Milliman Says Corporate Pensions Suffer Funding Drop in November

In the latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation's largest defined benefit pensions, the global consulting and actuarial firm showed these plans experienced a $22 billion decrease in pension funded status for the month of November.

(December 14, 2010) — The combined funding status of the 100 largest US corporate defined benefit pension plans has suffered a funding drop of $22 billion in November, Milliman’s latest research has revealed.

“We were going strong for a couple of months but that momentum faded in November, and it seems likely that these 100 pensions will end 2010 with a decline in funded status compared to where they were at the end of 2009,” said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index, in a statement. “Companies are now turning their attention to 2011 and what it will take to improve funded status in what looks likely to be a big year for pension expense.”

According to a Milliman news release, the drop last month has reduced the funding ratio 1.3 percentage points to 77%, with the plans’ cumulative assets declining $8 billion for the month to $1.121 trillion. Meanwhile, liabilities increased by $14 billion to $1.456 trillion.

November’s decline in funded status follows two months of improvement. As of November 30, the combined pension funding deficit was $335 billion. The firm noted that this month’s study continues to offer projections for 2011 and 2012, illustrating how asset performance and discount rates may impact funded status.

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To contact the aiCIO editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A legal firm hired to scrutinize the CalPERS’ staffing and conflict-of-interest issues has recommended barring employees from leaving for asset management firms with ties to the pension giant.

(December 14, 2010) – California Public Employees’ Retirement System (CalPERS) should be barred for twenty-four months from defecting to asset management or placement agent firms that have received mandates of $10 million or more from the Sacramento-based fund in the previous five years, a law firm hired to look at numerous internal issues has recommended.

The firm, Steptoe & Johnson, was hired in October 2009 to review various issues at the fund, including post-employment practices, management fees, and placement agent relationships, Bloomberg is reporting. This followed from “the…receipt of information provided to CalPERS by investment funds that reported their payment of more than $50 million in fees over a five-year period to ARVCO Financial Ventures LLC, a placement agent firm headed by former CalPERS Board Member Al Villalobos,” according to a release from the fund.

Also included in the report, which is expected to be released in full early next year:

The fund should put into place a “placement agent resolution program” that would allow CalPERS’ external money managers who previously paid fees to placement agents to work through issues with the fund. Any firm that refused to participate, the report suggested, should be barred from working further with the fund.

External managers should be compensated for performance, not simply management. Such a change in policy would most effect alternative asset managers, who, while often making the majority of their fees through performance, commonly take a 2% management fee as well. Currently, CalPERS has 14% of its assets with private equity firms and 4% in hedge funds.

CalPERS should bar employees from attending opulent private equity offsites, and should instead require that meetings occur at either the private equity firm’s offices or CalPERS’ headquarters.

It should be easier to discipline and fire pension employees, something that is currently impeded by complex state employment laws.

The CalPERS board has asked pension staff to recommend a roadmap for implementation of the report’s recommendations, and this will be taken into account before any final vote on Steptoe & Johnson’s report is taken.

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To contact the aiCIO editor of this story: Kip McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>