the lawsuit says. “But the city has stubbornly refused to do so, despite recommendations… over the years that it should create such a fund.”

In 2005, the complaint notes, the city’s retirement board brought the issue to the attention of the council, “going as far as drafting a proposed ordinance.” But it was nearly a decade later the city started clawing back so-called “excess” benefits, Bezemek argues, rather than putting the money into another fund where retirees could access it legally under the IRS code.

In its quest to squash the litigation, the city hired Hanson Bridgett in Dec. 2017 for $175,000 and increased the firm’s contract fives times up to $1.4 million, eight times the original contract amount.

“It is expensive to defend the case,” Frimann said. “But it is a complicated lawsuit and Hanson Bridgett has been paring it down and winning arguments.”

The council approved the latest increase just a week before responding to a grand jury report that found the city’s pension funds would only generate about 20% of the money needed to cover the city’s obligations, including cost-of-living adjustments (COLA) over the next decade.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1733  
Old 10-08-2019, 07:46 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

https://www.fa-mag.com/news/pension-...isk-51941.html
Quote:
Pension Funds Sink Billions Into More Risky Alternative Assets
Spoiler:
For decades Dutch pension cash flowed to the place most likely to deliver steady and safe returns: government bonds.

No longer. Now the investor behind the Netherlands’ biggest pension fund is channeling retirement savings to a Belgian airport, a bicycle parking lot in Utrecht and toll roads in the U.S. and Spain.

“Because of low interest rates, we have to cast our nets far and wide to search for returns,” said Thijs Knaap, senior investment strategist at APG Asset Management. “We increasingly invest more away from home. It’s where the growth is.”

In a world of stuttering expansion -- where yields on $14 trillion of bonds have turned negative -- income is draining away on government debt that matches their long-term liabilities. So they’re getting creative to meet ever more-elusive return targets.

Knaap is at the vanguard of a move by the most conservative investors into areas far outside of their safety zone. They’re fueling a boom in alternative assets such as private equity, property and infrastructure that PwC estimates will jump to $21 trillion in 2025 from $10 trillion in 2016.

“You’ve had a mad rush into these private assets,” said Elliot Hentov, head of policy research at State Street Global Advisors. “It’s a low-yield environment, everyone is piling in.”

Even the Church of England is getting in on the act. Its pension board is scaling back stocks in favor of private debt including loans to small, and medium-sized companies. In Japan, the Government Pension Investment Fund’s coping strategy for negative yields is to leave: the world’s biggest pension fund is considering currency-hedged foreign bonds as part of its domestic debt portfolio.

Central banks around the world delivered more than 700 cuts over the past decade and spent trillions buying bonds. That helped to dodge a depression following the 2008 financial crisis, but growth has eased after a brief rebound, and most major economies undershoot policy makers’ inflation targets. The U.S.-China trade war and a slew of geopolitical risks are adding headwinds to growth, deepening the lower-for-longer trend for interest rates.

“Growth is sub-par, and declining,” said Jean-Jacques Barberis, head of institutional client coverage at Amundi SA. “We’re in a cycle that never seems to end, as monetary policy is being pushed and pushed to limits. Interest rates are going to stay low for a long time.”

Gains from bonds will be generally close to zero in the coming years, according to Amundi. It expects the Barclays Euro Aggregate index to lose 0.1% over the next three years, before returning 0.2% over the next five and 0.3% over the successive decade. BlackRock Inc. reckons that a typical 60/40 strategy in which 60% of assets are allocated to equities and 40% to bonds will see average returns fall to 3.5% over the next 10 years from 8.5% in the past decade.

Contrast that with alternative assets. So far they’ve delivered returns above APG’s long-term target of 7% to 10%. The firm garnered 18.6% on private-equity holdings since it started investing in the asset class in 2010. Infrastructure generated a 12.7% internal rate of return since 2011.

Exit Window

A BlackRock survey of clients overseeing $7 trillion of assets published in January found just over half planning to increase their allocation to alternative assets this year.

“One of the biggest benefits of alternative assets is its uncorrelated return to the market,” said Anne Valentine Andrews at BlackRock Alternative Investors. “Illiquid assets such as infrastructure investment do not tend to experience the volatility of equities, which is valuable for many investors looking to diversify their portfolios.”

But the rapid dash to alternative assets by the stewards of retirement cash comes with risks, and it’s caught the attention of regulators. They worry that in a downturn funds would struggle to pull cash out of illiquid assets. While pension funds typically hold debt until maturity it doesn’t mean they can’t be hurt by mark-to-market losses.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1734  
Old 10-09-2019, 07:47 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

https://klementoninvesting.substack....-pension-plans

Quote:
The sad state of public pension plans in the US
Spoiler:
I recently came across a fascinating paper from the Board of Governors of the Federal Reserve that investigated the financial situation of public pension plans in the US and their reaction to low interest rates. In three simple charts this paper clearly demonstrated the dire straits public pension funds are in.

