The Pennsylvania State Employees’ Retirement System (SERS) returned 6.5% net of all fees and expenses in 2016, growing by nearly $1.6 billion, according to its 2016 Comprehensive Annual Financial Report (CAFR), released Monday.

This brings the total fund as of December 31, 2016, to $26.4 billion after paying out $3.2 billion in pensions to more than 127,000 retirees and beneficiaries. Of that $3.2 billion, $2.9 billion went toward Pennsylvania residents. However, the fund fell short of its 7.5% assumed long-term rate of return for 2016. In April 2017, the board lowered its assumed rate of return for the 2016 actuarial valuation to 7.25%.

In addition to 240,000 total members, SERS served 103 agencies and employers last year. Roughly 6,700 new retirees were added to the annuity payroll with an average annual pension of about $27,800. There were 4,000 retirees with an average yearly pension of $15,000 removed from the payroll.

SERS reported a funded ratio of 58.1%. The 2016 unfunded actuarial accrued liability was $19.9 billion, based on the actuarial methods used for funding purposes as of December 31. SERS’ net pension liability was $19.3 billion and its fiduciary net position as a percentage of the total pension liability was 57.8%.

Due to Governor Tom Wolf’s June 2017 signing of Act 2017-5 (formerly known as Senate Bill 1), most new hires starting January 1, 2019, and future retirees that choose to opt-in to the new plan will move into a hybrid retirement system where they will receive half of their benefits from the current taxpayer-funded plan and half from a 401(a) defined contribution plan. SERS says it will take the necessary steps to successfully implement these changes into its system over the next 18 months.

Tags: Comprehensive Annual Financial Report, Pennsylvania Public School Employees Retirement System (PSERS), Pension

Japan’s Government Pension Investment Fund (GPIF) reported a 3.5% return in the first three months of FY 2017 Friday, increasing its assets by 5.1 trillion yen ($46 billion) to a record 149.2 trillion yen ($1.3 trillion).

This is the fund’s fourth consecutive quarterly gain.

In the period ended June 30, domestic equities returned 2.3 trillion yen ($20.78 billion) upon the rise of the benchmark Topix index. Foreign equities increased by 1.9 trillion yen ($17.17 billion).

GPIF’s Japanese share holdings matched the Topix’s performance, returning 6.6%. Assisted by the yen’s 7.6% decrease compared to the euro, overseas stocks returned 5.5%.

Roughly 30% of the fund’s assets were in domestic bonds, while domestic equities took up about 24% of the portfolio—almost even with foreign equities. Foreign bonds accounted for about 14% of GPIF’s assets, while short-term assets rounded out the allocation at about 8%. However, alternative assets were well below the 5% allowable limit—consisting of 0.1% of the fund’s holdings. A recent proposal was made to allow GPIF trade stock index futures, which could increase the alternative holdings. GPIF has also invested roughly 1 trillion yen into Japanese environmental, social, and corporate governance-scoring indexes.

“A positive market environment continued” in the June quarter, with good global economic data and corporate earnings supporting increases in stocks, GPIF President Norihiro Takahashi said in a statement Friday, as reported by Bloomberg. “The yen was in a weakening trend due to expectations that the Federal Reserve will raise interest rates and the [European Central Bank]will move toward normalizing monetary policy, while the Bank of Japan’s quantitative easing policy continued.”

Tags: Fiscal Year, GPIF, Japan, Pension

Arizona House Republicans David Livingston and Noel Campbell are asking voters to amend the state constitution to loosen retirement laws and change benefits for those enrolled in the Public Safety Personnel Retirement System (PSPRS).

The $9 billion fund—currently 46% funded—has been in dire straits since the financial crisis. While relaxed laws could help increase funding, they could also allow lawmakers to reduce the pensions of retirees as well, according to Azcentral—which also says that this measure would likely “face stiff opposition from the politically powerful police and fire unions.”

The representatives plan to appeal directly to voters to make the changes to PSPRS, with Livingston hoping for a plan on the ballot in November 2018 or Spring 2019. Livingston wants to protect rank-and-file, public safety officers and reduce the benefits of pensioners he believes are abusing the system, according to Azcentral. Livingston cited PSPRS’s Deferred Retirement Option Plan (DROP), which cost the system more than $1 billion over the past decade and almost $220 million in the past fiscal year.

