Pension Pulse

Timothy Inklebarger of Pension & Investments reports, Proposals target Canadian corporate plan funding : Canadian corporate pension plans will be able to negotiate funding arrangements with participants and retirees when restructuring their plans as part of the proposals announced Tuesday by Canadian Finance Minister Jim Flaherty. The proposals would amend the 1985 Pension Benefits Standards Regulations, according to a news release from the Canada Department of Finance. Among the proposals were the following: • allow plan sponsors to secure letters of credit in lieu of making funding payments to the pension fund, up to a limit of 15% of plan assets; • require corporate plans to be fully funded before being terminated; and • void any amendments to a pension plan that would reduce the plan’s solvency to below 85%. The proposed changes are a federal initiative and would not apply to provincially regulated pension plans. “These changes will help pension plan sponsors to bett...

Ron Trujillo of the Sacramento Business Journal reports, CalPERS adopts new investment plan : California Public Employees’ Retirement System has adopted a new asset-allocation strategy in order to better prepare for risk-adjusted performance in the investment world. The nation’s largest pension fund, with a $220 billion portfolio, will focus on risk and return as economic growth, inflation, liquidity and interest rates — and has outlined asset-allocation mandates. CalPERS, like most investors, battled a difficult market and disappointing results during the recession, but has posted much-improved performances recently. “We learned in the financial crisis and the past recession that a liquidity crunch or inflation can have a significant impact on portfolio performance in ways that many investors didn’t anticipate,” CalPERS board president Rob Feckner said in a news release Monday. “We focused on assets and returns, but not enough on the risk of our allocations.” The board ...

Gergely Szakacs and Marton Dunai of Reuters report, Hungary rolls back pension reform, defies markets : Hungarian lawmakers voted to roll back a 1997 pension reform on Monday, effectively allowing the government to seize up to $14 billion in private pension assets to cut the budget deficit while avoiding austerity measures. With financial markets on edge across Europe over debt and deficits, Prime Minister Viktor Orban has spurned international advice to cut budget costs, as Ireland and Greece have done, in favor of unconventional policies meant to revive Hungary's moribund economy. Parliament passed the pension legislation with 250 votes for, 58 votes against and 43 abstentions. Orban's ruling Fidesz party has a two-thirds parliamentary majority. By plugging its budget shortfall with the pension funds and new taxes on banks and mostly foreign-owned businesses, Orban has promised to end years of austerity and bolstered the popularity of his right-of-center Fides...

Edward Krudy of Reuters reports, Is Santa Claus rally almost done? : The December rally may be reaching its climax, with just two weeks to go before Santa Claus makes his midnight run. Dwindling volume, excess optimism, and history all point to a stock market that could be running out of steam. Investors appear to have grown complacent as the CBOE Volatility Index, or VIX .VIX, has fallen to levels not seen since April. Stocks have made new highs on almost a daily basis. The S&P 500 .SPX closed on Friday at its highest level since September 2008 and the Nasdaq .IXIC scored its best finish since late December 2007, with many expecting gains to run through the end of the year. But Cleveland Rueckert, an analyst at Birinyi Associates in Stamford, Connecticut, believes the year-end rally may be largely done. "The majority of that gain may already have occurred," he said. "Most people are more likely to be closing out their books at the end of the month and...

Floyd Norris of the NYT reports, Accounting for Public Pensions : A generation ago, when Ronald Reagan was president, the accounting rule makers forced American companies to come clean on the cost of the pension plans they were promising to employees. That decision, perhaps more than any other, heralded the eventual demise of defined-benefit pensions for employees of American companies. Now something very similar may be in store for public sector employees, thanks in part to the Republican victories in last month’s Congressional elections. Forcing companies to account in a reasonable manner for their pensions was a contentious issue at one time. Companies feared it would slash reported profits, and they preferred a system where the only expense they had to count was the money the company actually put into the pension plan. Roger Smith, then the chairman of General Motors , came to a hearing of the Financial Accounting Standards Board to denounce the idea. ...

