Pension Fund blowups............

Discussion in 'Economics' started by flytiger, Oct 26, 2008.

  1. You know these morons saw the returns SAC and Third point offered, and rather than properly fund these instruments, went for the big returns. Look at the result.

    Now, with demands everywhere, returns nowhere, what happens when you go to the cop and say, 'know that 1800 a month we promised you? It's 1100, and hope it stays there." Among our little group we've talked about this for three years. It's here. And the implications are just enormous. My wife said, " I guess people will have to just work longer. " Really? Where? Do you think, when Joe Schoolteacher gets to 59, and tells the District he needs to stay on, they'll say, "OK".? Or will they say, 'you know, we've got this kid right out of college, and he'll make half what we have to pay you, so..............." Huge mess.

    Didn't see this in US papers.

    Financial Times
    WorldCloseUS public pension funds face big losses
    By Deborah Brewster in New York

    Published: October 26 2008 22:32 | Last updated: October 26 2008 22:32

    Public pension funds in US states are facing their worst year of losses in history, exacerbating existing funding shortfalls and putting pressure on state governments to shore them up.

    In the nine months to the end of September, the average state pension fund lost 14.8 per cent, according to Northern Trust, a fund company. The loss has grown since, as financial markets slumped further in October. The previous highest loss for state funds was 7.9 per cent for the full year in 2002.

    California’s Calpers, the US’s biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year.

    State and local pension funds comprise a patchwork of 2,700 funds that manage $1,400bn on behalf of 21m employees, including teachers, firefighters and other municipal workers.

    About 40 per cent are underfunded, meaning that they would not be able to pay the future pensions that employees have been promised. State governments have lifted pension benefits – a move that is politically popular – but have often failed to put in more money to pay for them.

    Richard Daley, mayor of Chicago, this year convened a taskforce to address the shortfalls in Illinois funds. For example, funding for the Police Fund has fallen to less than 50 per cent.

    A Chicago police officer told the Financial Times: “We are risking our lives here every day, but we have no idea if the pension we have been guaranteed will be there when we retire.” The officer called on the city to start contributing more to the fund.

    Susan Uhran, managing director of the Pew Center on the states, said: “They [the states] will have to increase their annual contributions, and they may also ask employees to lift their contributions too.”

    “This is going to be a vicious cycle of pressure on pension funds,” said Greg Pai, managing director of Paradigm, a money manager. “They have previously looked to state and corporate subsidies, but  . . . [state governments] have lower tax revenue and are under pressure to cut costs.”

    Many states face their own budget crunches, and members of Congress are pushing for a second fiscal stimulus package, in part to alleviate some of the pressures on state funding. Nancy Pelosi, speaker of the House of Representatives, cited money lost from pension funds in her push this month for the $150bn second stimulus.

    But the funds themselves have limited options, said Mr Pai. Many are under pressure to move away from shares into less risky investments, but that would mean reducing returns.

    Critics say the underfunding is worse than official data show. The calculation is based on an assumption of annual returns of 8 per cent, but few funds will reach that in the next few years.

    Copyright The Financial Times Limited 2008

    "FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
    © Copyright The Financial Times Ltd 2008.
  2. lrm21


    What Government run pensions cant beat the market?

    When the hell did this happen.

    No worries..they will just make em "guaranteed"

    "I posted yesterday about a loopy idea floating around Capitol Hill to shift people out of their 401(k) plans into a government plan. It would be like Social Security: the Sequel. It would also be a $100 billion-a-year tax increase that would hit people making as low as $75,000, according to the plan's author, a prof at the New School of Social Research. My guy Ed Morrissey over at Michelle Malkins's Hot Air site makes a great follow-up point:"
  3. And remind why should the states manage pension funds, "help" them or do anything with them ?
    It's amazing how everything "works" in a bull market.
  4. Great thing about California. No doubt who's on the hook. So, the employers (school districts) just pony up 2% because someone dropped the ball. So, the districts cut services (not happening) or go to homeowners, who now have to cover the deficit on homes they can't afford now. Peachy.

    Thursday, October 23, 2008 MarketsWelcome,
    now OCTOBER 23, 2008 Calpers Looks to Shore Up Assets
    Huge Pension Fund to Demand Greater Employer Contributions Unless Returns ImproveBy CRAIG KARMIN, JUSTIN SCHECK, RHONDA L. RUNDLE and JENNIFER LEVITZArticle

