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[Guidance Overview] SEC Fact Sheet: Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants
"The [SEC] voted on April 13 to adopt final rules implementing a comprehensive set of business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants ... The final rules require security-based swap dealers and major security-based swap participants acting as counterparties to special entities to reasonably believe that the special entity has a qualified independent representative who is ... an [ERISA] fiduciary (if the special entity is an ERISA plan) ... The rules also require security-based swap dealers to comply with rules designed to prevent 'pay-to-play in transactions with municipal entities.... The final rules become effective 60 days after publication in the Federal Register." (U.S. Securities and Exchange Commission [SEC])
U.S. Public Pensions Return 6.8% in 2014 for Six Years of Gains
"U.S. public pensions reported median returns of 6.8 percent last year, the sixth year in a row of gains after the financial crisis, according to Wilshire Associates. The gains, though, are less than the annual investment returns of 7.5 percent to 8 percent that many state and local governments count on to pay benefits for teachers, police and other employees. In the 10 years through Dec. 31, public pensions had a median return of 6.6 percent." (Bloomberg)
Experts Tell CalSTRS Earnings May Fall Short
"It's an old issue for CalSTRS. An investment banker, David Crane, was removed from the CalSTRS board in 2006 (denied confirmation by the state Senate) after repeatedly arguing that investment earnings forecasts were too optimistic. The new 'capital markets forecast' by the experts is an early step in a routine four-year CalSTRS process that will lead to a review of the 7.5 percent earnings assumption in 2016.... After the last earnings review in 2012, the CalSTRS board made a small change, dropping the forecast from 7.75 to 7.5 percent[.]" (Calpensions)
CalPERS to Exit Hedge Funds, Divest $4 Billion Stake
"The decision to eliminate 24 hedge funds and six hedge fund-of-funds, isn't related to the performance of the program, said Ted Eliopoulos, the interim chief investment officer.... 'We concluded that we would eliminate the hedge fund program in order to reduce the complexity, reduce the costs in the program, particularly in relation to our view that given the scale of CalPERS, we would not be able to scale a hedge fund program to a size that would really move the needle,' Eliopoulos said[.]" (Bloomberg)
[Guidance Overview] GASB 67/68: Beginning Implementation and Overview by Public Pension Plans (PDF)
"The new GASB statements require a liability for pension obligations, known as the net pension liability (NPL), to be recognized on the balance sheets of the plan and participating employers. Similarly, a pension expense (PE) will be recognized on the income statement. These measures will be wholly unsuitable for measuring the funding of the plan, and GASB in fact intended them to be so." (Milliman)
Lessons to Be Learned for Feds in the Condition of Other Government Plans (PDF)
"First, underfunded pension plans are all competing for the same scarce taxpayer dollars. Second ... one sometimes hears calls to expand Social Security coverage to all remaining state and local workers (not all of whom are covered by Social Security) as a way of dealing with fiscal issues at the federal level. But this fails to account for the fact that those state and local plans are severely underfunded, which might require the federal government to help bail them out. Third, like it or not, the growing concerns about the fiscal impact of these public plans put all public-sector employers in the cross-hairs of those who would like to see government shrink." (Center for State & Local Government Excellence)
[Opinion] U.S. Public Pension Funds Should Follow Canadian Lead, Seek Cost Savings in Investment Management
"There is a reason why some large hedge funds are chopping fees in half and why many pension funds are increasingly looking to cut costs and bring assets in-house, following their Canadian counterparts which are dodging Wall Street everywhere they can. Costs matter a lot and it doesn't make sense to dole out huge fees, praying for an alternatives miracle, especially when you get mediocre performance in return." (Pension Pulse)
[Opinion] Twenty Myths About Public-Sector Pension Plans
"After outlining the requirements for real pension reform -- how states and local governments can operate pension plans that do not threaten today's taxpayers with ever-increasing contribution levels or pass the costs of today's workers on to future generations -- [the authors] describe the 20 myths that make such reform more difficult.... They range from misinterpretations of commonly used terms (such as 'actuarially sound' and 'cash-balance plan') to claims about the relative merits of defined benefit plans (exaggerated) and the risks of defined contribution plans (also exaggerated)." (Manhattan Institute for Policy Research)
CalPERS Files Notice of Appeal in San Bernardino Bankruptcy
"The California Public Employees' Retirement System has filed an appeal of the judgment that granted the City of San Bernardino eligibility to proceed in its bankruptcy. CalPERS argues in its filing that the City did not file for bankruptcy in good faith and with any concept of a plan of adjustment -- two prerequisites of the Bankruptcy Code. The Pension Fund further states that the City failed to explore any alternatives to bankruptcy and failed to make any meaningful financial information available to creditors during the course of the bankruptcy process." (CalPERS)
