Source: Christine Williamson, Pensions & Investments, June 13, 2016
An unexpected alignment of factors has made now a very good time for pension funds to insource some or more of their investment portfolios.
The combination of a low-return environment for the foreseeable future, far closer — and often more public — scrutiny of money manager fees and a need to better control investments is fueling interest in bringing assets in-house for the first time for some plans and expanding internal management for experienced investment departments. ….
….The average cost of internal management is eight basis points compared with 46 basis points for external management, according to the most recent survey of large pension funds by CEM Benchmarking Inc.
The dollars saved by pension plans experienced at insourcing investment management are substantial, pension fund officials said.
– State of Wisconsin Investment Board, Madison, which manages the $91 billion Wisconsin Retirement System, for example, saved $63 million in external fees in 2015. SWIB gradually has increased the proportion of insourced assets to 59% of total assets in 2015 from 51% in 2011.
– Michigan Department of Treasury, Bureau of Investments, which manages the $60 billion Michigan Retirement Systems, East Lansing, saves a net $20 million to $30 million per year through managing 35% of the total portfolio internally.
– Employees Retirement System of Texas, Austin, pays fewer than 10 basis points for investment management and administration of the $25 billion pension fund, with the cost of internally managed assets four times less than external manager fees. About 60% of ERS’ assets are managed internally.
– Michigan MERS runs its entire investment division at a cost of 1.5 basis points per year, including the 20% of assets that are managed internally. External manager costs averaged 35 basis points in 2014…..
Source: Keith Brainard, National Association of State Retirement Administrators (NASRA), Spotlight On, June 2016
From the introduction:
Although states have a history of making adjustments to their workforce retirement programs, changes to public pension plan design and financing have never been more numerous or significant than in the years following the Great Recession. The global stock market crash sharply reduced state and local pension fund asset values, from $3.2 trillion at the end of 2007 to $2.1 trillion in March 2009, and due to this loss, pension costs increased. These higher costs hit state and local governments right as the economic recession began to severely lower their revenues. These events played a major role in prompting changes to public pension plans and financing that were unprecedented in number, scope and magnitude.
Source: David Rolf, American Prospect, April 18, 2016
The old model of collective bargaining can’t be resurrected. Herewith, some new models of how workers can win and wield power. ….
…..Borrowing from labor law in other countries, from U.S. history, and from promising experiments happening in the United States today, there are several potential overlapping strategies for how future forms of worker power might operate and that suggest what U.S. labor policy might eventually look like. • Geographic and/or sectoral bargaining. …..
• Worker ownership. …..
• Control of work-distribution platforms. …..
• Labor standards enforcement. …..
• Certification and labeling. …..
• Benefits administration. …..
Source: Project: Time Off, June 2016
From the summary:
Over the past fifteen years, American workers have been taking less and less vacation. Could the trend line finally be changing course?
Project: Time Off’s latest research suggests America’s vacation deprivation era is not yet over. In fact, it may be getting worse.
The way Americans work has irreversibly changed. We are connected like never before, to each other and to the office. It is time to decide whether vacation time will become a casualty of the new working world or if we will take action to win back America’s Lost Week.
Source: U.S. Census Bureau, Census Bureau News, CB16-TPS.112, June 14, 2016
The Annual Survey of Public Pensions provides a comprehensive look at the financial activity of the nation’s state and locally administered defined benefit pension systems, including cash and investment holdings, receipts, payments, pension obligations and membership information. Statistics are available at the national level and for individual states.
Total contributions were $180.2 billion in 2015, increasing 7.9 percent from $167.0 billion in 2014. Government contributions accounted for the bulk of them ($131.7 billion in 2015, increasing 8.3 percent from $121.5 billion in 2014), with employee contributions at $48.5 billion in 2015, climbing 6.5 percent from $45.5 billion in 2014. The other component of total revenue ─ earnings on investments ─ declined 68.4 percent, from $534.4 billion in 2014 to $168.7 billion in 2015. Earnings on investments include both realized and unrealized gains, and therefore reflect market fluctuations.
The total number of beneficiaries increased 4.3 percent to 10.0 million people in 2015 (from 9,559,956 people in 2014 to 9,971,726 in 2015). The payments they received rose 5.1 percent from $272.5 billion in 2014 to $286.5 billion in 2015.
Meanwhile, total assets increased 3.0 percent, from $3.7 trillion in 2014 to $3.8 trillion in 2015.
Source: Donald J. Boyd, Yimeng Yin, Nelson A. Rockefeller Institute of Government, Pension Simulation Project Policy Brief, June 2016
Public pension funds provide benefits to nearly 10 million people, invest over $3.6 trillion in assets, and are deeply underfunded. A new Rockefeller Institute report and policy brief put a spotlight on how the methods that public retirement systems and governments use to fund pensions are affected by investment return volatility. The analysis concludes that a typical 75-percent funded public pension plan has a one in six chance of falling below 40-percent funded within the next 30 years, a crisis level currently faced by only a few major plans. The research brief and associated report are the beginning of a series from the Rockefeller Institute of Government’s Pension Simulation Project.