Let’s first take a look at the official funding ratios (the ratio of assets relative to the present value of future liabilities) of the 100 or so public pension plans in their sample. In 2001, the average funding ratio was close to 100% but despite the strong returns of stock markets and declining yields in Treasuries that boosted returns on all fixed income asset classes the average funding ratio declined to about 70% in 2016.

Funding ratios of public pension funds in the US


Source: Lu et al. (2019).

And these are only the official funding ratios. Currently, generally accepted accounting standards require pension fund liabilities to be discounted by a discount rate derived from the asset mix of the pension fund. But why the risk and timing of liabilities should be related to the risk and timing of equity returns, for example, is anyone’s guess. It makes no sense to use equity returns as input into the discount rate for pension fund liabilities. Instead, as practically every pension fund expert in the world has pointed out by now, one should use discount rates that reflect the risk and timing uncertainty of the liabilities of the pension fund.

Unfortunately, this data is not publicly available but in the paper the researchers made an effort to estimate the true funding ratio of the public pension funds in their sample. And the results are disastrous. The average funding ratio is more likely around 40% than 70%!

Estimated actuarial funding ratios of public pension funds in the US


Source: Lu et al. (2019).

In most countries, private pension funds with such massive underfunding would be forced to either restructure or close. Yet, thanks to some simple accounting tricks, the true level of underfunding has been covered up for years.

One of the tricks to use to keep funding ratios high is to keep expected returns for risky assets, such as equities high because that will allow the pension fund to discount liabilities at a higher discount rate. And despite a ten-year equity bull market and steadily declining Treasury yields, the expected returns of public pension funds remain stable at 8% per year. Every investor knows that expected returns vary over time, depending on the valuation of the assets today. But public pension funds seem to be oblivious of that fact.

Of course, they aren’t. They know full well that their expected returns are too high at the moment and that their true funding ratios are lower than their published numbers. But they can’t say that out loud because that would start a discussion about who is going to fund the gap. And in the case of public pension funds the answer to that question is very simple: it’s taxpayers.

So instead of owning up to the problem, politicians and trustees of public pension plans rather kick the can down the road and assume unrealistically high expected returns and discount rates for liabilities. And to achieve these high returns, they have to reach for yield, particularly in the fixed income space where current yields are extremely low. No wonder, bank loans, high yield and private debt are so popular with pension funds these days…

Expected returns of public pension funds in the US


Source: Lu et al. (2019).


https://papers.ssrn.com/sol3/papers....act_id=3417744
Quote:
Reach for Yield by U.S. Public Pension Funds
FEDS Working Paper No. 2019-048

67 Pages Posted: 17 Jul 2019
Lina Lu
Federal Reserve Banks - Federal Reserve Bank of Boston

Matt Pritsker
Federal Reserve Bank of Boston

Andrei Zlate
Board of Governors of the Federal Reserve System

Kenechukwu Anadu
Federal Reserve Banks - Federal Reserve Bank of Boston; Babson College

James Bohn
Federal Reserve Banks - Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-06-27

Abstract
This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds' risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding, and to the fiscal condition of their state sponsors. The theory identifies two distinct channels through which interest rates and other factors may affect risk-taking: by altering plans' funding ratios, and by changing risk premia. The theory also shows the effect of state finances on funds' risk-taking depends on incentives to shift risk to state debt holders. To study the determinants of risk-taking empirically, we create a new methodology for inferring funds' risk from limited public information on their annual returns and portfolio weights for the interval 2002-2016. In order to better measure the extent of underfunding, we revalue funds' liabilities using discount rate s that better reflect their risk. We find that funds on average took more risk when risk-free rates and funding ratios were lower, which is consistent with both the funding ratio and the risk-premia channels. Consistent with risk-shifting, we also find more risk-taking for funds affiliated with state or municipal sponsors with weaker public finances. We estimate that up to one-third of the funds' total risk was related to underfunding and low interest rates at the end of our sample period.

Keywords: U.S. public pension funds, reach for yield, Value at Risk, underfunding, duration-matched discount rates, state public debt

JEL Classification: E43, G11, G32, G23, H74

Suggested Citation:
Lu, Lina and Pritsker, Matthew G. and Zlate, Andrei and Anadu, Kenechukwu and Bohn, James, Reach for Yield by U.S. Public Pension Funds (2019-06-27). FEDS Working Paper No. 2019-048. Available at SSRN: https://ssrn.com/abstract=3417744 or http://dx.doi.org/10.17016/FEDS.2019.049
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1735  
Old 10-09-2019, 07:48 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

https://www.accountingtoday.com/opin...balance-sheets
Quote:
Pension and OPEB costs weigh on government balance sheets
Spoiler:
For too long, citizens and government officials were not provided with the financial information needed to make knowledgeable tax and spending policy decisions. This resulted in all 50 states accumulating a combined $1.5 trillion in debt related to pension and other post-employment benefits, while elected officials claimed balanced budgets.

