End the Political Games With Public Pensions

There’s a link on New York City Comptroller Scott Stringer’s website to an outline of his office’s Powers and Duties Under New York State Law. The 159-page overview covers an extensive spectrum of legal responsibilities, ranging from arts and cultural affairs to worker compensation. Nowhere does the list reference shareholder activism, directing city environmental policies, or — for that matter — leveraging the $190 billion in pension fund assets his office stewards to pursue a political agenda.

And yet that’s exactly what Mr. Stringer is doing. The professional investment managers of the city’s five public-sector pension funds, their board members, and Stringer himself are all exploiting their positions as custodians of the retirement savings of the city’s workers to promote their own political objectives. Politics seems to pervade every action of the city comptroller’s office, which just last month announced a plan to divest pension holdings from fossil-fuel interests, regardless of the impact on financial performance.

Read the full piece at RealClearPolicy.com:

CalPERS Must Set Aside Politics and Remember Its Fiduciary Responsibility

There is a fundamental dichotomy at the heart of the growing trend in socially responsible investing, in which pension funds or other investors focus on inherently political issues rather than solely on financial results. Research recently published by the Spectrem Group, a market research firm, tries to determine what pension participants think ought to be the primary purpose of public pension funds. It finds that the perspective of the pension participants is at odds with those who manage the funds.

Spectrem surveyed more than 800 members of the California Public Employee Retirement System, or CalPERS, to elicit their views on recent fund performance. The survey revealed that the participants have a high degree of confidence in their fund. Nearly half of respondents believe the fund has beat the market in recent years and almost two-thirds believe that their pension fund is fully funded, with sufficient finances to cover all members’ pensions.

Of course, the truth at the nation’s largest public pension fund is starkly different.

Over Thanksgiving the fund quietly released over two hundred pages of information reviewing its 2017 performance. The sheer volume of words hid the most important takeaway: CalPERS does not have nearly enough money to cover its future obligations.

The report notes that there is a $138 billion unfunded liability, up $25 billion from 2016 —  despite a booming year in the stock market — amounting to a funding ratio of only 68 percent.

Perhaps the most concerning point raised by Spectrem’s study, however, is a deep-seated inconsistency between the objectives of the fund’s members and its professional investment managers.

Read the full piece at Morning Consult:

Dubious Investments Further Imperil Calif. Pension Plan

The California Public Employee Retirement System, known as CalPERS, is in crisis. And it sure looks like things are going to get a whole lot worse before they can get a whole lot better.

The system already has a $153 billion unfunded liability, one of the largest shortfalls of any state, and it only has funds to cover 68 percent of promised benefits into the future. And because CalPERS is already cash negative, paying out $5 billion more in benefits to retirees each year than it takes in, there aren’t many scenarios whereby the system would be able to make good on those promises absent outside intervention (read: taxpayer bailout).

Lawmakers and the fund’s board should be considering reforms to improve the system, but California voters and taxpayers faced another setback recently. Overseers of the pension plan—the nation’s largest—passed a funding plan earlier this year that projects shortfalls over the next decade but assumes rosy investment returns in coming decades to make up the difference. Given the high market valuations today, that assumption seems dubious.

When the CalPERS investment committee reallocated its investments recently, it assumed a 7 percent annualized rate of return. While CalPERS has enjoyed some good years—for example, its 2017 return may exceed 11 percent—that’s not the norm. The fund has averaged a 4.6 percent rate over the past decade, and its 2016 rate was an abysmal 0.6 percent.

Read the full piece at RealClearPolitics.com: