Pension Pulse

Mary Williams Walsh of the NYT reports, State Debt Woes Grow Too Big to Camouflage : California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay. And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis. New Hampshire was recently ordered by its State Supreme Court to put back $110 million that it took from a medical malpractice insurance pool to balance its budget. Colorado tried, so far unsuccessfully, to grab a $500 million surplus from Pinnacol Assurance, a state workers’ compensation insurer that was privatized in 2002. It wanted the money for its university system and seems likely to get a lesser amount, perhaps $200 million. Connec...

Gina Chon of the WSJ reports, Gurus Urge Bigger Pension Cushion : Government-pension problems, widely considered bad, may actually be even worse. That is the assessment of some experts who maintain that the current rules of number crunching for state and local governments make retirement-benefit obligations seem lower than they really are. Soon, their view may prevail. The accounting board for governments is likely to move toward changes that would increase the pension liability that local governments display on balance sheets by tens of billions of dollars. If the modifications are approved, many already cash-strapped states and municipalities would likely have to increase the amount they are supposed to pay annually to their pension funds to help cover the shortfall. The General Accounting Standards Board, or GASB, Norwalk, Conn., indicated the direction it was heading in board meetings in January and February. Since then, public pension funds have been a...

Janet Taber of the Globe & Mail reports, David Dodge Calls For Pension Reform : F ormer Bank of Canada Governor David Dodge is adding his voice to the debate over pension reform, calling today for a voluntary component to the Canada Pension Plan. Speaking at the 'Canada 150: Rising to the Challenge' conference in Montreal this morning, Mr. Dodge also said there needs to be an “adult debate” over health care. He painted a stark picture of choices and challenges facing Canadians today. Now the Chancellor of Queen's University, Mr. Dodge was the keynote speaker introducing the panel dealing with real life issue for Canadian Families. Nortel workers and others workers who have lost pension savings as their companies went “bust” during the recession, Mr. Dodge said reforms will not likely help them. But there is still time to help other workers. “Much really can be done to improve the policy framework for these plans going forward,” he said, “possibly w...

Hester Plumridge reports in the WSJ, Private Equity's Unwelcome Intruder : The Ontario Teachers Pension Plan has just beaten European buyout firm CVC Capital Partners to the chase to buy U.K. lottery operator Camelot Group. While the £389 million ($576.4 million) deal may be relatively small, it could be the start of a wider trend. Pension funds such as Ontario Teachers are bypassing secondary funds to take charge of equity investments themselves. Their offers of longer-term ownership, and the potential for paying higher prices, could give them an edge with vendors. Pension funds traditionally invest in companies via secondary vehicles: specialist-mutual, private-equity, sector or index funds. But Ontario Teachers, which manages $87.4 billion of funds, claims to be changing the industry model. Well over half of its $34.9 billion equity investments are made directly in companies. Benefits include eliminating hefty external manager fees, as well as retaining greater cont...

Ambrose Evans-Pritchard reports in the Telegraph, Europe agrees IMF-EU rescue for Greece : After weeks of discord, Europe's leaders have agreed to an emergency facility for Greece backed by the International Monetary Fund and bilateral loans from eurozone states. The accord was vague on figures and aid can be invoked only as a "last resort" if Greece is shut out of the capital markets. Since Greece is already paying an untenable debt premium, the wording once again leaves it unclear what exactly has been settled. Angela Merkel, the German Chancellor, and Jan Peter Balkenende, the Dutch premier, leaders of the two key creditor states, imposed their demand that the IMF must be central to any rescue. While the Eurogroup is to play a "co-ordinating" role, Germany and Holland will retain a veto over use of the facility. Greece said it was "satisfied" by the terms. The accord masks a bitter struggle between Germ...

CBC reports that Flaherty seeks views on pension reform : Finance Minister Jim Flaherty wants to hear Canadians' views on whether the country's retirement income system needs to be improved, and, if so, how that should be done. Flaherty announced plans Wednesday for a series of public town hall meetings, roundtables and online consultations over the next five weeks. The town hall meetings will be held in Charlottetown, Quebec City and Richmond, B.C. Discussions with stakeholders, experts and government representatives will take place in St. John’s, Winnipeg and London, Ont. The online consultation process runs until April 30. The government wants feedback in time for a meeting of federal and provincial finance ministers in May, which will tackle a number of reform options. The government has faced mounting pressure to act quickly on the pension issue, but Flaherty said the retirement income system's challenges are complex so reforms shouldn't be rushed. ...

They're back! Facing severe funding shortfalls , public pension funds are popping a few blue pills, horny as ever for hedge funds: Hedge fund firm RAB Capital confirmed clients are returning to its funds that were battered by the credit crisis, after it swung to a loss in 2009 and cut its dividend. Citigroup expects to double the size of its team that advises institutional and government fund clients on hedge fund investments, the bank's global prime finance head, Nick Roe, told Bloomberg in an interview. Standard Life Investments (SLI) will pay a "modest upfront" fee for a 75.1 percent stake in the fund of hedge funds firm , which runs more than $50 million in assets, a spokesman said. Investors are flocking to hedge funds that bet on mergers and acquisitions (M&A) in the hope that a revival in takeover activity will help deliver more of the bumper returns they enjoyed in last year's rally. Investing in event-driven hedge funds makes sense since according ...

Global pension tension is on the rise again: In Canada, t he federal government will stop short of cutting existing pension benefits to public servants in enacting its austerity program, but Stockwell Day, the Treasury Board President, refused to say whether future entitlements would be spared the knife in an effort to rein in Ottawa's massive $53.8-billion deficit. In the private sector, more victims of a failed scheme watch payouts shrink . David Dodge, former governor of the Bank of Canada, says Canadians need to save far more if they want to retire comfortably - even those Canadians who think they have great company pension plans and solid RRSPs. In the UK, a report from Towers Watson said the cost of gold-plated pension promises made to public sector workers has soared to nearly £1,200billion , which is about 80% of the country's total economic output. In France, President Nicola Sarkozy must contend with a strike by transport workers angry over pension reforms . Eve...

This morning I watched all the debates on health care reform on ABC's This Week . There was a particularly heated exchange between Karl Rove and David Plouffe (watch part 1 and part 2 ). As a Canadian, I watch all this fear mongering going on in the US, and can't help shaking my head. Words like "Armageddon" are being thrown around, and that if this health care bill passes, the US will collapse. This is just a bunch of nonsense. But I'm not going to discuss the merits of this health care reform. Instead, I want to talk to you about another calamity going on right now across many states. Sasha Abramsky of the Guardian reports that homeless and mental health services in the US are being cut back as cities, counties and states run out of cash (HT: Sam): Recently, I wrote about public education in crisis . But two other vital public services are also being hit hard by budget cuts: mental health care and assistance to the homeless. Education is at leas...