[Guidance Overview] Quick Reference Guide for Public Employers, Feb. 2013 Edition (PDF)
24 pages. "This guide is produced annually by the IRS office of Federal, State and Local Governments (FSLG). It is intended to provide a brief introduction to basic Federal employment tax and reporting information issues for governmental employers. For more detailed information in these areas, see IRS Publication 963, Federal-State Reference Guide." The publication's chapter titles are: Compensation; Social Security and Medicare Coverage; Public Retirement Systems; Retirement Plans; Fee-Based Public Officials; Special Situations for Public Workers; Fringe Benefits; Information Reporting; Backup Withholding; Key Dates; Section 218; Social Security Coverage (Flowchart); and Medicare Coverage (Flowchart). (Internal Revenue Service)
Public Pension Plans Need to Know About Treasury Department's Office of Foreign Assets Control (PDF)
"[P]ublic retirement systems must ensure that internal investment programs include screening procedures that identify transactions possibly involving [specialty designated nationals, who are individuals and companies owned or connected with sanctions targets, among whom are Iran, Cuba, Sudan and Syria,] so that such transactions may be examined with closer scrutiny and blocked, as appropriate.... [P]ublic retirement systems should ensure that outside managers and custodians re aware of the need for OFAC compliance[.]" (Groom Law Group)
Quarterly U.S. Census Bureau Summary of the Finances of Selected State and Local Government Employee Retirement Systems (PDF)
"For the 100 largest public-employee retirement systems in the country, cash and security holdings totaled $2,836.0 billion in the fourth quarter of 2012, reaching the highest level in 5 years when they peaked at $2,928.9 billion in the fourth quarter of 2007. Cash and security holdings had a quarter-to-quarter increase of 1.7 percent from $2,789.1 billion last quarter, and a year-to-year increase of 8.6 percent from $2,612.0 billion in the fourth quarter of 2011. Earnings on investments totaled $67.3 billion in the fourth quarter of 2012." (U.S. Census Bureau)
CalPERS Leaders Call Federal Indictments Against Former Officials 'Another Step on the Road Toward Justice'
"After years of coordination with authorities by CalPERS, the U.S. Department of Justice indicted Buenrostro on five counts including fraud, mail and wire fraud, making false statements to the U.S. government and obstruction of justice.... 'We are extremely pleased that law enforcement authorities are moving to hold individuals accountable for activities which violate the public trust,' said Rob Feckner, President of the CalPERS Board." (California Public Employees' Retirement System)
[Opinion] Comparing Public Employee Benefits to the Private Sector: The Welch Factor
"There may be nine fallacies used to defend public-sector pensions but Dr. Jason Richwine of the Heritage Foundation propagates one major fallacy used to attack them when he avers: 'Primarily because DB benefits are guaranteed to workers while DC benefits are not, public-sector retirement benefits are almost always more generous than those of comparable private-sector workers.' Nothing could be more misleading ... or dangerous." (Burypensions)
Public Pension Plan Investment Return Assumptions, Updated January 2013 (PDF)
"As of the third quarter of 2012, state and local government retirement systems held assets of approximately $3 trillion.... This brief discusses how investment return assumptions are established and evaluated and compares these assumptions with public funds' actual investment experience." (National Association of State Retirement Administrators)
On Socially Responsible Investing, Pension Costs and Debt: An Interview with New York State Comptroller Tom DiNapoli
"An affable and friendly guy, DiNapoli generally doesn't look for fights but he's had them, of late, with Gov. Andrew M. Cuomo, over how to soften the staggering costs of pensions for municipalities. His big concerns these days: ..." (Newsday)
State Pension Plans Better Funded Than Local Counterparts
"Despite a better record of making their annual contributions, locally administered pension plans are less funded than their state counterparts, largely due to more conservative investments, according to new research ... [which] found 72% funding for local pension plans, vs. 76% for state plans." (Pensions & Investments)
Philadelphia Pension Board Sets Reform Standards for Continued Investment in Gun Industry Stocks
"The board established procedures to track whether the companies are complying with the principles, and to dump its investments within 15 months if the companies fail to comply. Between its direct investments and holdings in hedge funds that invest in gun makers, distributors and retailers, the city owns about $15 million in gun-related investments, about one-quarter of 1 percent of its total portfolio, according to a staff analysis. Besides well-known gun makers like Smith & Wesson, the list extends to major retailers like Walmart." (Philadelphia Inquirer)
Pensions Dump Gun Stocks, But Will It Make a Difference?