Under DROP, a lump-sum payout is given to employees who defer retirement for several years in addition to their monthly benefit payments and cost-of-living adjustment (COLA). According to PSPRS records obtained by the Arizona Republic, at least 32 retired Phoenix fire and police department employees received $700,000 or more each under the DROP system—with the largest payout of $911,567 presented to former Phoenix Fire Department executive assistant chief Stephen Kreis.

“Because of the constitutional clause,  the courts cannot look to modify the contracts in any way. It’s a huge impediment for changing circumstances. The DROP program really eats into the pension fund, and it allows a person who’s retired on paper to work for another five years at his highest salary,” Campbell said.

In 2011 and 2013, Arizona courts overturned prior legislative changes for PSPRS in regards to public-safety officers, judges, and elected officials due to conflicts in the constitution and state law that deemed these changes illegal. Court rulings that have restored permanent benefit increases, and reimbursed and rolled back higher pension contributions, have cost PSPRS about $600 million in savings. In lieu of these rulings and constitutional clauses, PSPRS does not see how the representatives can realistically do anything.

“It’s not even a serious or even legitimate or policy goal. That’s pretty well known in Arizona,” said Christian Palmer, PSPRS spokesman, told CIO. “We’ve had courts rule again and again and again that promised benefits to public safety servants are totally protected.” Palmer said the fund is in the process of refunding  “about a quarter-billion dollars of contribution increases, and that was just legislative increases in contributions towards members pensions, not even the benefits side of things of when people retire. That’s how pinned down and legally secure the benefit structures are.”

In 2016, state legislature passed Proposition 124, which was projected to save $1.5 billion over the following 30 years for the retirement trust for initial responders. It also links retirees’ COLAs to the regional Consumer Price Index with a 2% annual cap. Proposition 124 also allowed for the creation of a third-tier of hires in a defined contribution plan, with 50% liability to the taxpayer and 50% to the employee. However, there has not yet been one hire under the tier-three classification. Representative Campbell has been given an ad-hoc committee to study the issue and propose possible solutions.

“We’re dealing with these legacy retirees and we’re dealing with the problems and benefits that they were granted, such as the DROP program,” Campbell said. “If we could change anything, I would certainly like to [change the DROP system],. Many of the cities and counties are their own worst enemy.”

Campbell also warned that if the issue is not taken care of as soon as possible, cities—most notably Bisbee, which he says is 5% funded—could soon file for Chapter 9 bankruptcy.

“They have 30% of their retirees on disability. There’s something wrong here. The system is not sustainable,” he said.

According to Palmer, none of the stakeholders have been consulted on the issue, making it a “dead-on-arrival” case. “The whole reason we had pension reforms in 2016 that created a whole new employee tier is only perspective, meaning they’re only for future members,” he said. “There’s no legislating or cancelling out previously promised benefits or even as we’ve learned from the courts, even previously promised contribution rates to members. There’s really not much the system and the local employers can do right now. Money and time is what’s going to fix our aggregate funding levels.”

Campbell is hopeful the situation will change, but is unsure if the reform will happen due to the constitutional clauses.

“I’m a retired firefighter and a federal officer. I sympathize with these guys,” Campbell said. “I want them to have their retirements, but it seems to be that the upper echelon gets the most benefits. We have guys that retire as chief of police, they become public safety director. We have people drawing pensions of $395,000 because of the job levels that they’re at, then they go on the DROP. It’s not the average firefighter, he doesn’t get to do that. But if you’re in that position to be in leadership, you can take advantage of the system, and the cities and counties have allowed it to happen.”

Representative Livingston was unavailable for comment.

Tags: Arizona PSPRS, Pension, Representative Noel Campbell

IBM’s appeal over closing its defined benefit plans was upheld by the Court of Appeal in England and Wales, dismissing the High Court’s 2015 ruling, in which Justice Nicholas Warren said the company had breached its contractual duty with employees due to the way they had been consulted about pension changes.

The case revolves around Project Waltz—implemented in 2009—which eliminated IBM’s defined benefit plan, leaving workers with only a defined contribution  plan.

