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



Reply
 
Thread Tools Search this Thread Display Modes
  #1561  
Old Yesterday, 11:20 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: 84,167
Blog Entries: 6
Default

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.

Share quote & link

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.”

__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1562  
Old Yesterday, 11:21 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: 84,167
Blog Entries: 6
Default

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.

+1
MUGSHOT - Professor Paul Rose
Professor Paul Rose, Ohio State University

“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.


__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1563  
Old Yesterday, 11:21 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: 84,167
Blog Entries: 6
Default

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.”

__________________
It's STUMP

LinkedIn Profile
Reply With Quote
  #1564  
Old Yesterday, 12:10 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: 84,167
Blog Entries: 6
Default

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.

YOU MAY ALSO LIKE
Whittier Trust BRANDVOICE
Beware Of The Embedded Fee: Hidden Fees Hide True Account Costs
Impact Partners BRANDVOICE
Today’s Financial Environment: The Perfect Storm Of Opportunity
FORBES INSIGHTS
Closed-End Fund Investors: Savvy, Prosperous and Young
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.


__________________
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 01:42 AM.


Powered by vBulletin®
Copyright ©2000 - 2018, 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 0.15237 seconds with 10 queries