Audiocast will address GASB PEB Project
2010
Conference of Consulting Actuaries Audiocast
Cosponsored by the American Academy of Actuaries
Public Plan Issues - Update on GASB Project
February 10, 2010 12:30 PM – 1:45 PM EST
Register Now http://www.ccactuaries.org/events/audioregister.html
Moderator: William (Flick) Fornia - Aon Consulting
Presenters:
Paul Angelo - The Segal Company
Jim Rizzo - Gabriel, Roeder, Smith & Company
The Governmental Accounting Standards Board is in the throes of an extensive review
of their project to consider the possibility of improvements to the existing standards of accounting and financial reporting
for postemployment benefits -- pension and OPEB -- by employers and by the trustees, administrators, or sponsors of pension
or OPEB plans. Paul and Jim have attended many recent GASB meetings and hearings and have been principal authors of various
comments to the GASB.
Topics may include:
- Overview
of GASB;
- Overview
of GASB's posteemployment benefits project;
- Accounting/Reporting
focus;
- Actuaries'
input to the process;
- Pension
Liability Recognition:
- Tentative
decisions by GASB;
- Pension
Expense Recognition;
- Potential
Cost Methods and Assumptions; and
- Likely
outcomes.
Actuary’s analysis of CalSTRS’ eight percent investment return assumption
From CalSTRS
Board briefing material for its February 5, 2010 meeting. Access Milliman’s full analysis here:
http://www.calstrs.com/publicdocs/Page/CalSTRSCom.aspx?PageName=PublicBoardAgenda Go to Regular Meeting, Item 6
Each year, the Board adopts an actuarial valuation of the Defined
Benefit (DB) Program that projects the assets and liabilities of that program, in order to give the Board a snapshot of the
program’s current fiscal health. Because the valuation represents projections of assets and liabilities, it is necessarily
sensitive to the assumptions made in making those projections. One of the key assumptions in determining both assets and liabilities
is the assumption made with respect to the expected return on the investment of program assets. That assumption, last adopted
in June 30, 2007 experience study, currently is eight percent, and the assumption has been eight percent since 1995. The investment
return assumption affects assets because it is assumed that future assets will increase in response to investment earnings
realized from an eight percent annual return on investment. Program liabilities are also affected by the return because the
value of future benefit payments is discounted by the investment return assumption to determine the present value of those
future liabilities, which equates to the actuarial obligation.
Last year, the Investment Committee reallocated its portfolio in response to the
asset-liability study it undertook. As a result, staff requested Milliman, CalSTRS’ Consulting Actuary, to evaluate
whether the current eight percent assumption is still appropriate. Milliman’s analysis of the current assumption is
attached.
Among
the significant findings of Milliman:
·
The geometric mean expected real return is 5.3
percent. Adding in the current inflation assumption of 3.25 percent and subtracting a projected 0.2 percent expense ratio
yields an expected net return of 8.3 percent and a reasonable range of 6.8 percent to 8.3 percent (assuming the Board does
not want the assumption to exceed the expected net return). The current assumption of 8 percent is within this range.
·
The 3.25 percent assumed rate of inflation is
within the reasonable range projected by the Chief Actuary of the Social Security Administration over the next 75 years, but
higher than the rate of inflation anticipated made by investors purchasing inflation-indexed Treasury bonds, as well the capital
assumptions made by Pension Consulting Alliance, the Board’s investment consultant. If the assumed rate of inflation
was reduced, then the Board should consider reducing the 8 percent investment assumption, as well as the current 4.25 percent
annual wage and payroll increase assumption.
· For each ¼ percent reduction in the investment return assumption, the expected
funded ratio as of June 30, 2009 is reduced by about 2.4 percentage points and the required contribution rate to fully amortize
the unfunded actuarial obligation over 30 years is increased by about three percentage points.
·
Given the change in the asset allocation for assets
in the Defined Benefit Supplement (DBS) and Cash Balance (CB) Benefit Programs, the expected return on investing those assets
is 0.5 percent lower than the expected return on DB assets. Currently, the assumed return on DBS and CB assets is only 0.25
percent less.
Nick Collier
and Mark Olleman from Milliman will be present at the meeting to answer any questions.