Just like private workers, state workers receive compensation packages that include salaries and benefits, such as retirement and health care benefits. As workers earn their compensation each year, their employer (the government) becomes obligated to pay the benefits. Most salaries and health care benefits are paid by the government in the form of paychecks and health insurance. But governments defer paying a portion of their employees’ compensation packages.

The largest deferred compensation costs relate to employee retirement benefits, such as pensions and OPEB. OPEB comprises mainly retiree health care costs. In the private sector, companies offering retirement benefits must, by law, put money into the retirement accounts of employees as the benefits are earned during each pay period. Governments however, defer paying some of these costs by not putting enough money into the funds from which those future benefits will be paid. When the benefits are not funded as they are earned, the government incurs a liability that will have to be paid by future taxpayers.

ADVERTISING

inRead invented by Teads
GASB logo at headquarters in Norwalk, Connecticut
GASB headquarters in Norwalk, ConnecticutCourtesy of GASB
White Paper Service offering strategies to grow and expand your business.
Are you looking for strategies to grow and expand your business?
SPONSOR CONTENT FROM

Ever since governments started offering retirement benefits, pension and OPEB liabilities have been hidden off government balance sheets, which are called Statements of Net Position. The good news is that thanks to the Governmental Accounting Standards Board, which sets GAAP for state and local governments, governments are now providing more information about their unfunded retirement obligations, which must be considered debt because they represent money owed.

Starting in fiscal year 2015, governments using GAAP to prepare their Comprehensive Annual Financial Reports have been required to report their unfunded pension liabilities on their balance sheets. Last year, those governments had to begin reporting their unfunded OPEB liabilities as well.

While government balance sheets are still not perfect, they now provide citizens and elected officials with a better view of their government’s true financial position by including unfunded pension and OPEB debt. Fortunately, citizens and the mainstream media have finally begun to pay much-needed attention to unfunded public pension debt, and governments have begun to set aside more money to pay for promised pension benefits. For example, while there is a lot of room for improvement, in FY 2018 states set aside 65 cents for every dollar of promised pension benefits.

There is still some bad news: Very little attention has been focused on OPEB, as the 50 states have accumulated $664.5 billion of unfunded debt. Unlike pensions, most states handle earned and promised OPEB on a pay-as-you-go basis. Benefits are paid when retirees receive health care. Under this system, no money is paid by taxpayers who received the services from the retired employees when the benefits were earned. Current taxpayers are paying the benefits of earlier employees, now retired. The promised benefits have been, and still are, being passed on to future taxpayers. For FY 2018, less than seven cents was set aside to pay for every dollar of promised OPEB.

Sadly, future taxpayers are going to be stuck paying for current pension and OPEB benefits. They will receive no government services or benefits for the taxes that go to pay for retired employee benefits. In addition, state retirees are counting on these promised benefits that have not been funded. It is extremely difficult to change these obligations that are contributing to the debt and fiscal health of so many state governments.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1736  
Old 10-09-2019, 07:49 AM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

NEW YORK

https://www.crainsnewyork.com/op-ed/...ns-learn-facts

Quote:
Don’t bash pensions—learn the facts
Splashy headlines spread resentment, often at the expense of the truth
Sherry Chan
[chief actuary of NYC]
Spoiler:

Given the recent spate of news reports about seemingly exorbitant pension payments to New York City retirees, I feel it’s important to make a few things clear.

New York City pension money is an important contributor to our local economy. Pension dollars contributed from active workers’ paychecks are invested in various assets, spurring market activity, while pension payments to retirees are spent on all manner of goods and services. Discussions of their value should bear this in mind, especially when one reads recurring media stories about large payouts—which can be very misleading.

Gleaned from open-data portals, these stories usually focus on individuals receiving pension benefits on the high end of the scale, represent a specific year, and focus on the benefits for those with a long career of service to the city.

Often the numbers are taken out of context, with minimal explanation.

Public servants who began their career with the city in the 1970s have the option of voluntarily increasing their contributions to their own pension, above and beyond what they were required to contribute. It’s like someone saving money in a bank account and getting an annuity when they retire.

The inflated numbers that are reported make some pension benefits seem much higher than what they really are. It is not representative of what typical, newly hired public workers will receive when they retire from a city job.

Sometimes pensioners get a one-time lump-sum payment owed to them, such as when their pension check is suspended for multiple years and not paid until all pieces of their benefit calculation are provided and finalized.

When you read an article reporting on a pension salary for just one year, you could be left with the impression that this specific pension amount will be paid for eternity. That is not always the case. It could include non-recurring back payments.

Taxpayers have a right to know pension amounts, since a portion of pensions are paid from their taxes. But disclosing limited information serves no purpose other than to attempt to stimulate public pension resentment.

This is not helpful.

If the pension dollar amounts being disclosed reflect only a particular year, and appear inordinately high, more questions should be asked and more research should be done so explanations can be reported. This way, taxpayers can have more informed opinions.