    The nation's largest public pension fund said it intends to tap California public employers for more money if its heavy investment losses don't reverse, a sign that more financial pain could be in store for state and local governments.
    The California Public Employees' Retirement System, known as Calpers, said its assets have declined by more than 20%, or at least $48 billion, from the end of June through Oct. 10.
    Unless returns improve, Calpers is poised to impose an estimated increase in employer contributions of 2% to 4% of payroll starting in July 2010 for about two-thirds of its state-employer members, and in July 2011 for the remaining third. Any decision will be made after Calpers knows its returns for the fiscal year.
    The average employer contribution rate for public agencies including cities and counties is 13% of payroll in the current fiscal year, Calpers said.
    A Calpers rate increase would add to a fiscal mess in California, where falling sales-tax and income-tax revenue and a tanking real-estate market have affected government agencies across the state. With budget cuts for state and local governments projected in coming years, an increase from Calpers would be one more burden.
    The news "bodes very badly for us," said Lori Ordway-Peck, assistant superintendent of business services for Burbank Unified School District, which serves about 15,000 students near Los Angeles. "Something would have to give to find that money.
    Joe DeAnda, a spokesman for California Treasurer Bill Lockyer, said "the most obvious impact is going to be on taxpayers, who will have to fund any additional increases" to Calpers contributions, though he added that the treasurer is maintaining hope that a market recovery will minimize, if not eliminate, any additional burden. H.D. Palmer, a spokesman for the California Department of Finance, declined to comment, as Calpers hasn't yet decided whether to enact the increase.
    With most economists forecasting a recession in the U.S., and at least a slowdown abroad, analysts see a tough road ahead for corporate earnings, and expectations for the stock market are low.
    For the fiscal year ended in June, Calpers lost 2.4%; Merrill Lynch recently estimated the average public pension fund's return as negative 5.1% for that period. Regardless of whether Calpers beats its peers, losses make it more difficult for the fund to fulfill its job of delivering pension payments to 1.6 million beneficiaries -- retirees and others.
    Between Oct. 31, 2007, when Calpers assets peaked at $260.4 billion, and Oct. 20 of this year, when assets stood at $192.7 billion, the fund lost about $67.7 billion. The giant fund has tried to steer through the recent market turmoil while searching for new leadership, as its chief executive officer and chief investment officer both stepped down midyear.
    While Calpers may end up among the first public pension funds to pass on the costs of investment losses to employer members, it may not be the last. Almost every public pension fund is grappling with losses in stock markets, where funds hold on average 58% of their assets, said Keith Brainard, research director at the National Association of State Retirement Administrators. "Sooner or later the money coming in has to equal the money going out," he said.
    The increase in contributions to Calpers could be greater than 4% if the fund's assets decline further by the end of the fiscal year in June 2009. The increases would be smaller, or potentially not occur, if the fund reverses those losses.
    A Calpers spokeswoman said that because of strong returns over the four years through June 2007, the fund has put aside 14% of its assets to serve as a cushion during bad times. As a result, the potential increases in employer contributions would be less than increases imposed during previous downturns.
    The declines could take a toll on Calpers's funding status, which is the fund's assets divided by its liabilities. That status would be 68% by the end of June 2009, based on the market value of its assets and if the current 20% decline holds.
    The ratio for healthy pension funds should be at least 80%, according to Mr. Brainard. At the end of the 2008 fiscal year, Calpers was 92% funded. It was 102% funded at the end of June 2007.
    While Calpers has the ability to increase employer contributions, most public funds can't impose any contribution increase unless it is approved by the state legislature. And given economic woes, other state legislatures may be loath to impose more burdens.
    Mr. Brainard said that while pension funds could allow their unfunded liabilities to grow in the short term, they will eventually have to dig themselves out of a hole to meet their obligations to beneficiaries.
    Roger Mialocq, a partner with Harvey M. Rose Associates who serves as audit manager for Santa Clara County, says the county is struggling financially, and balanced its budget this year "only by using very large amounts of reserves." Santa Clara County includes much of Silicon Valley.
    Mr. Mialocq said finance officials at Santa Clara and other counties have been bristling at Calpers rates since 2005, when the fund increased its contribution requirements to make up for losses from the dot-com bust. For Santa Clara, Mr. Mialocq said, the rate the county was paying for most employees jumped to about 13 cents for each dollar of salary from about eight cents.
    Mr. Mialocq says that for the current fiscal year, the county is paying $176 million to Calpers for its 15,000 employees, and is projecting a $320 million shortfall for the next budget year. The kind of increase Calpers is projecting, which wouldn't start until 2011 for Santa Clara, could mean a bump of $20 million or more for the county, he estimates.
    A Calpers spokeswoman said the formula for calculating the raise for an employer member relies on many factors, including the size of the payroll and the rate of retirement. "The true picture will only emerge as we get closer to the date," the spokeswoman said.

    Meanwhile, on Wednesday, the U.S. House of Representatives' Education and Labor Committee, headed by Rep. George Miller, a California Democrat, said the U.S. Pension Benefit Guaranty Corp. lost $3.1 billion in stock investments in the 11 months through August. The PBGC is a government agency that insures private pension plans, takes over failed pension plans, and pays benefits to workers in those plans.
    On Sept. 30, 2007, the value of PBGC's total investments was about $63 billion, according to the agency's Web site. Jeffrey Speicher, a spokesman for the PBGC, said the agency now has $68 billion in assets and has "sufficient funds to cover our obligations for years and years into the future."
    Write to Craig Karmin at, Justin Scheck at, Rhonda L. Rundle at and Jennifer Levitz at
    Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

    WSJ Spanish
    Copyright ©2008 Dow Jones & Company, Inc. All Rights Reserved
  5. new$


  6. Knuckleheads, all of them. I was brought up to respect others people money better than my own, the real world doesn't work that way.

    August 16, 2007

    ALBANY - Investigators have learned that former state Comptroller Alan Hevesi's top political adviser pocketed a share of at least $13 million in pension-fund fees paid to a financial-services firm, sources told The Post last night.

    "It has been previously reported that investigators are looking into payments by Hevesi to eSpeed, which processed trades for the pension fund during Hevesi's time in office and on whose board of directors Morris has served."

  7. new$


    Fiduciary Responsibility doesn’t exist anymore.

  8. Pension funds are long term investments.

    Those who invest into them should expect an AVERAGE return of 8-10% per year, with a drawdown of about 50%.

    Why they are worried that their account value is fluctuating?
    Can't they understand what long term means?
  9. Agreed. In public or private. Glad I trade my own IRAs. :D
  10. Now that I think about it. Fiduciary Responsibility is probably alive and well it's just that those that have it, don't want the job for other reasons.
    #10     Oct 27, 2008