Girard Miller: A personal pension for all
Americans, administered by states, would be a win-win for all
Seeking Security for Retirement Funds
Pension-exchanges for IRAs and 401(k)s would strengthen President Obama's initiatives
Governing
Magazine February 4, 2010
News reports indicate that the U.S. Treasury and the Department
of Labor will soon begin soliciting ideas for how to provide retirement income security to IRA and 401(k) investors. The agencies' request for
public comments reflects a continuing interest in this topic by Mark Iwry, the Treasury's top gun in the retirement field
and a respected expert in retirement plan design and taxation. Iwry has himself written on the topic in his private life before joining Treasury Secretary Timothy Geithner's
team. The Obama administration linked this idea to its State of the Union initiatives to enhance Americans' retirement
security, so the idea already has some White House buy-in.
The idea of providing a secure lifetime income stream
for IRA and defined contribution plan investors gained momentum after the market plunge of 2008 turned 401(k) plans into "201(k)"
plans. Even with the recent stock market rally, they are still only "301(k)" plans, because most investors are still
down 25 percent from their peak levels in the 2007 stock market. Providing stable retirement income for a lifetime is just
something that a mutual fund, corporate bond or bank CD cannot promise.
The primary lobbyists for converting
these tax-advantaged accounts into lifetime annuities are insurance companies, of course. They stand to gain the most, as
federal encouragement to convert big account balances into annual income payments would drive millions of customers their
way. These insurance companies expect to make a profit to compensate them for the risk of underwriting losses that can result
from misjudging life expectancies or investing in assets that underperform the required rate of return to pay off the annuities.
The problem for Obama's team and the Democrats in general is that these insurance companies are close cousins of those
who fought them on health care reform.
Opponents of this retirement security initiative will include mutual
funds, the defined contribution investment community, banks and others who profit from large personal retirement accounts
that are individually invested.
(As a side note, a covey of blogsters are convinced that the Treasury's request
for comments is a smokescreen for a conspiracy to convert IRAs into worthless government bonds in an Argentine-style maneuver
to bail out the U.S. Treasury. I don't give any credence to that line of thinking, but for those who now fretting about
this scenario, my proposals here will offer a superior solution in a decentralized system.)
A Personal
Pension. So, here's a federalist "public
option" for the Treasury to consider — a way for state pension funds or state treasurers to rise to the occasion
and offer a better mousetrap for the citizens of their respective states. I use the term "public option" advisedly,
knowing that it was a nail in the coffin of the recently stalled health-care reform initiative, and suggesting that a decentralized
approach should satisfy states-rights advocates who oppose central government monopolies.
Treasury could
first allow any state treasurer or statewide pension system to exchange a citizen's 401(k), 401(a), 403(b), 457 or IRA
securities portfolio for a taxable retirement pension. States would have to adopt qualifying statutes to authorize these arrangements.
Federal tax codes would require revision to permit these exchanges. Federal regulations and state laws would have to include
some important safeguards, such as:
• The underwriting fund must be overseen by independent trustees with strict fiduciary
requirements, and protected by law from appropriation by the state or anybody else. Assets must be held for the exclusive
benefit of participating citizens.
• The actuarial life-expectancy tables used to underwrite the pensions must be
conservative to assure that increasing longevity does not leave a deficit for our grandchildren to bail out later.
•
Investment return assumptions should be no greater than 85 percent of what pension funds normally assume for long-lived assets.
Right now that would be 85 percent of 8 percent — or about 6.8 percent. That would prevent state legislatures, treasurers
or pension officials from getting too aggressive in their investment practices, as these are retirees and not young employees.
A 6.8 percent return would comport with a conservative-growth asset allocation of 40 percent or less in stocks and the rest
in bonds. (This is much more conservative than the typical pension fund, which invests with 60 percent to 65 percent in equities
— because incoming participants are still in their 20s and 30s, which allows the funds to take very long-term investment
risks.)
•
No more than $90,000 of annual pension income can be purchased by any individual, to prevent excessive use by wealthier investors
who are well able to find other options for their money and who can afford the market risks that others cannot.
•
The funds must establish a reserve for future market losses which takes into account the worst market experiences of the past
80 years (the 1930s, 1973-74 and the 2008-09 bear markets). Any investment surplus beyond such market-stabilization reserves
should be credited equitably over the projected lifetimes of participants as a revocable cost of living allowance (COLA).
