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Newsmakers

Brazil’s Three Largest Pensions Join Petrobas Lawsuit

Plans, workers look to recoup billions in “Car Wash” scandal losses.

By Chris Butera

Brazil’s three largest pension funds are joining an arbitration case against Brazil’s Petroleo Brasilerio SA (Petrobas), according to Reuters.

Petrobas said in a securities filing it had been informed that the Previ Caixa de Previdência ($9 billion-$15 billion), Funcef, and Petros Fundação (both between $3 billion and $9 billion) pension funds had joined the case, in which shareholders are demanding reimbursement for corruption scandal-related losses against the state-run oil company. The pensions represent Banco do Brasil, Petrobas, and state-bank Caixa Economica Federal employees, respectively.

The news was reported late Tuesday in the newspaper Valor Ecônomico.

“Petrobras reiterates that legislation does not support this initiative, and the company will defend itself to guarantee its interests and those of its shareholders,” the company said in a statement.

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Although Petrobas noted that the three funds did not specify the amount of their claims, Valor reported that Petros estimated it could win between 4 billion and 7 billion reais ($2.11 billion).

The corruption scandal, known as “Operation Car Wash,” dates back to 2014, where former Brazilian President Dilma Rousseff—who served as the state-owned oil company’s chairman prior to her inauguration in 2011—was traced back to Petrobas and countless money laundering and corruption charges for which it was being investigated.  Believed to be the largest corruption scandal in modern history, Operation Car Wash not only forced Rousseff out of her political position along with a slew of Petrobas executives, but also nearly saw current President Michel Temer’s impeachment in October as well when Temer was found to be involved in the scam.

Fifteen other scandal-related companies are under investigation.

During this period, various pension funds, which include Previ Caixa de Previdência, Funcef, and Petros, as well as additional shareowners of Petrobas and other scandal-related companies, accumulated tremendous losses from Operation Car Wash.

The operation has included more than 100 warrants for search and seizure, temporary and preventive detention, and coercive measures. The money-laundering scheme is suspected of moving more than R$30 billion ($9.5 billion).

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Home > News > Regulation > Kentucky Calls for Redo of TRS Pension Bill Analysis
Regulation

Kentucky Calls for Redo of TRS Pension Bill Analysis

State budget director balks at report that says proposed reform plan will cost taxpayers billions.

By Michael Katz

Kentucky’s budget director is seeking a redo of Cavanaugh Macdonald’s analysis of the Teacher Retirement System (TRS) pension bill, after it reportedly said Gov. Matt Bevin’s reform plan would cost taxpayers an extra $4.4 billion over the next 20 years.

The reform proposal calls for shifting the pension participants from a defined benefit plan to a defined contribution plan. Cavanaugh Macdonald’s analysis said closing the defined benefit plan would require the TRS to alter its asset allocation and invest in more conservative options.

However, Bevin’s office said Cavanaugh Macdonald’s initial analysis of the current pension proposal uses assumptions that are very different from those in its annual valuation reports, including “significant changes” in retirement patterns and an investment return assumption “very different” from the rate recently approved by the TRS Board.

“It seems to me that your report is incomplete and non-compliant with your profession’s standards, as it did not include an explanation of the rationale,” wrote State Budget Director John Chilton in a letter to Cavanaugh Macdonald principals Edward Koebel and Cathy Turcot. “It did not include a reference to any studies or analyses that led to the change in assumptions, nor did it include a disclosure of the general effects of the change in retirement rates.”

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Chilton has asked Cavanaugh Macdonald to “rectify this deficiency” by explaining their rationale that:

  • All employees already eligible for the 27 years of service or age 60 with five years of service would retire at the end of the three-year extended period, during which those teachers would continue to benefit from the defined benefit provisions.
  • 100% of active teachers with less than two years of service on July 1, 2018, will elect to participate in the new defined contribution plan.
  • All other employees who have more than two years of service but not yet eligible would immediately retire on meeting the threshold.

The governor’s office also said that although the statutes require a 20-year analysis, Chilton will request the analysis be extended to 30 years so that the long-term effects of the pension proposal can be modeled within the 30-year amortization period contained within the proposed legislation. 

“In the past, a lack of realistic and rational actuarial assumptions helped obscure the distressed financial status of the plans and contributed to the long-term unsustainability of the plans,” said Chilton in a statement. “We will ask Cavanaugh Macdonald to prepare calculations with several alternative assumptions so that policy makers can make informed decisions based on scenarios that include realistic assumptions.”

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