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Newsmakers

Vermont Pension Reform Plan Blasted by State Teachers, Workers

Proposal would require public employees to contribute more, work longer, and earn less.
By Michael Katz


A plan proposed by Vermont lawmakers to bolster the state’s pension systems, which are facing nearly $3 billion in unfunded liabilities, has been resoundingly panned by state teachers and public employees who said they felt abandoned and betrayed.

According to a draft of the pension reform plan released by the state’s House lawmakers, teachers and state employees would be required to pay more in contributions to the fund, stay in the workforce longer, and get less in monthly benefits when they retire. Additionally, cost of living adjustments (COLAs) would apply only to the first $24,000 of the retirement benefit, and to be vested in the program, employees would have to work twice as long—a minimum of 10 years from the current five.

“We’ve urged state leaders to seek a dedicated source of revenue for the pension’s obligations by raising taxes on those Vermonters who have done exceedingly well both before and during this pandemic,” Don Tinney, president of the Vermont National Education Association (NEA), a union representing 13,000 members, said in a statement. “Unfortunately, the speaker [of the House] seems to prefer taking money out of the pockets of teachers rather than ask the most fortunate among us to pay more. This is a particularly cruel way to thank teachers for their hard work supporting students during a pandemic.”

The union also said the plan was hastily prepared “by a small group of House committee chairs and vice chairs” and that state teachers and employees were given very little time to review it.

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“If the speaker and her team were legitimately interested in hearing from teachers whose pension is being cut, they would not have devoted only two hours on a Friday afternoon to take testimony on a proposal that has serious financial implications for thousands of Vermonters,” Tinney said, referring to a March 26 hearing before the House Government Operations Committee in which teachers and state employees panned the proposal.

“Where is the dignity in this proposal?” said Jen Zoller, a health department employee, who added that she would have to work another 11 years if the plan is enacted, according to the Bennington Banner. “You should be ashamed of yourselves. … How do you thank the health department for tireless work on COVID and then tip away our pensions in the same breath? It’s disrespectful.”

The draft said the unfunded liabilities for both the Vermont State Employees’ Retirement System (VSERS) and the Vermont State Teachers’ Retirement System (VSTRS) are projected to significantly increase in fiscal year 2022 due to factors such as “historic underfunding,” lower-than-expected investment returns, changes to demographic assumptions, and revised economic assumptions. For VSERS, the unfunded liability is projected to increase by $225 million to $1.04 billion, and for VSTRS, the unfunded liability is projected to increase by $379 million to $1.93 billion in 2022.

The proposal comes just a couple months after Vermont Treasurer Beth Pearce released a report that recommended cutting pension benefits for state employees and teachers, a move she acknowledged would be “painful” for workers.

“These recommendations are painful, and this report is not submitted lightly, but action is needed to continue to provide retirement security for all our employees,” the treasurer’s office said when it released the report.

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Vermont Treasurer Calls for Pension Cuts for State Employees, Teachers

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Home > News > Asset Allocation > Diversity Efforts at Private Equity Firms Have a Long Way to Go 
Asset Allocation

Diversity Efforts at Private Equity Firms Have a Long Way to Go 

More institutional investors are calling for equity and inclusion, but challenges remain in disclosures and transparency. 
By Sarah Min


More institutional investors have been paying attention to the social aspect of environmental, social, and governance (ESG) investing this past year than they historically have, especially when it comes to pushing for greater diversity, equity, and inclusion (DE&I). 

But those calls come with their own set of challenges that investors are working to address, particularly at private equity (PE) firms, which are under less scrutiny and are less transparent than public companies. 

Last year, women made up one-fifth of senior leadership in private equity firms, compared with 30% in public companies, according to consulting firm McKinsey and Company. When it comes to racial diversity, just 1% to 2% of private equity firms were made up of Black managers, trailing behind the ethnic and racial composition of the larger US population. 

There has been an uptick in DE&I efforts at private equity firms this past year, according to the report earlier this month from McKinsey and Company, but consultants say more progress can be made. 

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“Many PE firms have made great strides in the past year on diversity, equity, and inclusion, and I think as an industry there’s still more that can be done,” said Alexandra Nee, partner at McKinsey’s Private Equity & Principal Investors Practice. She leads the consulting firm’s diversity and inclusion work for investor clients and is one of the co-authors of the report.

Challenges around diversity disclosures make measuring progress difficult. While increasing diversity at private equity firms and their portfolio companies has been linked to improving returns, experts are still working to nail down standard definitions for diversity.

“At what level of granularity is it helpful to know the detailed racial and ethnic diversity breakdown within a team, particularly across multiple geographies? And at what point are you starting to carve those slices so thin that you don’t really have meaningful insight?” said Jennifer Choi, managing director at the Institutional Limited Partners Association (ILPA). She’s leading the diversity, equity and inclusion initiative at the trade group.

Standards for diversity can change based on region. While racial and ethnic identity might be the most material factors in the US, elsewhere abroad, religious minority groups could be more significant. 

Access to disclosures is another challenge: Restrictions on what employers can disclose about their employees vary between the US and other countries. For example, Europe typically has more robust restrictions to protect the privacy of its citizens. The size of firms also matters: In the US, many portfolio companies are not large enough to be required to fill out self-identification forms for the US Equal Employment Opportunity Commission (EEOC). 

There is also a thorny set of ethical considerations. Requiring employees to self-identify can help firms document progress toward greater diversity, but it can also endanger workers. Trustees or employees who are LGBTQ+, for example, should not be required to disclose information they have yet to share with their family or loved ones.

Seeking answers to the legal, ethical, and political considerations is still in its early days, experts say, but it will be helpful as more investors work diversity into their workplace and investment. According to an NEPC survey, 70% of endowments and foundations are prioritizing the diversity gap this year. 

Other notable allocators have been helping firms move in that direction. Earlier this year, Raytheon Technologies’ Robin Diamonte said her investment team will start a diverse manager program to pressure firms to form inclusive teams. Yale’s David Swensen similarly wrote to the endowment’s managers saying the same last year. 

Here are some best practices McKinsey’s consultants recommend for private equity firms to increase the number of underrepresented groups: 

  • Public Commitments: Investors can start communicating their commitment to DE&I to the public and to stakeholders, such as by hiring internal committees or chief diversity officers. They can also make their policies accessible and viewable on their websites. 
  • Conduct Evaluations of Targets: Private equity firms can incorporate diversity assessments into their due diligence of their firms, while also eventually integrating it into their 100-day value creation plan. 
  • Company Performance: Leadership can evaluate the performance of their firms on diversity and inclusion, and even link compensation to improvement of certain metrics.

Related Stories: 

Q&A: Shundrawn Thomas Discusses His Push for Diversity, Empathy

Consulting Firms Ask Asset Managers to Disclose Diversity Data

Nasdaq Proposes Board Diversity Requirements

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