Tony Van Alphen of the Toronto Star reports, Changes hit workers hard in big pension plan : More than 350,000 members of Canada’s largest multi-employer pension plan are facing reduced benefits or having to pay more for smaller retirement cheques, as a result of a major funding shortfall. The Canadian Commercial Workers Industry Pension Plan (CCWIP), whose members work in grocery stores such as the Loblaw and No Frills chains, confirmed Thursday that mandatory contributions to the fund have jumped as much as 50 per cent while thousands of members who are no longer paying into it will see cuts of up to 57-per-cent in their benefits when they retire. Furthermore, the independent actuary for the plan acknowledged that under the changes, more young workers who leave a participating employer after several years could receive less in benefits than the total of contributions made on their behalf. “Conceivably that could happen,” said Clare Pitcher, an actuary for Buck Consultants. “But that ...

Reuters reports, NYS public pension costs will double in 5 years : New York State taxpayer-funded contributions to public pensions will "explode" in the next five years, forcing the state to divert resources from other services to meet the obligation, the Empire Center for New York State Policy said in a report on Tuesday. Taxpayer contributions to the New York State and Local Retirement Systems could double over the next five years, adding nearly $4 billion to annual taxpayer costs, according to the report by the nonpartisan think tank. Taxpayer contributions to the New York State Teachers' Retirement System, which totaled $900 million this year, could reach $4.5 billion by 2016, the report said. "The run-up in pension costs threatens to divert scarce resources from essential public services during a time of extreme fiscal and economic stress for every level of government," the report said. "This is not just a matter of financial necessity ...

The UKPA reports, Pension fund deficit 'widens 50%' : The funding shortfall faced by the UK's biggest pension schemes has widened by 50% during the past four years, research has suggested. The deficit of the UK's 200 largest defined benefit schemes, including final salary pensions, remained broadly stable during November, rising by only £2 billion to £71 billion, according to consultancy firm Aon Hewitt. The group said if the recent pattern continued into December, 2010 would have been one of the most stable years for pension scheme funding since 2006. But despite the recent stability, the group said the funding shortfall faced by the 200 largest schemes had still soared by 50% during the past four years, rising from an average of £55 billion during 2006 to one of £87 billion this year. Sarah Abraham, consultant and actuary at Aon Hewitt, said: "In the aftermath of the financial crisis, pension deficits crept up to record highs. In mid-June 2010, the d...

Norma Cohen of the FT reports, Regulator plans clamp on pension bets : Pension funds will be prevented from investing in risky assets, including stocks, by the Pensions Regulator under plans to stop weaker companies with large pension shortfalls from making huge bets. David Norgrove, chairman of the regulator, will outline his concerns that some schemes are taking risks that could leave a bigger hole in the industry funded Pension Protection Fund in a speech to funds on Tuesday. “We have to ensure that they are not putting all their money on the 2:30 at Newmarket and if it doesn’t work out, they will fall back on the PPF,” he said. “To some extent, we have seen some behaviour like that.” Some schemes were so underfunded their only hope of recovery lay in big bets. The regulator was also concerned about standards of governance, particularly for smaller schemes. “We come across a fair degree of criminality at the smaller end of schemes,” said Mr Norgrove, whose six-year tenur...

A few years ago, when I was allocating money to directional hedge funds (L/S Equity, Global Macro and Commodity Trading Advisors), I just loved conference calls and reading interesting monthly letters. Not all managers had a flair for writing interesting comments. Indeed, most didn't, and some of the best hedge funds in the world hardly put out any information (except for the basics) in their monthly comments. But there were others who had a gift for writing interesting comments that made me think outside the box. One of my favorite monthly comments came from a global macro manager who unfortunately ended up closing his fund. He was extremely intelligent and articulated his thoughts well, but making money consistently is a lot harder than analyzing the markets properly. He's now a prop trader for a major European bank and doing very well. I got a chance to speak with him in September after I met up with the 300 billion euro man in Athens . He doesn' write any monthly comme...