Sherry Chan is the city’s chief actuary.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1737  
Old 10-09-2019, 12:44 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

PROVIDENCE, RHODE ISLAND

http://www.browndailyherald.com/2019...tough-choices/
Quote:
Shanmugam ’23: To solve its pension puzzle, Providence must make tough choices
Spoiler:
Even as Washington intrigue dominates media coverage of our government, American cities continue to define how citizens interact with the institutions around them — with consequences that the public often misses or overlooks. Indeed, a little known yet destructive trend is brewing in city pension funds across the United States.

For decades, local government workers across the country have sent a portion of their paychecks to the municipalities that employ them; cities combine these payments with their own annual contributions, invest the money and pay it out to these employees once they reach retirement age. It is under this system that cities have guaranteed financial security to generations of police, teachers and bureaucrats who help run America. But today, those pension funds are running dry as a result of mismanagement, corruption and a dearth of funding. Look no further than Providence, Rhode Island for a case study in such a pension puzzle and for evidence of the danger they pose to middle class livelihoods.


The city has suffered from deep-rooted mismanagement of its pension system. Rosy expectations about investment returns and decades of inadequate contributions to the fund — the city came up $16 million short in 1999 alone — have left it just a quarter of the way toward covering the $1.3 billion it owes to current and future retirees.

Such numbers are mind-boggling in and of themselves, but the budget pressure they create reveals an acute crisis with a concrete human impact. A 2010 refinancing scheme demands 3.5 percent yearly increases in Providence’s annual contributions to its pension system, outpacing the 2 percent rate at which the budget grows overall. This means that pension liabilities could edge out priorities like other social spending and infrastructure. This would be catastrophic for a public school system defined by chronically absent teachers, for the 70 percent of Rhode Island streets in poor condition and for a city with the highest poverty rate in the Northeast.

The difficult choices that pension reform requires — which can include tax hikes, slimmer pension payouts and more limited provision of local government services — make it extremely unpopular. Yet, in the face of a budget disaster that Providence’s mayor, Jorge Elorza, claims could cause bankruptcy for the whole city in 12 years, policy changes are necessary. First, the system of employee contribution and retiree payouts must become more sustainable. For instance, city employees currently contribute around 8 percent of their paychecks to pension funds. Even a modest 2 percent increase in that number could eliminate as much as 10 percent of the funding gap that the municipality faces. Similarly, key fixes on the retirees’ end could take pressure off the cash-strained city government. Simply reducing payouts on the largest pensions — those whose retirees are afforded over $2,000 a month — by 5 percent would cut the city’s annual retired contribution to the pension fund by $4 to $6 million.


But while sustainable support for retirees is important, Providence also needs more revenue if it hopes to avert this crisis. Nonprofits, such as universities and hospitals, do not pay property taxes despite owning 40 percent of city land. They should pay a greater share of government revenue. Former Providence mayors David Cicilline and Angel Taveras attempted to implement property taxes on nonprofits, but these attempts were unpopular and unsuccessful.

Since 2012, when then state treasurer Gina Raimondo raised the alarm about Providence’s broken pension system, middle-class Rhode Islanders who organize their lives around these pension payments — cops, firefighters and teachers — have been outraged, and for good reason. They consider it unfair that citizens should have to pay the price for decades of corruption, poor governance and financial mismanagement in City Hall. In the face of broken promises and burdensome demands from state officials, they are right.

Yet what these complaints miss is that, regardless of the inherent injustice of paying higher taxes to sustain Providence’s pension system, something needs to be done. Without immediate structural reform, Providence will be bankrupt. Bankruptcy would be a disaster for the city, leaving it unable to finance services as basic as law enforcement, and deterring enterprising Americans from opening businesses there.


Both types of reform — restructuring payments and finding new sources of revenue — though unpopular and austere, are necessary. Providence’s financial woes hold no panacea, and fixing them will require people across the socioeconomic spectrum to make financial sacrifices. In a crisis that threatens the entire city, there is no way around the tough choices that Providence’s citizens must make.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1738  
Old 10-09-2019, 06:54 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

DISCOUNT RATE

https://www.pionline.com/industry-vo...-discount-rate
Quote:
Commentary: A note on the discount rate

Spoiler:
One of the most heated debates about the already white-hot issue of public pension plan accounting is exactly what discount rate to use in measuring assets and liabilities and, therefore, the amount of unfunded liability. Plausible arguments can be made for both approaches currently used.

Pension administrators argue forcefully that the most appropriate discount rate is the expected future return on assets. The methodology for calculating that rate — currently about 7.5% and declining slightly in many states — is prescribed by the Governmental Accounting Standards Board under a complicated and somewhat controversial formula. Backers of the expected future return on assets model contend that long-term (30-year) historical returns have been even higher (about 8.5%) and, furthermore, state plans can command state revenues if they get into trouble. It's worth noting the 10-year return as of June 30, 2018, for the three largest public plans (the California Public Employees' Retirement System, the California State Teachers' Retirement System and the New York State Common Retirement Fund) averaged only 5%, compared to the projected average of 7.5%.

