Pension Pulse

Mary Williams Walsh of the NYT reports, A New Plan for Valuing Pensions : The board that writes accounting rules for states and cities has proposed a new approach for pension disclosures that falls far short of what some financial experts hoped, but which would still force many governments to highlight pension shortfalls they have played down. The current standard has come under heavy fire from mainstream economists, who say it makes virtually all government pension benefits look less costly than they really are. Government officials have granted pensions to teachers, police, judges and other public workers for years, without reflecting the true cost, analysts say. Now the bills are coming due, and in many cases there is not enough money set aside, adding to the fiscal distress across the country. Pensions are a third-rail issue for the Governmental Accounting Standards Board, and it has been working with great deliberation. Its pension project began early in 2006...

I haven't discussed the Caisse in a while but Thursday is Ste-Jean Baptiste, a holiday here in Quebec, so I thought I would go over a couple stories that appeared lately. First, the trash media coverage. The CBC reports, Caisse PR chief's $355K pay too rich for PQ : The head of the public relations department at Quebec's largest pension fund is paid $355,000 a year, plus benefits, and the opposition Parti Québécois thinks that is just too much. But the Caisse de dépôt et placement du Québec defends paying that amount, saying Denis Couture could make more money elsewhere and they need his experience to help rebuild the fund's reputation after it lost $40 billion in 2008. PQ spokesman Jean-Martin Aussant said Caisse management needs to look at why its communications department has three employees. "I think they should really look seriously into that division and ask themselves if they really need that many people and such high salaries as well," Aus...

Mary Williams Walsh of the NYT reports, In Budget Crisis, States Take Aim at Pension Costs : Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits. Illinois raised its retirement age to 67, the highest of any state, and capped the salary on which public pensions are figured at $106,800 a year, indexed for inflation. Arizona, New York , Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week. “We can’t afford to deny reality or delay action any longer,” said Gov. Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in March, will save some $300 million in the first year alone. But there is a catch: Nearly all of the cuts so far apply only to workers not...

Kris Hundley of the St-Petersburg Times reports, Florida rolls the dice with chunk of pension funds : Chasing bigger investment returns, the agency that manages Florida's $113.8 billion public pension fund wants to make far riskier investment bets. The state wants to reduce the pension fund's holdings in publicly traded stocks and bonds and triple its allocation to hedge funds and other private investments that are less liquid and harder to value. Earlier this month, the head of the State Board of Administration told his bosses that rearranging the state's portfolio would benefit the nearly 1 million public employees and retirees who depend on the fund, as well as the taxpayers who underwrite the system. "We will probably have a slightly higher level of return, with a slightly lower level of risk," SBA executive director and chief investment officer Ash Williams told Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McColl...

Earlier this week, I read an interesting comment by Damien Hoffman, Are Private and Public Employees Headed for War? : American Enterprise Institute President Arthur C. Brooks might be an emerging leader of the intellectual side of the Tea Party movement (Cf. the emotional side). He raises an interesting point I have been hearing a lot lately by people in states with massive public pension liabilities: “The disparity [between public and private sector benefits] is so large and so unfair, a day of reckoning is coming.” When I was recently visiting family in New Jersey, all they could discuss was their animosity toward police officers retiring in their 40′s with full pensions, teachers receiving 4% a year raises despite the economic recession, and politicians who keep signing contracts for more unsustainable and unfundable public sector compensation programs. Given the anger coupled with their very reasonable insights, I could easily see how this issue will reach an ugly ...

Michael Marois reports in Bloomberg Businessweek, Calpers Buys Equity Stake in London’s Gatwick Airport : The California Public Employees Retirement System, the largest U.S. public pension fund, is buying a 12.7 percent equity stake in London’s Gatwick airport, according to two people with direct knowledge of the sale. Global Infrastructure Partners, a buyout firm that purchased Gatwick in 2009 from BAA Airports Ltd., will sell a 106-million-pound ($157 million) stake to the pension fund, according to the people, who spoke on condition of anonymity because they weren’t authorized to release the details. Gatwick is the U.K.’s second-largest airport and the busiest single- runway airport in the world. New York-based GIP, which is backed by Credit Suisse Group AG and General Electric Co., said in December it intended to sell stakes in the airport this year after purchasing Gatwick for 1.51 billion pounds. Calpers, as the $203.6 billion fund is known, has been adding to a new asset class i...

