High Inflation Leads to Expensive Cost-of-Living Adjustments for CalPERS and Others

With big returns come big expenses. That’s what seems to be the case for pensions across the country, as they are forced to increase their payouts to beneficiaries due to inflation. While the past year has been a record breaker for pension fund returns, inflation will be claiming its fair share of the gains as well.

For CalPERS members, those who retired between 2006 and 2014 will receive the biggest increase at 4.7%. This will be the largest cost-of-living increase for beneficiaries in the past 32 years, dating to 1990.

While the Bureau of Labor Statistics has estimated the Consumer Price Index to have increased by 7% over 2021, CalPERS is not using the 7% to calculate its increased payments. Instead, it uses an average of each month’s numbers.

CalSTRS similarly also has built in inflation protection, thanks to a California law that requires public pensions to do so. However, CalSTRS’ method of calculating this payment is slightly different. The fund gives quarterly supplement payments to those whose annual benefit falls below 85% of their original benefit. This year’s inflation numbers will likely increase the number of supplemental payments that CalSTRS in forced to provide.

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New York City Employees’ Retirement, the country’s fourth-largest pension fund, also ties its cost-of-living adjustments to inflation. However, the pension has the yearly adjustment amount capped at 3%, meaning it won’t take as much of a hit.

The Teachers’ Retirement System of Texas, also among the top 10 largest pension funds in the country, was required by the Texas legislature to give a one-time supplemental payment of up to $2,400 i to make up for the increased cost of living.

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U.S. Pension Funds Scramble to Figure Out What to Do With Russian Investments

Tags: CalPERS, CalSTRS, Consumer Price Index, cost of living, Inflation, New York City Employees' Retirement System (NYCERS), Pension, Public Pension, Texas Teacher Retirement System (TRS)

A growing number of pension funds are shunning investments in Russia following the country’s military invasion of Ukraine.

Norway’s minister of finance said he will ask the Government Pension Fund Global, Norway’s $1.3 trillion sovereign wealth fund, to freeze all its investments in Russia immediately, and also divest from Russia.

“Given the way the situation has evolved, we consider it necessary for the fund to divest its Russian assets,” Minister of Finance Trygve Slagsvold Vedum said in a statement.

The Caisse de depot et placement du Quebec (CDPQ), Canada’s second-largest pension fund with C$420 billion ($331 billion) in assets, said in a statement it had sold off Russian investments, and that it will avoid exposure to Russia.

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“There’s no interest in investing directly and being exposed to the strategies when it comes to Russia, that’s the main principle,” CDPQ President and Chief Executive Officer Charles Emond said, according to Reuters. “We are very active to correct the situation, to replicate our indices internally and to leave Russia.”

New York City Comptroller Brad Lander, who is custodian of the $274.7 billion in assets held by New York City’s five public pension funds, said that he plans to bring specific assets to the trustees of the five boards of the city’s retirement systems to consider for divestment.

“Russia’s aggression in Ukraine merits the swift global action we’ve already begun to see to cut President Putin and the oligarchs who enable him off from the global financial system,” Lander said in a statement. “We are watching developments in Ukraine with great concern and following responses by fellow institutional investors closely,” he said, adding that “all decisions, including potential divestment of Russian assets, are made separately by each of the five pension plan boards.”

PensionDanmark, one of the biggest pension funds in Denmark with $46.3 billion in assets, said it sold its holdings in Russian government bonds and Russian state-controlled companies over two weeks ago when U.S. President Joe Biden warned that Russia’s military was building up for an invasion of Ukraine.

Danish pension fund AkademikerPension, which has $21.1 billion in assets as of October, said it was putting Russia “in investment quarantine” and immediately halted new investments in Russian assets after Russian President Vladimir Putin recognized the eastern Ukrainian regions of Donetsk and Luhansk as independent. The pension fund owns Russian government securities and shares in state-controlled companies worth DKK373 million ($56.2 million), which accounts for 0.3% of its portfolio. The fund said the “quarantine” can last for up to six months.

“Putin’s formal recognition of the two separatist republics is a violation of Ukraine’s sovereignty, which is a violation of international law. And it is also a breach of our policy on responsible investment,” AkademikerPension CEO Jens Munch Holst said in a statement. “The consequence will be that AkademikerPension will put Russia in quarantine with immediate effect. This means that we must not make new investments in government bonds or in companies where the state owns more than 50% of the company.”

Holst added that the pension fund may take things a step further, saying that a definite exclusion from Russia can easily be considered.

“Accountability is a cornerstone of our investment policy, and we simply do not want to invest in states that are behind gross violations of human rights or international laws and regulations,” Holst said. “Faced with this is the consideration of risk diversification, so that we ensure our members a good pension savings. But our members can be confident that we can continue to diversify our investments despite the exclusion of Russia.”