"Between March of 1996 and October of 2000, more than 16 major public pension funds sold or put restrictions on their tobacco investments.... Yet, the tobacco industry has since rebounded, bringing in $45 billion last year.... Public pension divestment is likely to have even less of an impact on the $11.7 billion gun industry, where public pension funds hold far less stock because only three gun companies trade publicly." (The Fiscal Times)
Chicago Teachers' Pension Fund Will Divest Shares in Assault Weapons Makers
"Chicago Public School Teachers' Pension & Retirement Fund will divest all of its $130,267 in public-market holdings in retail assault weapons manufacturers ... The pension fund's trustees voted to 'instruct the separate account managers to liquidate any and all public-market holdings in retail assault weapon manufacturers as soon as reasonably practicable, and in accordance with the managers' fiduciary duties'[.]" (Pensions & Investments)
The Last Remaining Store of Real Wealth
"CalPERS had assets valued at $233 billion on June 30 2012, with a 1% return in the fiscal year ending June 30, 2012 (i.e. fiscal year 2011). Still, 7 months later, January 17, 2013, its assets are worth $253 billion . Also, CalPERS boasted a 1% return on its assets in the fiscal year ending June 30 2012, but a 13% return in the calendar year 2012. That means they made what, 24%-25% in the second half of the year? And the COO claims this was 'simply reflective of the return of the market'?!" (Business Insider)
How Do Public Pensions Invest? A Primer
"[1] Public pension funds have a clear division of labor for making investment-related decisions. Fiduciary standards apply to each key role in the investment process. [2] Public pension funds have rational and systematic processes for setting asset allocation in a diversified portfolio, estimating expected investment returns, and evaluating investment performance. [3] The board of trustees of each public DB pension fund determines the acceptable level of risk that is prudent for their plan given its particular circumstances. They then adopt an asset allocation that is designed to maximize returns within the established level of risk. [4] The level of risk assumed by public pension funds, as indicated by the percentage of assets invested in equities, is consistent with other institutional investors and with many prudent individual investors." (National Institute on Retirement Security)
Chicago Mayor Orders Pension Funds to Review Holdings in Weapons Companies
"'If our fund managers have invested in a company that manufactures or sells assault weapons, I will ask them to remove these investments from our retirement funds,' said [Chicago Mayor Rahm] Emanuel, who ordered Comptroller Amer Ahmad to request the analysis from the city's five pension and retirement funds. The five funds, with total assets of about $12 billion, are the Chicago Laborers' Annuity & Benefit Fund, the Municipal Employees' Annuity & Benefit Fund of Chicago, Chicago Policemen's Annuity & Benefit Fund, Chicago Park Employees' Annuity & Benefit Fund and the Chicago Firemen." (Pensions & Investments)
CalSTRS Investments Get Hard Look After Connecticut Tragedy
"The nation's second largest public pension fund, reacting to a mass school shooting in Connecticut last month, is taking a new look at the 'social' impact of its $150 billion investment portfolio. The California State Teachers Retirement System found that it owned stock, apparently in violation of its own policy, in the maker of a semi-automatic rifle, banned in California, that was used to kill 20 first-graders and six adults in an elementary school." (CalPensions)
Orange County Rewarded as Pension-Bond Issues Boom
"Orange County, California, which has rebounded from the second-biggest U.S. municipal bankruptcy, is set to tap into the largest wave of pension-bond sales since 2008. Across the U.S., from the seaside city of Fort Lauderdale, Florida, to Oakland, California, localities sold $980 million of the taxable securities in 2012 to finance public-worker retirement obligations ... That's up from $670 million in 2011, spurred in part by demand for extra yield with municipal interest rates touching 47-year lows." (Bloomberg BusinessWeek)
Census Bureau Quarterly Survey of Public Pensions: 3rd Quarter 2012