That way, a future market loss would trigger discontinuation of the COLA.
• Any cost-of-living feature
must be capped to prevent runaway costs. Appropriate reserves and portfolio hedge policies must be required. COLAs must be
reversible and revocable if market values erode reserves.
• The exchanges must be optional and voluntary.
No Argentine-style commandeering of 401(k) and IRA accounts to bail out state governments. All exchange documents would carry
trust law protections as well as contractual rights protected by state and federal constitutions. This Federalist structure
would assure the checks-and-balances our forefathers envisioned, in protection of individual rights.
For this to work,
the Treasury and DOL must allow tax-qualified defined contribution and IRA plans to hold a "personal pension" issued
by a state agency as a qualified asset. The funds transferred from the individual's accounts would be exempt from withholding
taxes during the exchange, just like an IRA rollover, and then taxed during distributions.
A tax-exempt
"Roth" pension. Here's another
twist that could be considered as well. The same state agencies that offer these personal pensions could also offer a tax-exempt
income stream at a lower interest rate. For example, Congress could allow the state or its pension fund to pay a tax-exempt
interest rate of no more than the yield on long-term U.S. government bonds, plus the annuitization of principal over the investor's
life expectancy. For those seeking inflation protection, the personal pensions could also be structured to provide a lower
initial rate and a cost-of-living feature, using the Treasury TIPS interest rate to set the earnings-rate limits.
By
making these pension payments tax-exempt, the Congress would forgo revenue for the amount of the retiree's tax savings
versus a taxable pension as described in the prior section. For low-income participants, that won't amount to much, but
for those in higher income tax brackets, it could be viewed as a giveaway. Hence it may be appropriate to require that income
taxes be paid on some of the tax-deferred account's value at the time of conversion, similar to a Roth IRA conversion.
Something like a 5-year income averaging formula would make sense here. Likewise, these tax-free pension exchanges should
be disallowed for wealthy investors who own a million or more of tax-free municipal bonds or other tax-preference items like
oil depletion — they already have enough tax incentives and retirement security. Middle-class retirees might find the
tax-free income a worthwhile benefit, however, especially if it's inflation-protected.
For the states,
a tax-exempt payout rate would significantly reduce the level of portfolio risk required, and thus enhance the odds of success.
Creative
federalism. Ideally, each state would sponsor
its own personal pension plan, much as the popular "529" college savings plans have sprouted across the country.
Federal regulations should allow residents of any state that does not offer such an option may participate in another state's
programs, which would create a competitive non-profit market for these exchanges. This would assure that all Americans have
an opportunity to obtain a competitively underwritten lifetime pension with their personal nest eggs, without resorting to
a national monopoly controlled by Congress.
Of course it is conceivable that one of the states or its pension
funds could mess up this idea and blunder its way into a financial deficiency through stupid investments or actuarial miscalculations.
But how many individual investors are already doing that on their own in the current system? I'd rather bet on the long-term
judgment of prudent fiduciaries than millions of naïve individual investors who have no clue about how to invest their
401k and IRA accounts now, with a real risk of outliving their money.
Political notes: Who wins,
who loses? As noted above, the mutual fund,
banking and defined contribution industry will oppose this approach to retirement security because it would reduce their markets
and their profits. Conversely, pension investment managers would gain assets and thus grow their businesses. Actuaries would
enjoy a new business line.
State and local government officials and their pension plan administrators might be
ambivalent about this idea because for some it will just be extra work. But let's not forget that when people outlive
their life savings, they often become wards of the state. With lifetime income protection, there would be a long-term savings
in states' welfare costs — which ought to be ample incentive for the states to actively support this idea. Further,
this facility would align the interests of public pension funds and their participants with the general taxpayers, who would
become close cousins of public pensioners through their personal pension obtained through the state. This alignment of interests
could reduce the level of pension envy that continues to build, because individual citizens could purchase the same kind of
lifetime income protection that public pensioners receive. (Of course, the average 401(k) participant's $80,000 account
balance will only buy her a $7,800 annual pension vs the average public retirees' far more generous full-career benefits,
but it would be a step in the right direction.)
Needed: a champion.