By contrast, the approach recommended by most financial economists is use of a "risk-free" rate — a more conservative model since future asset returns are quite variable while pension liabilities are quite fixed. As Don Kohn, then vice chairman of the Federal Reserve Board, put it in 2008: "The only appropriate way to calculate the present value of a very low risk liability is to use a very low risk discount rate."

In current practice, the risk-free rate is generally a 10-year Treasury bond (about 1.6%). Corporate pension plans are required to use a discount rate equivalent to an AA-rated bond (about 2.6% currently). The Federal Reserve uses in its calculations a AAA bond rate. By employing a risk-free rate, it is argued, taxpayers will be protected against having to bail out bankrupt pension plans.

The difference between 7.5% and 2% is huge when it comes to pension calculations. Using expected future return on assets, the total liability of U.S. state pension plans is about $1.4 trillion (according to the Pew Charitable Trusts), while utilizing a risk-free rate of 2% yields a liability estimate of more than $4 trillion (according to the American Legislative Exchange Council as well Moody's Investors Service). Again, the average 10-year return as of June 30, 2018, for the country's three largest public plans was 5%.

Table 1 uses the two different discount rates to show both the pension debt (liabilities minus assets of the pension plan) and the funded ratio (assets as a percentage of the total obligations) of the five states with the frailest public pension systems in the country. It should be noted that even when the pension plan-friendly expected future return on assets is used, the unfunded liability of $1.4 trillion for all pension plans nationwide constitutes a major public policy concern.

TABLE 1
State pension funded ratios
EXPECTED FUTURE RETURN
ON ASSETS RISK-FREE RATE
State Net pension
debt (billions) Funded ratio Net pension
debt (billions) Funded ratio
Illinois $141 36% $388 23%
New Jersey $168 31% $249 26%
Connecticut $37 41% $127 20%
Pennsylvania $68 53% $223 28%
Kentucky $43 31% $111 21%

The danger of clinging to the expected future return on assets is clear: higher expectations lead state pension fund executives to often "embrace overly aggressive investment strategies, exposing taxpayers to additional risk," the American Legislative Exchange Council pointed out in a recent report. Making matters worse is the fact these investment portfolios can easily become victims of economic downturns, like the Great Recession that began in 2008, cutting deeply into fund assets. On the other hand, opting for the lower, more conservative risk-free rate will dramatically increase annually required pension contribution for many states, pressuring already stretched budgets.

Which discount rate, then, is the better choice for state pension plans to adopt? The question must be resolved state-by-state since each approach carries its own insights and advantages. An optimal approach, therefore, might be to publicize both rates with clear, non-jargony explanations by the actuaries of the short- and long-term fiscal implications; explanations that are intelligible to even a knowledgeable layperson. This way, government decision-makers and their staffs can understand the risks and outcomes from each point of view and proceed to make well-informed decisions that are beneficial to their pension plans and participants, as well as to taxpayers.

Thomas J. Healey, is a partner at Healey Development LLC, Morristown, N.J. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1739  
Old 10-10-2019, 06:38 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

ILLINOIS

https://www.dailyherald.com/news/201...medium=twitter
Quote:
Pritzker advisers: Merging fire, police pension funds will save the system
Spoiler:
Can the state solve its pension crisis by combining suburban and downstate fire and police funds? A task force formed by Gov. J.B. Pritzker is recommending the unusual step for Illinois, known for having among the most units of local government in the U.S.

The Pension Consolidation Feasibility Task Force is advising merging about 650 pension plans, excepting Chicago, into two statewide systems -- one for fire retirees and one for police.





Task force members are betting this could generate "as much as $1 million a day in additional returns" and provide stability in cases where municipalities lack the revenues down the road to pay retirees.

ADVERTISING

inRead invented by Teads
"Under the current arrangement, Illinois' suburban and downstate police and firefighter pension funds are underperforming by nearly one million dollars per day" Pritzker said in a statement.

"That's not just a missed opportunity -- that's a hole these funds are digging deeper every year -- and then municipalities have to ask taxpayers to fill the hole," he added.


https://capitolfax.com/2019/10/10/pr...medium=twitter
Quote:
*** UPDATED x2 - Pritzker disses IPPFA - ILFOP expresses “strong concerns” *** Pritzker task force favors first responder pension asset consolidation, but stops short of recommending pension benefit administration consolidation
Thursday, Oct 10, 2019
Spoiler:
The full study is here, but this is the executive summary…

Of the financial challenges facing the State of Illinois, perhaps the most critical to state and local governments’ overall long-term financial health is the long-standing challenge of our unfunded pension liabilities and the ever-increasing burdens that places on local property taxes. Illinois has more than 660 funds, the second-highest number of pension plans of any state in the country.