"This quarterly survey (formerly known as the Finances of Selected State and Local Government Employee Retirement Systems Survey) provides national summary statistics on the revenues, expenditures and composition of assets of the 100 largest state and local public employee retirement systems in the United States. These 100 systems comprise 89.4 percent of financial activity among such entities, based on the 2007 Census of Governments. This survey presents the most current statistics about investment decisions by state and local public employee retirement systems, which are among the largest types of institutional investors in the U.S. financial markets." (U.S. Census Bureau)
Going Down on the Credit Elevator: Moody's Sends Loud Message to Voters in Oceanside, California
"Moody's told Oceanside officials on Oct. 10 that it would downgrade the city's credit rating on its $36.8 million in pension obligation bonds. It also warned that it was reviewing $14.2 million in older bonds that have already been refinanced once. In practical terms, this no-confidence vote may raise the city's borrowing costs. More broadly, it signals that Wall Street has realized that a devastating transfer of wealth from taxpayers to public employees will burden local governments for decades." (San Diego Union-Tribune)
Health and OPEB Funding Strategies from the 2012 National Survey of Local Governments (PDF)
[The survey finds that:] "7% fewer local units of government ... provide health coverage to their active employees. Governments who do provide health coverage are paying a slightly smaller share of the premium. Fewer local governments are self-insuring. [There is] a significant drop in the percentage of local governments who provide health insurance for retired employees, especially in the Midwest. The percentage who self-insure this population also has dropped, and the percentage providing retiree health coverage through a coalition/pool increased from 12% to 26%. As in 2011, there was a slight decrease in the percentage of local governments who are fully or partially prefunding their retiree health liabilities." (National Conference on Public Employee Retirement Systems [NCPERS])
Bondholders' Challenge to Stockton Bankruptcy Deal Protecting Employee Pension Obligations Could Lead to U.S. Supreme Court
"CalPERS is being challenged by bond insurers of Stockton's debt, who ... filed objections to Stockton's Chapter 9 filing, saying that because the city had not negotiated in good faith with creditors, it was not eligible for bankruptcy.... California may provide the best test run for establishing whether pensions can be impaired ... because the obligations are enshrined in not only in statute, which can be changed by the legislature, but also in the constitution, which is more difficult to change." (Financial Times)
2012 Milliman Public Pension Funding Study Finds Top 100 Plans Funded at Only 67.8%, Not 75.1% as Reported by Plans
"During the past year, the 100 largest U.S. public pension plans (as measured by accrued liability) reported assets of $2.705 trillion and accrued liabilities of $3.600 trillion, for an aggregate underfunding of $0.895 trillion and an aggregate funded ratio of 75.1%. However, the asset values the plans use for reporting purposes reflect asset-smoothing techniques, which are designed to minimize fluctuations in contribution amounts but may deviate significantly from market value. The liabilities the plans report may not reflect current views on future investment return levels. The Milliman 2012 Public Pension Funding Study -- using actuarial principles, reported liabilities, current market values of assets, and current views on investment return -- determines that these plans have assets of $2.513 trillion and accrued liabilities of $3.706 trillion, resulting in aggregate underfunding of $1.193 trillion and an aggregate funded ratio of 67.8%." (Milliman)
Public Pension Plans and Short-Term Employees
"[C]omplete reliance on delayed vesting and final earnings plans results in minimal benefits for most short-service public employees. Hence, the recent trend towards hybrid arrangements is a positive development not only for risk sharing between taxpayers and participants but also for a more equitable distribution of benefits between short-term and career employees." (National Bureau of Economic Research; purchase required)
State Judges and Public Pension Laws: Classic Conflict of Interest
"The public employees most lightly touched by a pension reform signed by Gov. Brown last month are the judges, whose court rulings on public pensions can affect their own pensions and retirement income. [U]nlike others covered by the reform, current judges are not expected to pay half the normal pension cost, and new judges do not get a lower pension." (CalPensions)