Without a champion, this idea will go nowhere. Treasury officials need to see an advocate from the ranks of state government
officials. State treasurers and pension officials — and their respective associations — should consider the invitation
to comment an opportunity to play a pro-active role to enhance retirement security for the private-sector taxpayers who pay
their salaries. I'll be happy to help those who step up to the plate.
And for the record, the one group
that ought to wholeheartedly support this idea is AARP, the association of retired persons. But they won't. Know why?
Because they receive millions of dollars from insurance companies they endorse and co-market. AARP rarely bites the hand that
feeds them. So I would encourage the AARP nonprofit directors to put their members’ interests ahead of their corporate
subsidiary’s business interests, for a refreshing change.
Mercer predicts top 10 investment trends for 2010
Mercer
predicts top ten investment trends for 2010
From www.mercer.com
Australia Melbourne, 11 January 2010
The investment landscape has changed irrevocably since the Global Financial Crisis and investors will be
wise to ensure their investment strategies reflect the lessons learned from this period. Going into 2010 Mercer highlights
what it sees as the top ten investment trends that investors should critically examine in order to successfully manage their
investment portfolios for long-term outcomes.
1. Superannuation
legislation will force change in the way we look at retirement and how retirement savings are invested
2. A weaker global banking system will create opportunities for private credit
3. Emerging market growth will outstrip developed markets, but equity markets may have priced
this in
4. Environmental, Social and Governance (ESG) factors will
continue to rise on investors’ radar
5. Investors will critically
examine their investment strategies in the context of evolving deflation/inflation risks
6. Dynamic
Asset Allocation (medium-term asset allocation tilts) will be de rigueur to capture market mispricing in the medium-term
7. Investors will undertake more due-diligence on hedge fund strategies
8. The big “macro” moves may be behind us - time to become “micro”?
9. Super funds will question the role of illiquid assets in their portfolios
10. Diversification will remain key.
Simon Eagleton, Business Leader of Mercer’s investment consulting business in Australia and New Zealand
examines the top ten investment trends for 2010 more closely:
1. Superannuation legislation will force change in the way we look at retirement and
how retirement savings are invested
By mid-2010, both the
Cooper and Henry Reviews will have presented their final recommendations on Australia's superannuation system. This may
mean a radical re-visitation of super funds’ investment strategies, and we predict renewed interest in target date approaches
and their associated investment strategy glidepaths. Product innovation for the post-retirement phase, or a whole-of-life
investment approach will also continue. The accountability of the Boards and Trustees of super funds will also increase as
members demand greater security of their retirement incomes.
2. A weaker global banking system will create opportunities for
private credit
Who will fill the credit gaps created by the decline in the number
of banks and their capacity and willingness to lend? As global economies recover, businesses are seeking new funding
and roll-over financing. Private debt lending rates are already in their low to high teens and at these levels, the supply
of credit will be filled by private creditors and investment opportunities in private equity and private credit will grow
accordingly.
3. Emerging
market growth will outstrip developed markets, but equity markets may have priced this in
The IMF predicts slow growth of 1.3% in advanced countries in 2010 will be out-stripped by
growth of 5.1% in developing countries and a very rapid 7.3% in developing Asia. China and India will be at the forefront
of Asian growth but Korea, Indonesia and Vietnam will also grow fast. Looking further ahead, this pattern of faster growth
in the Asian region is expected to continue.
However, there has already
been a surge in investment in emerging market equities, aided by the availability of ETF funds to retail investors. China’s
currency peg to the US dollar has resulted in very low interest rates relative to nominal GDP growth, and there is a risk
that some emerging markets could move beyond fair valuations into “bubble” territory.
4. Environmental, Social
and Governance (ESG) factors will continue their rise on the radar screen
As
emerging markets become wealthier they will not continue to tolerate current pollution levels. They will also attempt to reduce
the energy dependence of their growth and green house gas emissions. A precipitating factor is that investors and their investment
managers will need to integrate ESG factors into their process or be at risk of being blindsided. Developing legislation on
issues such as climate change will also help to cement ESG into investment agendas.
5. Investors will critically examine their investment strategies
in the context of evolving deflation/inflation risks
Although the
threat of sustained deflation in the US and Europe is diminishing, investors are concerned the accompanying policy response
risks a renewed outbreak of inflation. Faced with spiralling public sector debt ratios, and growing long-term budgetary obligations,
investors have become sensitive to the possibility some governments may seek to ‘inflate’ their way out of debt.