Within the constellation of pensions in Illinois, roughly 650 of them are suburban and downstate police and fire plans, most of which face headwinds in large part caused by the relatively small size of each plan. Because many are so small, they are unable to gain access to investment opportunities that provide the highest returns and competitive investment fees. Collectively these pension plans today earn significantly lower investment returns than larger pension plans. For example, suburban and downstate police and fire plans generated on average 2 percentage points less annually over the past 10 years than the statewide municipal employees’ fund. In addition, these numerous small funds pay substantially higher expenses to manage their assets and administer benefits. The sheer number of plans and the extraordinarily modest asset levels relative to other plans exacerbate both of these challenges.

Not only does this negatively impact the funding level of police and fire pension plans, but local taxpayers are left with the burden of paying taxes to make up for these lower investment returns, forcing most municipalities to rely on a never-ending cycle of increasing local property taxes or cutting services to meet their pension obligations.

To help solve the police and fire pension funding problem and relieve the burden on taxpayers, Governor Pritzker announced the creation of the Pension Consolidation Feasibility Task Force on February 11, 2019, to explore and make recommendations for consolidation of pension funds in order to achieve the greatest value for employees, retirees, and taxpayers. Members of the task force include municipalities, labor unions, former elected officials and financial experts.

After eight months of data collection, analysis, and many meetings, the Task Force recommends the State take the following actions:

STEP 1: Consolidate suburban & downstate police & fire pension plan assets.

The single most impactful step that the State can take to address the underfunding of downstate and suburban police and fire pension funds is to consolidate the plans’ investment assets. This step is immediately actionable and beneficial to the health of the plans, retirees, and taxpayers. Analysis by the Department of Insurance estimates that if the more than $14 billion of suburban and downstate police and fire plans were to achieve investment returns similar to the other larger Illinois plans over the next five years, they would collectively generate an additional $820 million to $2.5 billion in investment returns alone. If they were to achieve comparable returns over the remaining 20 years on their statutory ramp to 90% funded status, they would create an additional $3.6 to $12.7 billion in investment returns alone.

To achieve this consolidation, the Task Force recommends that the State create two new funds, one for municipal police beneficiaries and one for municipal fire beneficiaries, to pool the assets of the roughly 650 downstate and suburban police and fire funds and manage those assets. Each fund would be governed by a board with equal representation of employees and employers. Each local pension plan would maintain an individual and separate account within the new consolidated funds, such that no assets or liabilities are shifted from one plan to another. Each of the two consolidated funds will be held in independent trusts, separate from the State Treasury, with sole governance provided by their respective boards.

With up to $1 million a day in lost investment returns to the pension plans, the Task Force recommends there be legislation passed by the General Assembly in the fall of 2019 that will achieve this consolidation.

In addition, the Task Force recommends other statutory changes to ensure the State is compliant with the safe harbor standard of the Social Security Administration and Internal Revenue Code, thereby avoiding substantial and sudden future costs to municipalities resulting from non-compliance.

STEP 2: Review consolidation of suburban/downstate police & fire pension plan benefit administration; review of other state and local plans to determine advantages of consolidation

Downstate and suburban police and fire funds face further financial challenges beyond just the underperformance of investment returns and high cost of administering assets of these systems that consolidation will address. Therefore, the Task Force recognizes there may be additional advantages to consolidating the benefit administration of these plans. However, because such action requires further discussion with those who would be affected by such a change, it is the recommendation of the Task Force that it should continue to review the advantages and challenges of consolidating benefit administration, and to make potential recommendations to the Governor on this issue.

Additionally, there are 15 other pension systems in Illinois outside of suburban and downstate police and fire that bear significant financial burdens. Unlike suburban and downstate police and fire plans these funds are larger funds, and consolidation would not achieve material improvement of their investment returns. Because the current financial pressures on these systems are so significant, especially for the City of Chicago, it is recommended that the Task Force to continue to review the potential advantages of consolidation of these larger systems and to make recommendations to the Governor on this issue.

Remember, the end game here is 60-30-1. The firefighters in particular have a huge amount of Statehouse clout, but so do other players. One step at a time.

I’ll post react if it comes in.

…Adding… From the governor’s office…

“Under the current arrangement, Illinois’ suburban and downstate police and firefighter pension funds are underperforming by nearly one million dollars per day. That’s not just a missed opportunity – that’s a hole these funds are digging deeper every year – and then municipalities have to ask taxpayers to fill the hole,” said Governor JB Pritzker. “We’ll be proposing legislation this fall to consolidate the assets of the 649 suburban and downstate pension funds into two statewide funds. This consolidation will improve the financial health of the plans and help secure the future for the retired workers who rely on them – and it will alleviate some of the property tax burden plaguing homeowners and renters across our state.”

*** UPDATE 1 *** ILFOP…

The Illinois Fraternal Order of Police (FOP) today expressed strong concerns about the recommendations contained within the Governor’s Committee on Pension Consolidation Report. FOP members had initially been optimistic that the committee would propose a process that would reduce fees, increase investment returns and better guarantee retirement security for law enforcement officers, their widows and orphans. However, the committee’s recommendations fail to accomplish these critical things.