West Coast Defined Contribution Conference - San Francisco Nov. 4-6
Free registration for qualified plan sponsors. Sponsored by Pensions & Investments -- learn how to develop a defined contribution plan that helps ensure your participants lifetime income. (Pensions & Investments)
The latest on employee benefit issues + Top IRS & DOL Speakers
Explore employee benefit issues with colleagues and local, regional and national government representatives from the Internal Revenue Service and the Department of Labor! (American Society of Pension Professionals & Actuaries (ASPPA) and the Council of Independent 401(k) Recordkeepers (CIKR))
SC Lawmakers Struggle to Afford Health Insurance for Public Retirees
"In June, [South Carolina] Gov. Nikki Haley signed a law that will help reduce the retirement system's costs.... But the new law has nothing to say about the health insurance costs of state retirees, quickly becoming one of the largest deficits in state government. As of June 30, 2010, officials estimated the state's future health care costs for its retirees at $9.6 billion. But the state only has set aside $487.5 million to pay those costs, about 5 percent of what is needed." (HeraldOnline.com)
California's Retiring State Workers Cash in Accumulated Unused Vacations for Big Bucks
"An analysis of the last three years of government salary data shows state employees are continuing to store up massive banks of vacation, instead of heading to Big Sur or hitting the slopes at Lake Tahoe. They're cashing in by retiring with whopping final paychecks worth, in some cases, more than $500,000 in unused time off.... [I]n the private sector, employers cap vacation accruals and make workers take their time off before they can accumulate more." (Los Angeles Newspaper Group)
DATAIR! Better Than Ever - Flexible Pricing - Superior Validation
Choose "Pension Reporter System" modules you need: EFAST2 5500/PBGC/SAR, 1099Rs, 5300s, FAS158 (888) 328-2474 Sales@DATAIR.com www.DATAIR.com (DATAIR Employee Benefit Systems, Inc.)
New & Innovative. A Conference Developed Just for You!
Health, benefits & wellness play huge roles in transforming your employees and organization. Gain new ideas & actionable solutions to do just that when you join us in April. Secure your seat now for the lowest rate. Details at www.BenefitsConf.com. (Health & Benefits Leadership Conference)
Slides and Handouts for Upcoming Meeting of National Association of Government Defined Contribution Administrators
"Presentations include: 403(b) Pre-Conference Workshop; The Washington Report: Retirement Security and Individual Responsibility; IRS/Regulatory Update - Activities and Regulations; DC 101 - RFP Selection Process; DC 101 - Fiduciary Responsibility and the Investment Policy Statement; Alternatives in Plan Administration Fee Assessment and Collection Models; 403(b) Plan Compliance; Critical Questions for Fiduciaries about Guaranteed Income Products; Stable Value Funds; Benchmarking Plans; Investment Innovations; The Impact of Social Media in Communicating with Participants; and Behavioral Finance." (NAGDCA)
[Opinion] NAGDCA Helps to Tame Wild, Wild West of 403(b) and 457 Offerings
"The vast majority of 403(b) and 457(b) plans that our nation's state (which includes cities, counties, municipalities, etc.) government employees invest in are high in cost, laden with surrender charges (and long surrender periods) and pay commissions that would likely not be allowed in ERISA plans (state government plans are exempt from ERISA).... However, for all the poorly run plans that exist, there are some very well run plans and they are increasingly setting an example for the others and driving down costs as well increasing transparency. Many of these plans have trustees (fiduciaries) who follow ERISA principles and are members of a growing association that serves government defined contribution plans named NAGDCA, or the National Association of Government Defined Contribution Administrators." (The Meridian Blog)
How a Plan to Help Stockton Fund Pensions Backfired