We anticipate few governments will risk such a destabilising option, but will need to quickly begin articulating measures
to bring debt down to more manageable levels. In 2010 investors are likely to begin demanding more credible fiscal exit strategies
and begin to discriminate more carefully between leaders and laggards. For investors who believe some governments will still
need to eventually print money in order to avoid default, we note typical inflation protection strategies are no longer especially
cheap. We continue to emphasise that the risk of deflation has not yet been fully eradicated, particularly if governments
can no longer guarantee the funding obligations of financial institutions.
6. Dynamic Asset Allocation (medium-term asset allocation tilts)
will be de rigueur to capture market mispricing in the medium-term
Strategic
asset allocation has traditionally been based on an assumption of long-term market equilibrium, but in practice markets rarely
reflect ‘fair value’. Dynamic Asset Allocation (DAA) can exploit deviations from long-term averages to deliver
improved returns and sound risk management. This approach replaces the ‘set and forget’ school of thought of strategic
asset allocation.
7. Investors
will undertake more due-diligence on hedge fund strategies
Hedge
funds took a major battering in the maelstrom of the financial crisis, with estimates of up to a third of the industry winding-up.
In 2010 investors will re-think their approach to investing in hedge funds seeking improved transparency of underlying risk
exposures, less ‘directionality’ (or sensitivity to market movements) and more equitable fee bases.
8. Super funds will question
the role of illiquid assets in their portfolios
Many illiquid
investment strategies such as unlisted or direct property, infrastructure, private equity and debt, and a number of other
alternative investment strategies can provide access to diversifying - and in some cases unique - sources of return. Such
investments can therefore be highly desirable as part of a well-designed investment strategy. However the GFC created significant
pressure on those super funds whose heavy reliance on unlisted assets created a liquidity mismatch between their obligation
to meet members’ switching or rollover requests and the ability to realise assets for cash at short notice. We expect
such funds to reduce their strategic allocations to illiquid assets in the future. At the same time, other funds will continue
to look for diversification opportunities including in unlisted assets.
9. The big ‘macro’ moves may be behind us - time to
become ‘micro’?
Both 2008 and 2009 have been characterised
by massive swings in market valuations, as unfolding economic events drove investors to the brink of despair before hope and
confidence was restored. In this environment, risky assets (equities and credit) were borne on waves of liquidity flows, and
‘micro’ analysis of individual companies’ prospects seemed at times irrelevant. As the recovery matures
it seems likely that investors will become more discriminating, and country, sector and stock picking abilities may once more
become pre-eminent.
10. Diversification
will remain key
Traditional investment strategy of diversification
abjectly failed to protect investors during the Global Financial Crisis. Misunderstanding the underlying - and interconnected
- risk exposures saw many investors unprepared for the magnitude of losses experienced in early 2009.
When faced with uncertainty, diversification will continue to be the primary tool available
to investors to improve their chances of investment success. The key lesson here however is to seek genuine diversification
of underlying return sources through properly identifying the risks involved, and to spread portfolios across as many lowly
correlated assets as possible.
We expect to see continued investor
interest in a range of alternative assets classes and strategies as a result of this, particularly ones that are less linked
to traditional market movements. These include insurance-linked investments such as catastrophe bonds, aircraft leasing investments,
agricultural investments and social infrastructure. We also see further interest in non-traditional equity strategies such
as low volatility products and structured strategies that use derivatives to limit extreme downside risk.
About Mercer:
Mercer is
a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most
complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader
in benefit outsourcing. Mercer’s investment services include investment consulting and multi-manager investment management.
Mercer’s 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh &
McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges.
Bonus pay at issue for Georgia
TRS
Bonus pay stokes anger
Atlanta Journal-Constitution
January 31, 2010
Top investment staffers at the Georgia Teachers Retirement System received pay increases of up to $108,000
last fiscal year even though the fund they manage lost money and most state employees went without raises amid the state’s
fiscal crisis.
The staffers earned “incentive pay” because, while the
system’s fund lost 13 percent in fiscal 2009 and 3 percent in fiscal 2008, it beat the market averages. The fund has
since recovered part of its losses, and retirement system officials say such “incentive pay” is common in the
public and private sectors.