Source: Jeremy Burke, Angela Hung, Jack Clift, Steven Garber, Joanne Yoong, RAND Corporation, RAND Working Paper Series WR-1076, February 4, 2015
From the abstract:
Americans are increasingly being asked to take responsibility for their own retirement security. However, many people are ill-equipped to make financial decisions and have turned to professional financial advisors for help. While financial advisors often provide valuable services, it can be difficult for individual investors to evaluate the advice they receive and to identify when it has been influenced by a conflict of interest. In this literature review, we examine if and how financial advisors are influenced by their compensation schemes and how this influence impacts retail investors’ financial well-being. We find empirical evidence suggesting that financial advisors act opportunistically to the detriment of their clients. However, the current body of literature generally cannot account for selection issues and the intangible benefits financial advisors provide.
In our broader review of conflicts of interest in the financial services industry, we find considerable evidence that investment analysts were excessively optimistic prior to regulation seeking to mitigate bias. There is mixed evidence on how this excessive optimism impacted investors, though the literature generally concludes that retail investors were more acutely impacted, as compared to institutional investors. We also find evidence that conflicts of interest extend to mutual fund management, with actively managed funds imposing sizeable trading costs and brokerage commissions which are not easily observed by retail investors.
Regulation and disclosure are often suggested methods for reducing bias. We find evidence that regulation designed to mitigate conflicts of interest can help reduce the prevalence of biased advice, but regulation that penalizes bad advice may be less effective because bias may be unconscious. Disclosure is unlikely to be an effective strategy if employed in isolation, but may be an important part of a comprehensive mitigation strategy.
Source: National Women’s Law Center, Reports & Toolkits, 2016
– Set Up To Fail: When Low-Wage Work Jeopardizes Parents’ and Children’s Success
– Set Up To Fail Executive Summary
– Set Up for Success: Supporting Parents in Low-Wage Jobs and their Children
– Set Up For Success Executive Summary
Millions of parents across the country work in jobs where low wages, unfair scheduling practices, and minimal benefits make it difficult to meet both work and caregiving responsibilities. And the parents most likely to find themselves in low-wage jobs are women — disproportionately women of color and immigrant women.
Unpredictable work hours, nonstandard hours, rigid attendance policies with limited access to paid leave, and inadequate paychecks create unimaginable stress for parents, and make it difficult to provide their children with the high-quality early care and education they need to succeed in school and beyond. All too often, despite their best efforts, parents’ low wages and work conditions undermine their children’s chances for success.
– Set Up To Fail: When Low-Wage Work Jeopardizes Parents’ and Children’s Success is a groundbreaking report that draws on academic and policy research as well as workers’ own stories to describe the interconnected challenges faced by low-wage parents in meeting their work and family responsibilities.
– Set Up for Success: Supporting Parents in Low-Wage Jobs and their Children is an agenda for action that recommends two-generational policies, practices, and strategies to improve the lives of low-wage working parents and their children — and provides examples that have been advanced by different stakeholders.
Source: Karen Pollitz and Matthew Rae, Kaiser Family Foundation, Issue Brief, May 19, 2016
From the summary:
The majority of large employers that offer health benefits today also offer at least some wellness programs in an effort to promote employee health and productivity and reduce health related costs. Workplace wellness programs vary in the services and activities they include, and about three-in-ten large employers use incentives to encourage employees to participate. Depending on a program’s characteristics, different federal rules might apply. Final regulations recently issued by the Equal Employment Opportunity Commission (EEOC) would change standards applicable to certain workplace wellness programs that use incentives to encourage workers and their spouses to provide personal health information. These new rules are intended to be more consistent with other standards implementing requirements in the Affordable Care Act (ACA) that apply to certain workplace wellness programs. Both rules seek to balance employer interest in incentivizing workers to participate in wellness programs against requirements that prohibit discrimination based on health status, disability, and genetic information.
Source: Tyler Bond, National Public Pension Coalition (NPPC), June 7, 2016
Puerto Rico and its debt crisis remain in the news as Congress considers legislation to help the island territory restructure and manage its debt. Puerto Rico’s pensioners remain trapped in this crisis as well. Just last week, a new audit of the territory’s pension system by KPMG found that the pension system there could run out of money next year. Puerto Rico’s retirees risk being cast into poverty if the pension system is not properly funded- a risk that becomes even greater if the territory is forced to repay vulture hedge funds rather than put needed funds into its depleted pension.
Puerto Rico’s debt crisis, its causes, and its consequences are all complicated and, as a result, there is a lot of confusion about what is happening there. While we’ve written about it before, let’s cover some of the basics:
Puerto Ricans are American citizens ….
The legislation Congress is considering is not a “bailout” ….
What’s happening in Puerto Rico is not going to happen in a state …..
Puerto Rico, Pensions, and Vulture Hedge Funds
Source: Tyler Bond, National Public Pension Coalition (NPPC), March 23, 2016