"Financial analysts and actuaries say essentially the same pitch that swayed Stockton has been made thousands of times to local governments all over the country -- and that many of them were drawn into deals that have since cost them dearly.... The basic premise of all pension obligation bonds is that a municipality can borrow at a lower rate of interest than the rate its pension fund assumes its assets will earn on average over the long term. Critics contend that municipalities that try this are in essence borrowing money and betting it on the stock market, through their pension funds. The interest on pension obligation bonds is not tax-exempt for this reason. " (The New York Times; free registration required)
Designing Public Pension Plans for the Twenty-First Century
A summary of papers presented at a August 17-18, 2012 conference, with links to almost all of the papers. Titles include: Why Do Individuals Choose Defined Contribution Plans? Evidence from Participants in a Large Public Plan; Linking Benefits to Investment Performance in U.S. Public Pension Systems; Pension Costs and Retirement Decisions in Plans that Combine DB and DC Elements: Evidence from Oregon; The Reverse Annuity Puzzle: The Choice of Lump Sum Distributions among Separating Public Sector Workers; Worker Exits from State and Local Government Jobs: The Role of Pensions in Explaining Life Cycle Patterns; Financial Education and Choice in State Public Pension Systems; Public Plans and Short-Term Employees; Investment Behavior in Public DB and DC Pension Plans; Shrouded Costs of Government: The Political Economy of State and Local Public Pensions. (National Bureau of Economic Research)
Don't Kill In-State Investment Plan, CalPERS Panel Urges
"CalPERS' investment committee urged staff not to move ahead with plans to end the pension fund's $1.035 billion private equity program that targets California-based companies.... [E]ven though investment returns were below par for the private equity program, the program has benefits such as creating jobs and development in economically depressed areas of the state." (Pensions & Investments)
At 2.44%, Oklahoma PERS Tops Benchmark for Fiscal Year
"Oklahoma Public Employees Retirement System, Oklahoma City, returned 2.44% for the fiscal year ended June 30, said Tom Spencer, executive director of the $6.8 billion plan. The retirement system beat its policy benchmark by 30 basis points for the year." (Pensions & Investments)
[Opinion] Text of Speech by SEC Commissioner to National Association of Public Pension Attorneys: 'Pension Funds as Owners and Investors: A Voice for Working Families'
"State and local government employee retirement funds had total financial assets of $2.8 trillion at the end of 2011. This immense pool of capital is funded by employee contributions, employer contributions, and investment earnings. A majority of such funds is invested in the stocks and bonds of U.S. corporate issuers, with substantial investments also made in venture capital and private equity funds and other asset classes. These investments make public pension funds a significant source of capital for American business. Importantly, another benefit of pension fund capital is that pension funds typically invest with a long-term perspective. This 'patient capital' is essential for true capital formation and an important contribution to stability in a capital markets environment that is often all too focused on quarterly returns." (Commissioner Luis A. Aguilar, Securities and Exchange Commission)
CalPERS Buys Large Stake in Real Estate Investment Advisory Company
"The California Public Employees' Retirement System (CalPERS) ... announced that it has invested approximately $100 million in Bentall Kennedy, becoming a one-third owner in one of North America's largest real estate investment advisors.... Bentall Kennedy has been a real estate partner with CalPERS for more than 15 years through a number of investments." (California Public Employees� Retirement System)
[Guidance Overview] Minutes of GASB Meeting Elaborate on Upcoming Revised Pension Accounting and Financial Reporting Standards
Scroll down the linked article for the heading, "Minutes of Meeting, June 27-29, 2011." Excerpt: "The Board tentatively agreed that: ... The scope of the Exposure Drafts should not be expanded to include other postemployment benefits (OPEB) or pensions that are not provided through a qualified trust.... The Board tentatively agreed that ... The long-term expected rate of return [as described in] the Exposure Drafts' provisions (which would have required the use of a 30-year index rate ... ) should be modified to instead require that the rate represent a yield or index rate for tax-exempt general obligation bonds that have a maturity of 20 years and an average rating of AA/Aa or higher." (Governmental Accounting Standards Board)