Some state retirement systems around the country
have done away with bonuses under political pressure in recent years. And retirees and a teacher group say the incentives
suggest system officials are out-of-touch at a time when educators and other state employees are going without raises and
being furloughed.
“This issue reminds me of Wall Street financial
investors giving themselves outlandish bonuses while the people they are basically working for suffer,” said Carol Brown,
a Kennesaw retiree who taught for 30 years in Marietta and Cherokee County schools.
In total, 28 investment staffers received $435,000 in incentive pay in fiscal 2009, which ended June 30.
The top investment staffers are among the best-paid employees in state government.
Tim Callahan, spokesman for the Professional Association of Georgia Educators, said the increases were out of line.
“When you’re giving somebody a bonus that is five times
the annual retirement that some teachers who retired in the ’70s and ’80s receive, it just makes your jaw drop.
I’m really shocked,” he said.
Dan Ebersole, director
of the state’s treasury office and a member of the boards of the Teachers and Employees’ Retirement Systems, said
the incentive pay helps the state recruit and keep top investment staffers. That, he said, helps the approximately 400,000
members of the system by keeping the $48 billion fund on solid financial footing.
“We have to pay competitive salaries and have an incentive plan that targets performance that’s in the best
interest of our retired teachers,” Ebersole said.
Incentive pay, or
bonuses, paid out by the Georgia Lottery have been a hot topic for several years. Top lawmakers have filed bills aimed at
getting more legislative control over lottery spending and, in particular, the incentive payouts. Those bills have stalled
in the General Assembly.
Two staffers listed as investment chiefs for the
system each saw their total pay increase in fiscal 2009 by about $14,000, from $427,480 to $441,680, according to a state
auditor’s report.
Two directors of equity in the system each saw
their pay rise from $335,733 to $350,399. And a senior equities staffer, who has since retired, saw his pay increase from
$255,020 to $363,317.
State and industry officials say top investment
staffers in private industry typically make far more money.
In the
same fiscal year the TRS staffers got the incentive pay, other state employees had their salaries frozen as Gov. Sonny Perdue
and lawmakers began slashing state spending.
The bonuses for the investment
staffers also came during the same year the Perdue administration proposed ending twice-annual 1.5 percent cost-of-living
increases for system retirees. The plan was abandoned after teachers and retired educators protested.
Taxpayers have a big stake in the retirement system. State government and local school districts contributed
about $1 billion to the fund last year. Jeffrey Ezell, the system’s executive director, said the retirement system spends
about $24 million a year administering the program.
The stock market crash of 2008 caused the system to lose
billions of dollars. However, the fund didn’t do as poorly, on average, as many other sectors of the market.
State retirement systems are, by law, limited in where they can put their money. They can’t, for instance,
invest in some of the higher-risk financial products such as subprime mortgage securities. The retirement fund typically doesn’t
make as much as some investment funds in boom years, and it loses less in down years.
Ebersole chairs the system’s investment committee, which sets the benchmarks investment staffers have to meet
to receive incentive pay. He said each year’s award is paid out over three years as an incentive for the employees to
remain with the system. So the portion of the incentive pay employees received during fiscal 2009 was earned over three years.
“It’s designed to keep staff here and not looking elsewhere,”
Ebersole said. “It is designed to enhance investment performance, to make more money for the system.”
Ebersole said the system saves money by having most of its investing done by state staffers instead of outside
firms. A report by the Commission for a New Georgia — a group made up of top-level business and professional executives
— estimated last year that the state’s two retirement systems save $87 million a year in fees and other expenses
by having an in-house investment team.
Some states have eliminated bonuses in recent years.
The board of the Pennsylvania Public School Employees’ Retirement System voted to end its investment staff bonuses in
late 2008 under pressure from Gov. Ed Rendell and others. Its portfolio was slightly larger than Georgia’s system. Including
his bonus, the chief investment officer for the system was paid about $75,000 less than Georgia’s at the time.
The Missouri State Employees Retirement System board voted this month to end its bonuses following a $1.8
billion portfolio loss.
Ruth Cowan, who retired from Gwinnett County schools in 1995 after more than 30 years
as a gifted-program teacher and coordinator, said she has no problem with the notion of merit pay for good performance.
“But even then, it should be a common-sense bonus and reflect the total economic picture,” she
said.