According to The Register, the change shifted the financial risk from the company to pensioners so IBM could achieve its 2010 targets, leaving a quarter of its UK staff off the final salary pension plan.

The Court of Appeal concluded that Justice Warren was wrong to assume that there was a “reasonable expectation” for continued defined benefit accrual. It also said that Justice Warren was wrong in deciding that IBM was required to announce a change to its employees before retirement policies changed.

In addition, the Court of Appeal decided the High Court was wrong in deciding that the way the initial non-pensionability agreements in 2009 and 2011 were procured was in breach of the company’s contractual trust obligation and confidence to employees.

“For the reasons that we have set out above, we will dismiss the cross-appeal and allow the appeals, and we hold that it would not be right to injunct Holdings and UKL from implementing Project Waltz without carrying out a further consultation process, on account of the breaches of duty in respect of the consultation process before Project Waltz,” the Court of Appeal said, according to  The Register.

As of June 30, 2017, IBM has more than $120 billion total assets.

Tags: IBM, Pension, Project Waltz, UK Court of Appeal

Over the past 10 years, FTSE 100 companies have funded their defined benefit pension plans with approximately £150 billion ($197 billion); however, the rising liabilities mean that the net accounting position has worsened, according to a recent report from investment consulting firm LCP.

LCP’s 24th annual Accounting for Pensions report, titled “£150bn to Go Backwards,” found that the continued rise in liability values, driven by falling bond yields, has meant that the combined accounting position has worsened from a multi-billion-pound surplus to a multi-billion-pound deficit over the past 10 years.

According to the report, asset values have risen, from approximately £350 billion in 2007 to more than £600 billion. However, during that same time, liability values have grown from £336 billion to £625 billion.

However, the survey found that the combined FTSE 100 accounting deficit in respect of UK pension liabilities had improved. It said the improvement in the net deficit since last year is due to strong returns on assets, and a record level of contributions, with FTSE 100 companies paying a total of £17.3 billion to their defined benefit plans last year. This is after contributing £13.3 billion in 2015, £12.5 billion in 2014, and £14.8 billion in 2013.

“The fall in bond yields over the last 10 years has led to a sustained rise in liability values, more than 85% since 2007, meaning companies have effectively paid £150 billion to go backwards,” said Bob Scott, LCP’s senior partner and author of the report. “Companies remain under increasing pressure to pay more into their schemes, and one can only hope that the contributions companies pay in future will have a bigger impact on the pensions’ deficit than in recent years.”

The report also found that despite pension liabilities totaling £625 billion, FTSE100 companies were still able to pay four times as much in dividends in 2016 as they did in contributions.

“All signs are that the Pensions Regulator will get tougher with companies who unduly prioritize their shareholders by giving them a bigger slice of the cake than the pension scheme gets,” said Scott.

Scott added that UK companies could be required to disclose even higher amounts on their balance sheets based on the International Accounting Standards Board’s (IASB) plans to amend IFRIC14, which governs the way companies are required to interpret the pensions accounting standard.

“Record levels of paid contributions and strong asset returns may have improved the overall accounting deficit figure, but this reduction could be short lived,” said Scott. “In particular, if the IASB persists with planned amendments to IFRIC 14, this could mean companies are required to disclose even larger pension liabilities on their balance sheets.”

Tags: FTSE 100, LCP, Pensions, UK

The BNY Mellon Canadian Master Trust Universe, a BNY Mellon Global Risk Solutions tracking service, reported a median return of 9.62% for the year, and 1.53% for Q2 of 2017, marking the fifth-consecutive quarter of positive results.

The BNY Mellon Canadian Master Trust Universe is a fund-level tracking service that consists of 90 Canadian corporate, public, and university pension plans, and has a market value of more than C$234.1 billion ($186 billion), with an average plan size of C$2.6 billion.

The tracking service’s three-, five- and 10-year returns were 7.39%, 10.24%, and 6.08% respectively.

“The Canadian plans remained positive in the second quarter of 2017 with 96% of the plans posting positive results,” said Catherine Thrasher, managing director, global risk solutions Canada, BNY Mellon Asset Servicing. She added that pension plans and Canadian Universities “benefitted from higher allocations to outperforming international equities, the top-performing asset class for the second quarter.”