GASB Improves Pension Accounting and Financial Reporting Standards
"The Governmental Accounting Standards Board (GASB) [on Monday, June 25, 2012] voted to approve two new standards that will substantially improve the accounting and financial reporting of public employee pensions by state and local governments. Statement No. 67, Financial Reporting for Pension Plans, revises existing guidance for the financial reports of most pension plans.... Statement 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits.... The Statement calls for immediate recognition of more pension expense than is currently required.... The Statement also will improve the comparability and consistency of how governments calculate the pension liabilities and expense. These changes include: ..." (Governmental Accounting Standards Board)
West Virginia Public Employee Retirement Funding Method Comes Up Short
"[West Virginia cities] must find $976 million in coming years if they want to keep promises made to their retiring firefighters and police, according to the study by Michigan-based Gabriel, Roeder, Smith & Co. Cities that took the cheaper route 20 years ago face the daunting task of keeping retirement funds solvent after years of failing to do enough to shore them up. A big problem is they didn't invest enough money upfront, so they haven't been able to take advantage of two decades of market growth." (Charleston Daily Mail)
U.S. Public Pension Portfolios More Aggressive Than Private Plans or European Counterparts
"Many U.S. public pension plans have a propensity to imprudently invest their portfolios more aggressively than private plans or their Canadian and European peers with similar demographics. That's one of the findings documented in a study by an international trio of academics. That paper is potentially the most important research in the public pension arena this decade.... [T]he researchers found that state and local government public pension plans in the U.S. allocated higher percentages of their portfolios to risky assets as their plans' retirees/actives ratio increased, which is exactly opposite of what prudent fiduciaries would do if concerned solely for the interests of beneficiaries." (Governing)
CalPERS Provides First State-Required Report on Placement Fees
"CalPERS funded seven new investments that used placement agents that received a total of $1.85 million in fees since July 10, 2010, according to a report from the $229.4 billion pension fund. The comprehensive report is the first since new state placement agent disclosure requirements for the California Public Employees' Retirement System ... went into effect on Jan. 1, 2011.... The report ... comes after disclosures in 2010 that tens of millions of dollars in fees were being paid to placement agents who helped private equity companies receive investment allocations from CalPERS." (Pensions & Investments)
Unions File Lawsuits Against San Jose's Voter-Approved Pension Reforms
"[A lawsuit has been filed] against the City of San Jose and the Police and Fire Retirement Board on behalf of the San Jose Police Officers' Association. [The] lawsuit alleges numerous violations of the State Constitution and [Association] members' contractual 'Vested' rights. After the lawsuit was filed, a motion for a temporary restraining order was filed. San Jose Fire Fighters' Local 230 also filed a lawsuit against the City of San Jose on behalf of their members.' [Copies of the pleadings available from this site.] (San Jose Police Officers Association)
Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?
"We use an international pension fund database to compare the asset allocation and liability discount rates of public and non-public funds in the U.S., Canada and Europe. We document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in Canada and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier investment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired members increased more. In line with economic theory, all other groups of pension funds reduced their allocation to risky assets as they mature, and lowered discount rates as riskless interest rates declined. The arguably camouflaging and risky behavior of U.S. public pension plans seems driven by the conflict of interest between current and future stakeholders, and could result in significant costs to future workers and taxpayers." (Social Science Research Network)
Should Governmental Plan Sponsors Follow the Fee Disclosure Regs? If so, How?