“There should be equal ownership in the decline of the economy
for those at the top of the scale,” she said. “I find it a slap in the face to retired educators who gave not
only their time but their resources to TRS to invest for them.”
---------------------------
Top dollar for top officials
Below are the total
salaries in the past three fiscal years for five of the top investment officials with the Teachers Retirement System.
Nancie H. Boedy
Co-chief investment officer
2007 $326,200
2008 $427,480
2009 $441,680
Charles W. Cary
Chief investment
officer
2007 $328,700
2008
$427,480
2009 $441,680
Michael K. Majure
Director of equities
2007 $267,333
2008 $335,733
2009 $350,399
Thomas A. Horkan
Director of equities
2007
$267,333
2008 $335,733
2009
$350,399
Donald P. Haroz
Senior equity portfolio
(now retired)
2007 $224,666
2008 $255,020
2009 $363,317
Source: Georgia
Department
of Audits
-----------------------------
How we got the story
A reporter who previously had written about incentive
pay awarded to staffers of the Georgia Lottery looked through Department of Audits reports listing the salaries paid to staffers
of the Georgia Teachers Retirement System. The reporter compared salaries for fiscal 2007, 2008 and 2009 for the highest-paid
staffers in the investment division, which has an incentive pay program. The reporter interviewed retirement system officials,
a retirement board member, an industry consultant, educators and retired teachers.
Atlanta and Chicago pension funds sue custodian over mortgage-backed securities
Atlanta firefighters sue pension custodian over ‘risky investments'
The Atlanta Journal-Constitution February
4, 2010
Atlanta firefighters' pension fund has sued
the custodian managing its plan, saying it made several risky investments that could cost them about $1 million.
The lawsuit claims that Chicago-based Northern Trust breached its contract and fiduciary duty with mortgage-backed
securities investments that ignored the warnings of the company's chief economist. The Chicago Public School Teachers'
Pension and Retirement Fund joined in the lawsuit, which was filed Jan. 29 in federal court in Chicago.
"It was supposed to be a safe investment," Atlanta Fire Rescue Lt. Kelen Evans, chair of the firefighters'
pension fund, said in an interview Wednesday with The Atlanta Journal-Constitution. "I think (Northern Trust) took too
much risk."
Evans estimated the firefighters' fund has about $388 million.
While the $1 million they fear losing may be small in comparison, "The firefighters look to me to make sure their investment
is safe," he said.
In a written statement, Northern Trust spokesman
Doug Holt said the Atlanta fund itself decided to get involved in securities lending, which had "zero realized losses."
"This lawsuit is misguided and Northern Trust will vigorously defend itself against this litigation," Holt said.
Atlanta has three pension funds: one for firefighters and paramedics, one for police officers and one for
general employees. The plans have traditionally been underfunded, part of a situation new Mayor Kasim Reed has called a "crisis."
Reed has said he is particularly concerned about the city's rising annual investment in pensions. In 2002, it was $36
million. For the 12-month period ending June 30, the city's investment is estimated at $130 million.
Northern Trust also manages investments for the Atlanta police pension fund, which is not part of this
lawsuit.
Police pension fund leader Tony Biello said he has been disappointed
in the lack of communication from Northern Trust about those investments. The retired police lieutenant said the fund suffered
major losses in 2008 but rebounded last year. Biello said Northern Trust is scheduled to give a presentation to police pension
fund leaders next week.
The city's general employees do not use Northern
Trust for pension investments.
As SEC and North Carolina AG settle with BofA, New York AG sues
Cuomo Sues Bank of
America, Even as It Settles With S.E.C.
New York Times February 5, 2010
The legal drama surrounding the controversial takeover of Merrill Lynch by Bank of America, one of the pivotal moments of the financial crisis, took a fresh turn on Thursday as the attorney
general of New York leveled civil fraud charges against Kenneth D. Lewis, the former Bank of America chief who masterminded
the deal.
But no sooner did that news break than the Securities and Exchange Commission announced that it had struck a new, $150 million
deal with Bank of America to settle its own cases involving the merger. Moments later, North Carolina’s attorney general
announced that his office also had reached a settlement.
The developments open several new fronts in one of
the most closely watched legal battles in American finance — one that now pits Wall Street enforcers against each other.