The Q2 results were down from the previous quarter, when the Canadian Master Trust Universe reported a return of 3.11% for the quarter, and a one-year return of 11.22%. During Q1, 100% of the plans reported positive results.

Additional Q2 highlights of the BNY Mellon Canadian Master Trust Universe include:

• Fixed Income performance was positive during the second quarter with a median return of 1.64%, versus the FTSE TMX Canada Bond Universe Index return of 1.11%.

• Alternative asset classes were led by private equity, which reported a median return of 2.02%, followed by infrastructure 1.85%, real estate 1.72%, and hedge funds -2.02%, as reported by the Asset Allocation Trust Universes.

• Canadian equity posted a quarterly median return of -1.31%, versus the S&P/TSX Composite Index return of -1.64%. US equity’s median quarterly return of 0.66% outperformed the S&P 500 Index result of +0.39%. 

Tags: BNY Mellon, BNY Mellon Canadian Master Trust Universe, Pensions

Due to popular demand, the innovation award nomination deadline has been extended and Tuesday is the final day to nominate the most innovative CIOs and the best asset managers in 2017 for our annual innovation awards.

NominationsforCIO’s eighth annual Industry Innovation Awards will close at the end of the week. Nominations are open to all industry professionals and can be anonymous. 

The awards seek to highlight the most innovative CIOs of 2017 as well as the best asset management firms for various categories.

Nominations are open to industry professionals and will close on Friday, August 4.

All finalists will be announced in early September.

The Innovation Awards ceremony will take place December 7 at the New York Public Library.

The most innovative CIOs of the year will be chosen by CIO’s editorial staff and advisory board, which includes Jagdeep Bachher of the University of California Office of the President, Tim Barrett of Texas Tech University System, Robert Hunkeler of International Paper, Jacque Millard of Intermountain Healthcare,  Mark Schmid of the University of Chicago and Robert “Vince” Smith, CIO and deputy state investment officer of the New Mexico State Investment Council.

This year’s asset owner categories include (2016 winners in parentheses): 

Foundation (University of Arizona Foundation, Craig Barker)

Endowment (Texas Tech University System, Tim Barrett)

Corporate Defined Benefit Pension Plan Below $5 Billion (Blue Cross Blue Shield Association, Jamey Sharpe)

Corporate Defined Benefit Pension Plan Above $5 Billion (International Paper, Robert Hunkeler)

Public Defined Benefit Plan Below $15 Billion (MoDOT and Patrol Employees’ Retirement System, Larry Krummen)

Public Defined Benefit Plan Between $15 Billion and $100 Billion (Pennsylvania Public School Employees’ Retirement System, Jim Grossman)

Public Defined Benefit Plan Above $100 Billion (State of Wisconsin Investment Board, David Villa)

Sovereign Wealth Fund (new category)

Healthcare Organization (Intermountain Healthcare, Jacque Millard)

Defined Contribution Plan (American Airlines, Ken Menezes)

Next Generation (UPS, Greg Spick)

Consulting (Aksia, Jim Vos)

Asset management categories include (2016 winners in parentheses; italics indicate altered category): 

Fixed Income (BlackRock)

Equities (including alternative equity beta) (Parametric)

Multi-Asset (including risk-balanced strategies) (Risk Premium Investment Management Company)

Private Equity (Blackstone)

Hedge Funds (Marshall Wace)

Real Assets (Pantheon)

Defined Contribution Strategies (NISA Investment Advisors)

Investment Outsourcing (Goldman Sachs Asset Management)

Corporate Investment Strategies (Nuveen)

Corporate Liability Strategies (Prudential)

Transition Management (Macquarie)

Data & Technology (Solovis)

**New 2017 Category: ESG Investing

Let us know who inspires you in this industry, and why. The nomination form can be found here: https://www.research.net/r/2017IIANominations.

Tags: Asset Managers, CIO, Innovation Awards 2017

The Pension Benefit Guaranty Corp. (PBGC) has warned that its insurance program for multiemployer pension plans, which covers 10 million people, is likely to run out of money by 2026.