"According to the NAGDCA DC Survey about two-thirds (64.7%) of plan sponsors said they have or will develop a communication regarding plan fees, 25% were not sure, and 10% did not intend to (presumably relying on an outside source for this). More than a third (38.6%) said they didn't know whether such disclosures would cause participants to migrate to lower cost options, but the majority thought the disclosures would not result in a change to the fund lineup or a change to the fee structure. More than three quarters (77.9%) believed that their plan providers would comply with the new DOL regulations regarding fee disclosure for their non-ERISA plans, while the remaining (22.1%) were unsure.... [This paper explores] the value to public DC plan sponsors of adhering to these disclosures, as well as best practices in adherence." (NAGDCA)
New York State Pension Fund Posts 5.96% Return for Fiscal 2012
"The fund's estimated value of $150.3 billion is the highest since fiscal 2009, when the global financial crisis began[.]" (Bloomberg)
[Official Guidance] Final SEC Regs on Definition of 'Swap Dealer' and 'Securities-Based Swap Dealer' Under Dodd-Frank Act Including Swap Positions Maintained by an ERISA Plan or Governmental Plan (PDF)
July 23, 2012 effective date; 169 pages. Excerpt (at p. 30681 in the Federal Register): "Consistent with the position expressed in the Proposing Release, the [SEC and the Commodity Futures Trading Commission, or the 'Commissions'] interpret the ERISA hedging exclusion in the first statutory major participant test to be broader than that test's commercial risk hedging exclusion. This reflects the facts that the ERISA hedging exclusion is not limited to 'commercial' risk, and that the ERISA hedging exclusion addresses positions that have a 'primary' hedging purpose (which suggests that those positions may have a secondary nonhedging purpose).... [The Commissions] interpret the meaning of the term 'maintain' -- in the context of the statutory provision that the swap or security-based swap position be 'maintained by' an employee benefit plan--not only to include positions in which the plan is a counterparty, but also to include positions in which the counterparty is a trust or pooled vehicle that holds plan assets. Thus, for example, the exclusion would be available to trusts or pooled vehicles that solely hold assets of the types of plans identified in the statutory definition. The exclusion further may be available to entities that hold such plan assets in conjunction with other assets, but only to the extent that the entity enters into swap or security-based swap positions for the purpose of hedging risks associated with the plan assets. The exclusion does not extend to positions that hedge risks of other assets, even if those are managed in conjunction with plan assets." (U.S. Securities and Exchange Commission)
CalPERS Looks at Investments in Job-Creating Infrastructure
"In a happy convergence, pension funds are moving into infrastructure to reduce inflation and market risk, while deficit-ridden governments are deep in bond debt and looking for new ways to rebuild and expand crumbling public works.... Part of the 'fiduciary' duty of pension boards to protect pension recipients may extend to preserving the financial health of governments, the pension plan sponsors, through infrastructure investments needed to maintain and improve the economy." (Calpensions)
[Opinion] Ohio Public Retirement Systems Need Overhaul, Not More Tweaks
"$72 billion. That's the collective unfunded liabilities of Ohio's five defined-benefit public-pension plans. That's more than Ohio's biennial budget. Under current law, three out of the five plans never will be able to pay off those liabilities. Those are the stakes." (Columbus Dispatch)
Auditor: San Diego Pension Initiative Overstates Savings
"[T]he measure aims to hold steady city workers' pensionable salaries over the next five years to save on pension costs. But voters can't mandate city employee salaries at the ballot box so the measure provides a strong recommendation for City Council to impose the freeze. The pensionable pay freeze is so essential to the initiative's savings that with it supporters can claim the measure saves $1 billion over 30 years and without it opponents can claim it saves $0." (Voice of San Diego)
Considerations in Preparing Disclosure in Official Statements on a Government Bond Issuer's Pension Funding Obligations (PDF)
"The overall point of the disclosure of pension funding obligations is to indicate whether the state or local government will likely struggle in meeting such obligations without making difficult financial decisions. One of those decisions may be related to the payment of debt service on bonds. Thus, in circumstances where there is expected to be financial strain caused by an issuer's pension funding obligations, being clear and plain about this point to investors is very important." (Pension Disclosure Task Force, National Association of Bond Lawyers)

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