“Law enforcement officers were not allowed to participate, provide feedback or be shown that this was anything other than an attempt to grab officers’ money,” said FOP Labor Council Executive Director Shawn Roselieb,who noted that the committee’s meetings were not open to the public. “Officers have paid their own money into these police pension funds every working day of their lives.”

The report recommends that the consolidated police pension fund be governed by a board where only 50 percent of the trustees are law enforcement officers. Illinois’ 16 current public employee retirement funds, including the Illinois Municipal Retirement Fund, are constituted of governing boards with a majority of members of the fund.

“No one is more concerned with the proper administration of public safety pensions than our 36,000 members,” Roselieb said. “But this committee thinks downstate police officers are the only public employees who are just not smart or sophisticated enough to manage their own money.”

The State of Illinois’ “worst in the nation” track record of managing public pensions is also cause for concern among working and retired law enforcement officers.

“Illinois police officers are not inclined to believe the state when it says it’s going to responsibly manage their money,” said FOP State Lodge President Chris Southwood. “This problem is at the heart of the FOP’s concern. Any consolidation must contain a firewall between police officers’ money and the people responsible for the pension system debacle in this state.”

Roselieb and Southwood urged members of the Illinois General Assembly to actively seek input from law enforcement officers and the general public on any pension consolidation proposal, something that the Committee on Pension Consolidation did not do when formulating its report.

“We applaud Governor Pritzker for taking on this tough subject,” Southwood said. “But the committee’s secret deliberations and their attempt to diminish future public input on the pension fund’s governance are not the right way to reach a good solution.”

*** UPDATE 2 *** Gov. Pritzker was asked today about opposition from the Illinois Public Pension Fund Association, which represents the 600+ local pension fund administrators and conducts training sessions. His response…

These are the folks who run the junkets. The recent one cost about $8 million to the taxpayers to send people to Lake Geneva on a retreat.

I realize that this is going to disrupt their business model, but frankly we have to do better for the taxpayers of this state.
Full study:
https://drive.google.com/file/d/1JXE...HOgvKBhMP/view
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1740  
Old 10-10-2019, 06:41 PM
campbell's Avatar
campbell campbell is offline
Mary Pat Campbell
SOA AAA
 
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 90,189
Blog Entries: 6
Default

UNITED NATIONS

https://www.passblue.com/2019/10/10/...-and-the-ugly/
Quote:
The $67 Billion UN Pension Fund: The Good, the Bad and the Ugly
Spoiler:
Since 2014, when staff members of the United Nations Pension Fund blew the whistle on serious mismanagement in its secretariat, a change in leadership has been made on both sides — assets and liabilities — of the $67.4 billion fund. Yet the turmoil persists.

Stabilizing the fund’s management and investment decisions has been mandated by General Assembly governance reforms that culminated in a 2018 resolution, A/RES/73/274, amid a continuing dysfunctional culture clouding the fund’s operations.

Rejection of independent audits and other checks and balances

The comprehensive governance audit (A/73/341), June 2018) that the Assembly requested lays out numerous conflicts of interest between the pension board and the fund’s management.

The audit faced a chilly reception. Last year at the board’s annual meeting in Rome, it rejected most of the findings and referred the UN oversight auditors to the Independent Audit Advisory Committee, alleging a “flawed and unprofessional” process.

Last month, the audit advisory committee affirmed in a letter dated Sept. 5 to the board’s chairman, Ambassador Philip Richard Owade (of Kenya), that it found no evidence that professional auditing practice and standards had not been followed.

Whistleblowers not welcomed

Board members’ resentment against the board’s UN participant representatives, who represent 85,000 active UN staff members and include the whistleblowers who raised awareness about problems in the fund’s secretariat under the ex-chief executive, Sergio Arvizù, drives board dynamics.

Additional tensions come from smaller UN specialized agencies on the board who fear reforms, particularly those in which they could lose their voting weights if adjustments are made to the board’s composition, based on relative numbers of members and size of contributions.

When the board tried to block the whistleblowers from taking their seats as elected members of the body, the UN Appeals Tribunal found in their favor and pronounced the board’s actions “unlawful” and “egregious.”

Undaunted, the board pursued amendments to fund rules and regulations to limit the scope of issues that were referred to the Appeals Tribunal and to prevent fund staff members from running for election to the board.

Slow-walking General Assembly reforms

The UN participant representatives said they were subjected to intimidation, physical threats and suspension in one case at the annual board meeting in Nairobi in July.

The board’s communiqué about the meeting, dated July 26, 2019, and posted on the fund’s website, is long on process, such as the need for attendees’ “loyalty, discretion and conscience” and confidentiality, but short on substance. There’s little expectation of meaningful substance in the board’s upcoming report on General the Assembly’s directives or requests.

Investments: a plus

The representative of the UN secretary-general for investments, Sudhir Rajkumar of India, reported that after record-low revenues were registered in December 2018, the market value for the fund had rebounded by last June from $60.4 billion to $67.4 billion. The fund is also exceeding its long-term real rate of return of 3.5 percent by a healthy margin.