“The increasing demand for financial assistance from insolvent plans will accelerate the depletion of PBGC’s Multiemployer Program assets,” said the PBGC in its FY 2016 Projections Report. “The multiemployer insurance program is in serious trouble and is likely to run out of money by the end of fiscal 2025. If that happens, the people who rely on PBGC guarantees will receive only a very small percent of current guarantees– most participants would receive less than $2,000 a year and in many cases, much less.”

The projections report is PBGC’s annual actuarial evaluation of its future operations and financial status. The report provides a range of estimates of the future status of insured pension plans and their effect on PBGC’s financial condition.

In the report, the PBGC said that without any changes in law or additional resources, this year’s estimated deficit of $59 billion will increase, with the average projected deficit rising to almost $80 billion for fiscal year 2026.

Under the Multiemployer Pension Reform Act of 2014, multiemployer plans that project insolvency within the next 20 years must notify participants that the plan is running out of money.

“Over 1.2 million people are now in about 100 critical and declining plans,” said the report. “As these plans become insolvent, participants’ benefits will be reduced to the amounts guaranteed by the PBGC under current law. In a recent insolvency, this resulted in benefit cuts of more than half for over 40% of the plan’s participants.”

The report also said that the timing of the multiemployer program’s insolvency is uncertain as it depends on when the most troubled plans run out of money. According to the PBGC, the date a specific plan is projected to run out of funds depends upon how the pension plan investments perform, and on other decisions made by the plan’s trustees and participants.

“Most of the risk of the program running out of money falls during the years 2024 to 2026,” said the report. “It is more likely than not that the Multiemployer Program will deplete its assets by the end of fiscal 2025. The risk of program insolvency grows rapidly after 2025, exceeding 99% by 2036.”

However, the PBGC pointed out that the president’s FY 2018 budget contains a proposal to create a new variable rate premium, and an exit premium in the multiemployer program, which would raise an estimated additional $16 billion in premium revenue over the 10-year budget window.

Despite the troubles facing the multiemployer program, the PBGC said the financial condition of its insurance program for single-employer plans remains likely to improve over the next decade. Under current estimates, the program’s fiscal year 2016 deficit of $21 billion will likely turn to a surplus by the end of fiscal 2022.

“Projections for PBGC’s insurance program for single-employer pension plans, which covers about 28 million people, show that its financial condition is likely to continue to improve,” said the report. “The program is highly unlikely to run out of money in the next 10 years, and is likely to eliminate its deficit within the next three to seven years.”

Tags: PBGC, Pension, Pension Benefit Guaranty Corporation

Preliminary FY2017 results reveal that New York City’s public pension system returned 12.95%, well above the target return of 7%—on its investments.

Although not yet certified and representing one year of a longer-term approach, the preliminary results were announced at the annual meeting of the New York State Financial Control Board by New York City Comptroller Scott Stringer, joined by New York State Comptroller Thomas DiNapoli, State Budget Director Robert Mujica, and Mayor Bill de Blasio.

“My office projects that last year’s performance will reduce pension contributions by more than $800 million over the financial plan period,” Stringer said in a statement. “While this is certainly good news, we should remember that our investment focus remains on the long term and the markets may be more challenging in the coming year.”

Stringer acknowledged that he does not yet have a breakdown of the asset classes which drove the returns. He did mention, however, that including 2017, investments have returned a compounded 7.4% over the last four years. 
Over the past year, CIO Scott Evans has been rebuilding leadership positions, and refreshing technology and risk management within New York City’s Bureau of Asset Management.

Stringer also provided more background on the City’s recent report that found New York City payroll employment 14% higher than it was in 2008,  prior to the recession. He also praised de Blasio on the city’s budgetary savings, noting the current budget cushion—as measured by Stringer’s office—stands at $9.8 billion, approaching the recommended 12% threshold at 11.1% adjusted spending. 

“I want to commend Mayor de Blasio for continuing to identify budget savings to build up our reserves and prepare for the inevitable rainy day,” Stringer said. In the last fiscal year, the City identified $6.6 billion in total savings through FY 2021 under the Citywide Savings Program. Our offices also continue to work together to identify debt service savings. Together, we have achieved $678 million in budgetary savings over the last four fiscal years from bond refinancing.”

Tags: Comptroller Stringer, New York City Bureau of Asset Management, New York City Public Pension System, Pension