Ohio Pensions: Federal Rule Denies Us Rightful Fannie Payment

Two Ohio public pensions are asking a judge to disallow federal agency rules that would potentially subordinate their claims in a lawsuit against Fannie Mae.

(August 28, 2011) — Two Ohio pension funds have asked a federal judge to disallow a federal agency rule that would potentially limit the amount they could eventually receive for suing Fannie Mae, the massive insurer of mortgage debt.

According to the lawsuit, rules set by the Federal Housing Finance Agency (FHFA) would allow some creditors — even, potentially, Fannie Mae’s own corporate officers — to be paid for unsecured claims before the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, the pension funds filing the suit. “If Fannie Mae’s officers — the very individuals responsible for the fraud — sued the company to recover their attorney’s fees, their claims would receive priority over plaintiffs’ valid securities fraud claims,” the two pensions allege in the lawsuit.

The FHFA is the federal agency tasked with sorting out claims against Fannie Mae and Freddie Mac, which are now under government control following severe stress in 2008. The claim-priority rules — which took effect in late July, and subordinate certain financial claims on the two mortgage agencies — are a violation both of the U.S. Constitution and the Housing and Economic Recovery Act, according to the pension funds. This is because FHFA’s acting director, Edward DeMarco, has acted in his capacity without confirmation for two years.

The original claims against Fannie Mae stem from alleged securities fraud; the two Ohio funds are the lead plaintiffs in a lawsuit filed in 2004 over what they claim are inflated earnings.

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The case is: Ohio Public Employees Retirement System v. Federal Housing Finance Agency, 11-cv-01543, U.S. District Court, District of Columbia.

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

(August 28, 2011) — A recent study by Boston College’s Center for Retirement Research claims that unions do not lead to higher public pension benefits.

The group’s recent paper— titled “Unions and Public Pension Benefits” — asserts that “unions have no measurable effect on plan generosity or rate of growth in pension benefits, but do have a quantifiable impact on wage levels and perhaps number of workers.”

The research notes that it is widely believed that unions have a large impact on public pensions. Nevertheless, the paper — written by Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinb — asserts that because pensions are legislated, not bargained, lobbying expertise may actually be more important than union size.

Furthermore, the study describes factors that result in higher public pensions, with growth in a plan’s funded ratio during good times having the biggest impact on increasing schemes. The paper concludes that the results should be viewed as only a first step in understanding the influence of public unions on employee compensation.

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This study stands in stark contrast to recent rhetoric from New Jersey Governor Chris Christie and New York Mayor Michael Bloomberg, whose public fights with city and state union leaders have raised the profile of public pensions nationwide. In June, following on the heels of the State Senate, the New Jersey State Assembly passed a public pension overhaul bill that has been championed by Christie and will see teachers pay more into their defined benefit pension plan, among other changes.

Under the bill, workers will be required to pay more of their salaries into the pension system. They would also give up annual cost-of-living increases, while also paying a percentage of their health care premiums in a tiered system based on their salary. The bill also mandates that the state make its payments to the pension fund—a requirement that would end New Jersey’s decade-long practice of skipping payments into the fund in order to shore up deficits elsewhere in the budget.

Unions, as expected, have reacted with anger to the deal. One union – the Local 1033 of the Communications Workers of America (CWA) – filed a lawsuit claiming that Christie and his predecessors’ failure to make payments to the state’s pension funds violated a constitutional prohibition against the “impairment of contracts.” The suit, brought in US District Court in New Jersey, states that since 1998 the state has made only three partial payments to the pension, skipping the remaining ones.

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