On the fund’s environmental and social policy, on which Rajkumar promised a comprehensive report, the fund has divested from tobacco, arms and coal stocks but concerns remain about its investment in oil companies.

Concerns also linger over whether Rajkumar’s policy shifts from equities to alternative investments and an increased emphasis on geographic diversification will reduce some inflation risks while increasing others.

There are accusations that Rajkumar tends to micromanage and has a low tolerance for dissent, including on investment decisions, and that career staff members fear being displaced by waves of new recruits.

Asked about these problems, Rajkumar responded that change in management often results in such reactions, and that instead of micromanaging, he had strengthened the investment decision-making process. In addition, he had indicated to everyone that he would welcome a UN oversight investigation of all complaints that have been filed, so the truth could come out. While he understood that a few staff members might feel vulnerable because of low investment performance numbers, no career staff member had been displaced, nor was there any intention to do so.

The fund’s secretariat

When Janice Dunn Lee (of the United States), a former nuclear negotiator and deputy director general at the UN’s International Atomic Energy Agency, who has been acting chief executive of the fund’s secretariat since January, visited the fund’s Geneva office last week, staff members reportedly wore black. It prompted her to say she felt “disrespected.”

Geneva staff members apparently wore black to express their dismay that Lee has proposed, and the board has reportedly accepted, to move two senior jobs from Geneva to New York, purportedly to enhance coordination between the two offices. The president of the Geneva retiree association wrote to Lee on July 5, noting that the Geneva office serves beneficiaries in Europe, the Middle East and Africa (62 percent of all beneficiaries) and that the move will leave large numbers of beneficiaries underserved.

Years of fluctuating reports about the status of processing new and old benefit cases continues, with compliance against the 15-day benchmark for processing new cases ranging from 80 percent (according to Lee at a meeting of New York UN retirees last June) to 93.1 percent, as listed in a fund booklet titled “UNJSPF 70 Years 2019,” published last month. But an internal dashboard last week posted a compliance rate of 57 percent.

Regarding old cases, Lee announced in Nairobi at the annual board meeting, according to its communiqué, that “there is no backlog of entitlement cases.”

The audit (page 65) notes that of 15,000 pending cases that were not reported as backlog, the fund said it was not responsible for cases until all documentation was received, so those cases are not included in the count.

And what can be made of the $45 million of forfeitures of benefits, according to the fund’s 2018 financial statements; or 4000 cases slated for forfeiture, according to the UN participant representatives’ report?

Tone at the top

The audit recommends that the “Board should take effective measures to ensure that the secretariat of the fund sets the appropriate tone at the top with regard to integrity and ethical values.”

It is unclear who will ensure that the board adheres to these values, given these recent examples of rule-bending:

• The former chief executive’s disability agreement was processed, against fund rules, through the staff pension committee of the International Atomic Energy Agency, where he never worked. That way, the agreement bypassed the UN staff pension committee and was facilitated by the head of the UN Office of Human Resources, a board member.

• The UN Ethics Office substantiated, and the UN Administration accepted, that Arvizù, the ex-chief executive, retaliated against three fund staff members, yet the human resources office took no action.

• The human resources office, in collaboration with the board, advertised a job vacancy for a Pension Benefits Administrator/CEO in May, although the General Assembly decided to replace the single chief executive post by creating two separate ones: a Pension Benefits Administrator and Secretary to the Board, no later than January 2020.

What fund members want

First and foremost, the fund’s members want the General Assembly to end the board’s slow-walking of reforms and to enforce compliance.

To ensure equitable board representation, including direct election of retiree representatives for the sake of transparency and representative democracy.

To ensure a professional and transparent board that respects the fund’s rules and regulations, without onerous confidentiality requirements; respects the UN Code of Conduct “To Prevent Harassment, including Sexual Harassment, at UN System Events”; and ends attempts to intimidate and muzzle the UN participant representatives.

To ensure sound investment management in accordance with the fund’s longstanding policy of balancing safety and profitability and the highest environmental and social standards.

To have more attention paid to the people, including widows and orphans, behind the statistics of pending benefit cases and tens of millions of forfeitures; and reverse the decision to gut the Geneva office, leaving almost two-thirds of beneficiaries underserved.

To have the hardworking staff members of the fund be treated fairly and with respect for due process and end harassment of the fund staff representative.

To have Secretary-General António Guterres ensure that the incoming fund secretariat head, Rosemarie McClean, formerly with the Ontario [Canada] Teachers Pension Plan, who is due to arrive in January, has high-caliber senior staff members to work with.

To urge Guterres and his representatives on the board, who are already taking a constructive approach, to positively transform the fund’s grievance-based management culture. That is how the General Assembly reforms, so critical to the fund’s sustainability, can be achieved.
__________________
It's STUMP

LinkedIn Profile
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 09:40 AM.


Powered by vBulletin®
Copyright ©2000 - 2019, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.32943 seconds with 11 queries