Reuters reports, Hedge funds leave Monaco conference in bleak mood : As the Mediterranean resort was hit by stormy weather this week, managers attending the GAIM hedge fund conference focused on the problems that could hit their businesses rather than the past year's client inflows and bumper 20 percent returns. "There are reservations, and concerns have not yet been rectified... The industry's recovering but has not yet recovered," Ken Heinz, president of Hedge Fund Research (HFR), told Reuters. "The mood is better than a year ago but it's not as good as several years ago." Hedge funds lost 2.73 percent in May, according to Credit Suisse/Tremont, wiping out much of this year's gains and raising fears of an extended period of turbulence. The losses were the biggest since November 2008, near the nadir of the credit crisis, according to Hedge Fund Research, which provides another industry index. Convincing clients to part with their money continues to ...

Peggy Hollinger and Ben Hall report in the FT, Sarkozy's pension plans fall short of the mark : President Nicolas Sarkozy promised the mother of all reforms but yesterday's proposals to restore the finances of France's debt-laden pension system seemed to fall short of the billing. For weeks, ministry leaks have been suggesting that the government would take the bold step of raising the retirement age from 60 - one of the lowest in Europe - to 63. There has also been much speculation - again helped along by official leaks - that an attempt would be made to deliver a long-term solution for a system expected to hit a €70bn ($86bn, £58bn) funding shortfall by 2030. Instead, the government has opted to raise the age by only two years and to target financial equilibrium by 2018, hardly the ultimate solution for a country with a rapidly ageing population and high unemployment. "This is not a once-for-all-time reform," said Gilles Moëc, senior economist at De...

Cathy Bussewitz of the Associated Press reports, California pension fund considers rate increase : Board members of California's largest public pension fund said Tuesday they are likely to take more money from the state general fund to pay employee pension benefits, a proposal that has led to criticism at a time when the state faces a $19 billion deficit. Board members for the California Public Employees Retirement System said the amount would be less than the $600 million increase they had estimated last month. That's in part because the Legislative Analyst's Office issued a report saying total payroll expenses for the state were lower than CalPERS' estimate. The actual figure is used to determine the state's contribution to pension benefits. "If we defer these contributions, it will mean larger increases are needed in the future," Alan Milligan, interim chief actuary for CalPERS, told the board. "We feel that may end up bein...

A follow-up on Mercer's little Alaska problem posted last December. Becky Bohrer of Bloomberg Businessweek reports, Alaska settles pension suit for $500M (HT: Johnny): Alaska's attorney general said Friday that the state has settled a breach of contract and professional malpractice lawsuit against its former actuary for $500 million. Dan Sullivan said the agreement between the Alaska Retirement Management Board and Mercer Inc., may be the largest of its kind. He called it a "great result" for Alaska state workers and retirees. The matter dates to late 2007, when the state sued Mercer for at least $1.8 billion, alleging mistakes by the company had contributed to an $8.4 billion state pension deficit. Mercer had been actuary for the state's Public Employees' Retirement System and Teachers' Retirement System pension plans. It had stood behind its work. Stock market declines and soaring health care costs also contributed to the multibillion-dollar shortfall,...

Bill Curry of the Globe & Mail reports, Flaherty seeks support for expanded CPP : J im Flaherty is urging the provinces to support a plan to increase mandatory CPP premiums, but the federal finance minister has stopped short of endorsing the kind of reform that some critics say is necessary to ease a growing pension crisis. Mr. Flaherty faces an uphill battle on Monday, when he wraps up a series of meetings with provincial finance ministers, during which he must convince two-thirds of them representing two-thirds of the population to back his vision of an expanded Canada Pension Plan . While the Conservative finance minister said it is too soon to hammer out the details of any changes, he ruled out doubling CPP benefits, a proposal endorsed by several unions. He also rejected a voluntary add-on to the CPP that would essentially compete with private mutual funds – a central proposal of the federal Liberal party. “We have a Canada Pension Plan that’s the envy of th...