Andrew M. Cuomo, New York’s attorney general, is upping
the ante in a match against Mr. Lewis and Bank of America. The S.E.C., however, is eager to put the matter to rest after suffering
embarrassing setbacks in its case. Bank of America insists its executives did no wrong, although it, too, wants to put the
case behind it.
Mr. Cuomo, who is expected to run for governor of New York and has been
investigating the case for a year, is riding the wave of popular anger directed at big banks, which have stunned many Americans
with their quick recovery from the financial collapse. Much like the S.E.C., his office claims that Bank of America essentially
hid from its shareholders billions of dollars in losses at Merrill, which later forced Bank of America to seek a second bailout
from Washington.
But unlike the S.E.C., which has focused broadly on Bank of America itself,
Mr. Cuomo has focused instead on Mr. Lewis and another executive, Joe Price, who was Bank of America’s chief financial
officer when the Merrill deal was struck. The fallout from the star-crossed deal eventually drove Mr. Lewis from his post
as chief executive. Mr. Price remains at the bank, though he stepped down from the chief financial officer job this year.
Lawyers for both Mr. Lewis and Mr. Price said the charges were without merit. The bank is paying both executives’
legal fees.
“Mr. Lewis has been unfairly vilified by the political search for accountability for the financial
meltdown,” said Mary Jo White, a lawyer at Debevoise & Plimpton who represents
Mr. Lewis.
Mr. Cuomo made some new claims in a 90-page complaint filed on Thursday. The complaint painted Mr. Price
as the central figure in the case. Mr. Cuomo accused Mr. Price of hiding the extent of Merrill’s losses from Bank of
America’s own lawyers when seeking advice on whether to update shareholders about the deepening pool of red ink.
One Bank of America executive commented in a note about the losses that read “read and weep,”
the complaint says.
Mr. Cuomo is wielding a powerful weapon in his case. Under New York State’s
Martin Act, the attorney general has broad powers in securities enforcement.
The S.E.C., meantime,
is seeking to bring its long, troubled investigation to an end. But its new settlement is subject to approval by United States
District Judge Jed S. Rakoff — the same judge who rejected a previous
$33 million accord as woefully low and, in blistering terms, accused the S.E.C. of going too easy on Bank of America and its
executives.
Judge Rakoff will hold a hearing on the new settlement on Monday.
Legal
experts said that many controversial issues stemming from the financial crisis — rich bonuses for bankers, allegations
of government fraud, potential harm to investors — come together in the Merrill-Bank of America case.
Lawmakers in Congress used the merger as an opportunity to interrogate the leaders of the Federal Reserve
and Henry M. Paulson Jr., who was Treasury secretary when the merger was struck.
“This transaction had nothing to do with causing the crisis; this transaction helped solve it,”
said Steven Thel, a professor at Fordham University School of Law. “But everything that people
think has gone wrong in the last few years is tied up in this transaction. People are upset because they see this as the tawdry
side of the bailout. It shows the qualities of Wall Street.”
Bank of America directors
pressed in recent months to settle both cases. But Mr. Cuomo was unwilling to settle for a small sum and wanted Mr. Lewis
and Mr. Price held accountable. The bank seized on the S.E.C.’s decision not to charge individuals as evidence that
Mr. Cuomo’s case was without merits.
“The S.E.C. and the attorney general’s
office looked at the same evidence and the S.E.C. concluded there was no reason to charge people,” said Bob Stickler,
a spokesman for the bank. “The evidence demonstrates that Bank of America and its executives, including Ken Lewis and
Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations.”
The S.E.C. said it would distribute the fine it was seeking from Bank of America to shareholders who owned
Bank of America stock at the time of the merger. Former Merrill shareholders, in other words, will effectively pay the fine.
The settlement also includes some corporate governance reforms, which have appealed to Judge Rakoff in past settlements.
If the judge rejects the settlement, the S.E.C. and the bank are scheduled to try the case beginning March
1.
People following Mr. Cuomo’s case said that the attorney general’s showdown with Bank of America
would probably drag on for some time.
“This is certainly not the end, and it’s
more likely the beginning of a long, drawn-out death march,” said Michael W. Robinson, a senior vice president with
Levick Strategic Communications. “Attorney General Cuomo has found an issue that neatly ties together populist anger
and a sense of the malfeasance of bankers, who are not the most popular people these days.”
